The end of the road for insane pension transfer values

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.

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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.