The end of the road for insane pension transfer values

The Pensions Regulator could put a stop to the ridiculously high offers made to people transferring out of their defined-benefit pension schemes.

180830-cash

Defined-benefit pension schemes may have to stop super-generous payouts to leavers

A couple of years ago, when I first started writing about whether or whether not you should think about transferring out of your defined-benefit pension scheme, some of the transfer values being offered to potential scheme leavers seemed insanely high. So high that in a good many cases (not all) cashing in so giving up a guaranteed inflation-linked income for life for a lump sum and the uncertainty of the stockmarkets actually made sense. I said as much here and here.

However, while I was noting that transferring could work for those leaving, I was also wondering what on earth the pension trustees paying out these bizarrely large sums thought they were doing to the finances of those staying. Surely if they kept on paying super-generous amounts to leavers, they could find they had further damaged the long term viability of their funds and risked the supposedly guaranteed pensions they owed those who didn't transfer out. What then?

If favouring one group (leavers) over another (remainers) led to the retirement incomes of the latter being lower than expected, would that group have a case against the trustees? You'd think so, wouldn't you? It all seemed a little dangerous to me. And not just me, as it turns out.

The Pensions Regulator has now caught up. It has, says the FT, asked 14 company retirement schemes to consider cutting the "overly generous" cash offers made to potential leavers. Around 180,000 defined-benefits pension transfers took place in the UK in the two years to the end of March 2018 (sadly I had no defined-benefit pension to play with). If yours wasn't one of them, I'm afraid you might have missed the "overly generous" payout boat.

Recommended

How to get the best deal from your pension drawdown
Pensions

How to get the best deal from your pension drawdown

If you're thinking of taking out a pension drawdown plan on reaching retirement, don't just rely on the Money Advice Service’s price-comparison tool.
23 Feb 2021
The scandal brewing in pension transfers
Pensions

The scandal brewing in pension transfers

Many savers who switched their retirement fund out of final-salary pension schemes received poor advice. But those caught out have limited recourse to…
2 Feb 2021
Look beyond the default options if you want to start taking income from your pension
Pensions

Look beyond the default options if you want to start taking income from your pension

Regulators have come up with four ready-made plans for people who want to start taking an income from their pension fund – but you should still seek h…
26 Jan 2021
Suspending your pension contributions? Remember the magic of compounding
Pensions

Suspending your pension contributions? Remember the magic of compounding

Think very carefully before suspending your pension contributions, or you will miss out on compound interest – the “eighth wonder of the world”.
12 Jan 2021

Most Popular

A beginner’s guide to bitcoin: how to buy bitcoin
Bitcoin

A beginner’s guide to bitcoin: how to buy bitcoin

For the novice, buying bitcoin can be a daunting prospect. Here, Dominic Frisby outlines the process from start to finish.
2 Mar 2021
A beginner’s guide to bitcoin: what is bitcoin?
Bitcoin

A beginner’s guide to bitcoin: what is bitcoin?

As a completely novel concept for many people, bitcoin can take a little effort to get to grips with. In the first of a short series on the cryptocurr…
1 Mar 2021
What is “yield curve control” and why is it coming to a central bank near you?
Government bonds

What is “yield curve control” and why is it coming to a central bank near you?

Central banks around the world are determined not to let interest rates go up too quickly or by too much – a practice known as “yield curve control”. …
1 Mar 2021