Pension scheme members looking to transfer from a defined benefit (DB) to a defined contribution (DC) pension during the Covid-19 crisis will be warned it is unlikely to be in their best long-term interests in a letter from regulators and schemes.
Under guidance published by The Pensions Regulator (TPR) on Wednesday 29 April, pension scheme trustees have been asked to send DB members looking to move retirement funds a letter warning them of the risks of doing so during the pandemic and urging them to consider the decision carefully.
TPR is concerned that, with Covid-19 causing market volatility and uncertainty for businesses and personal finances, pension members could be at risk of making knee-jerk decisions that could hit their pensions.
TPR chief executive Charles Counsell said: "We are determined to do all we can to protect savers' retirements from the unprecedented impact of Covid-19. A decision to transfer a pension pot that's taken a lifetime to build is a very serious one and we'd urge members to be very, very careful making any transfer decisions at this time.
"That's why for the foreseeable future, anyone who is looking to transfer their benefits out of their DB scheme should be sent a new warning letter to make them stop and think as well as point them towards free, impartial guidance available from The Pensions Advisory Service."
In today's guidance, the regulator is calling on trustees to:
- highlight the free, impartial pensions guidance from Pension Wise, including phone appointments and online information.
- encourage members to take regulated advice to understand their retirement options.
- identify increased risks in how a member has decided to access their pension funds and give appropriate warnings of the risks and implications of their chosen option.
- send all DB members requesting a cash equivalent transfer value (CETV) a template letter signed by TPR, the Financial Conduct Authority (FCA) and the Money and Pensions Service, which runs The Pensions Advisory Service.
- monitor CETV requests and inform FCA of unusual or concerning patterns, such as spikes or the same adviser across multitude of requests.
TPR says the most recent figures show that victims of pension frauds lost on average £82,000, for some their entire life savings. It noted trustees are the first line of defence in protecting retirement funds and have a key role in ensuring members make informed choices.
To guard against scammers, TPR urges trustees to follow the Pension Scams Industry Group code of good practice.
This guide has practical steps for carrying out due diligence and assessing transfer requests and example letters for communicating with members throughout the transfer process.
Additionally, the regulator said trustees should direct their customers to the ScamSmart website to learn how to protect themselves from pensions scams.
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