Ever since the pension freedom reforms of 2015, financial watchdogs have tried to persuade members of final-salary pension schemes not to transfer their savings to alternative plans. While transferring could unlock more flexible pension arrangements, these are hardly likely to be worth giving up guaranteed retirement income for.
Until now, the choice has been for savers to make. But amid the Covid-19 panic, the Pensions Regulator has introduced emergency measures. Some 5,500 defined benefit pension schemes covering more than six million members now have the right to suspend all transfers and requests for transfer quotes for up to three months. Transfer requests put in before the regulator’s announcement can also be put on hold.
The regulator says its chief concern is that volatility in financial markets is making it difficult for pension schemes to calculate transfer values – how much they should pay out to members moving on. Some schemes might pay too much, leaving them short of assets for remaining members.
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The measure is also designed to protect savers themselves. One fear is that savers will be targeted by scammers and rogue advisers who see Covid-19 as a chance to persuade people to make decisions they will later regret.
That makes sense, but will frustrate some savers. Growing numbers are worried their employer will not survive the crisis and want to move their benefits before the industry lifeboat is called in. Others are facing financial pressure because of Covid-19 and may be able to cash in their pension earlier if they are over 55 and move the money elsewhere. Still, even if you’re in one of these groups, tread very carefully – a transfer may still be far from ideal.
Dashboard hopes dashed
Two important initiatives designed to make pension savers’ lives easier have fallen victim to the Covid-19 crisis. The pension dashboard, an online tool allowing savers to track all their different pension schemes through one simple portal, now looks set to be delayed once again. The dashboard was held up by Brexit and the general election, but had been due to go live this year. Now, however, the industry group overseeing the project has effectively put it on hold.
Meanwhile, the Financial Conduct Authority, the City regulator, is postponing its pension investment pathways initiative from August until next February. The idea, reflecting concern that some pension savers are making inappropriate investment choices, is to provide default investment options based on how people plan to use their pension schemes.
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