Andrew Vaughan, outgoing chairman of the Association of Consulting Actuaries, says transfers from defined benefit schemes to defined contribution for those yet to retire should be permitted as part of the Budget shake-up of pensions rules.
Speaking at the ACA chairman’s dinner, Mr Vaughan, said while the trade body’s formal response to the government consultation on pension flexibility is not yet complete, it wanted to reverse “thinking to date” that would restricted defined benefit transfers to defined contribution schemes.
The Budget changes that would allow savers to encash their entire pension without paying unauthorised pension charges only applies to defined contribution schemes, with the government pledging to consult separately on defined benefit savers.
Mr Vaughan, who is chairman of the Department for Work and Pensions working group on its defined ambition plans, focused on controls around the need for advice that he said would limit transfers, and he dismissed warnings of retirees spending their savings and falling back on the state.
He said: “Our view is that the regulatory controls around the need for advice now in place will mean transfers remain limited, and – as a result – there will be a very little immediate impact on investment and financial markets which we understand is a key concern of the Treasury.
“We do think that the instances of employees inappropriately cashing out their savings is over played. For some people with say £10,000 to £20,000 of retirement savings, who is to say that taking it all out quite quickly is the wrong thing to do.
“Beyond that I suspect people will on the whole be quite sensible and indeed the ability to access money in their 50s might ease difficult employment circumstances.”
Mr Vaughan also argued that any attempt to block transfers more directly would increase the pressure on defined benefit pensions, many of which are struggling with large liabilities.
He said: “If the option for DB members to transfer out is removed, this will constitute a significant new restriction for employers as well as scheme members.
“It will reduce the flexibility employers have to offer options that may suit members, and damage the ability that employers currently have to manage pension scheme costs and risks.”
A consultation on so-called defined ambition schemes published in late 2013 proposed various risk-sharing models that would give employers the discretion to remove index-linked guarantees, shift the normal pension age forward, and automatically transfer funds to a DC scheme if an employee leaves the company before retirement.
Schemes could also opt to pool all pension assets under a ‘collective DC’ model, similarly to those used on the continent in countries such as The Netherlands.
