Personal Pension  

Regulator highlights final salary transfer funding risks

Regulator highlights final salary transfer funding risks

Evolving pension scams, small employers struggling with auto-enrolment and demand for pension transfers are just some of the risks that The Pensions Regulator has highlighted in a corporate plan covering the next three years.

Following wider warnings and amid new regulatory oversight by the Financial Conduct Authority, the regulator in particular warns pension flexibilities coming next month are likely to increase demand to transfer for defined benefit to defined contribution transfers.

It states these may impact the funding and adequacy of investments in final salary schemes, adding that new decumulation products may emerge or be ‘cross-sold’.

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The regulator says it will respond by providing guidance where necessary to the pension community, roll out the new regulatory approach to charge controls, and monitor the developing market for DB to DC transfers.

“Whilst there is no evidence as yet that new flexibilities on decumulation from DC schemes will lead to a significant demand among DB members to transfer to DC schemes, they are expected to make employer-initiated transfer incentives more attractive to... members approaching retirement.”

It adds that in light of reforms allowing open access, the model for pension scams has evolved, moving from a scam relating to early access to money, to tax avoidance scams, to investment scams which often include exotic investments.

The regulator also warns the 1.3m small and micro employers meeting their new employer duties over the next three years will be inexperienced in pensions and may have been poorly served by them in the past.

“The challenge will be to enable them to opt to use good quality schemes and find good quality advice and simple guidance should they require it,” read the report.

In terms of DC scheme reforms - to governance standards, charge controls, chair’s statement, transparency and disclosure - the challenge will be for trustees, providers and advisers to embrace and comply with the new requirements in a timely way, the regulator says.

The regulator’s chairman Mark Boyle said that the industry is going through the greatest period of change in generations.

“It is vital that we reach all our audiences, remain on top of market developments, anticipate future risks and work collaboratively with government departments and industry bodies to ensure the overall retirement system runs smoothly.”

He promised to provide the pensions community with educational and guidance material, but added that it will also take “tough action” and provide effective deterrence against those who evade their obligations or circumvent the law.

Chief executive Lesley Titcomb added: “During a time of such significant change, it is important the regulator is seen as an authoritative, trusted voice within the pensions sector.

“The corporate plan sets out how we will provide trustees, employers and advisers with the information they need to see these major changes through; where we take regulatory action I want that to be transparent and for our actions to be understood.”

peter.walker@ft.com