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Six-month DB transfers hiatus call could have detrimental impact

24 March 2020

Former pensions minister Dr Ros Altmann has called for pension transfers to be halted for six months in an effort to stabilise pension schemes and avoid further scams amid the growing Coronavirus crisis. However, others say this could have a ‘severe impact’ on pensioners looking to use flexible pensions arrangements.

Dr Altmann (pictured) said the current state of the market makes it impossible for trustees of pension schemes to be sure of the underlying value of the pension funds or each individual’s share. She warned that recently calculated Cash Equivalent Transfer Values, or fund values that were produced just a few days earlier could be significantly inaccurate due to the wild swings in the financial markets.

The FTSE 100 has plunged in recent weeks, suffering its steepest daily fall since 1987, as investors continue to be spooked by Coronavirus and what it will mean for the economy.

With experts unsure where markets will settle, or what long-term interest rates will be in the coming weeks and months, Dr Altmann said pension scheme trustees and IGCs will be struggling to understand what the underlying investments are worth and with most staff being out of the office, current valuations may be deemed inaccurate.

She said: “Introducing measures to delay all pension transfers for up to 6 months would seem a sensible way of helping to stabilise pension schemes and allow time for a clearer picture to emerge.”

A temporary stop to transfers would also limit the potential for scam losses. The pensions industry has warned that with a high volume of people now working from home or who have lost their job, there is a greater risk of cold-callers reaching more targets and finding willing customers to transfer their pension.

Dr Altmann said: “PensionWise guidance cannot offer face-to-face sessions at the moment, so telephone and remote services will be delivered, but if people fall prey to scams they may not bother to take any guidance or advice.

“The Pension Schemes Bill has been going through Parliament but is now delayed and any extra protections to try to stop pension firms transferring money into scam schemes are not going to be in place for some time yet. So, in the interest of customers, putting transfers on hold could protect more people from becoming the latest victims.”

Commenting on the proposal, Aegon’s pensions director Steven Cameron said: “It’s not at all surprising that there are calls to temporarily suspend DB transfers due to current volatility.

“While this may make life a little less complex for some DB scheme trustees, it could also have a detrimental impact on some members planning to transfer to draw on more flexible pensions in the short term.”

According to Cameron, some schemes which have adopted close ‘matching’ of their assets to liabilities may find the impact on their funding position modest and might see limited need to amend their current transfer value basis.

In contrast, others may have seen drops in asset values while liabilities may have risen as interest rates hit an all-time low. For the latter group, paying out may weaken the funding position for remaining members unless transfer values are scaled back. In this case, trustees might welcome being able to suspend quoting or paying transfer values until market conditions become more stable.

However, Cameron warned that the problem with suspending transfers is that it could have a “severe impact on those individuals barred from doing so” and who planned to start taking flexible benefits and pointed out that pension investors have a statutory right to transfer so any suspension could not be carried out lightly.

He added: “Many individuals who might have considered transferring may now place greater value on the guarantees within their DB pension. But for a minority, being able to invest their transfer into stocks and shares when markets are depressed might have particular appeal. It has always been essential for individuals to seek advice on transferring and the current conditions make this even more valuable.”