There has been an increase in employers encouraging savers to transfer out of final salary pension schemes following the introduction of the pension reforms, a lawyer has said.
Marcus Fink, a partner at law firm Ashurst, said he had a few corporate clients that have incentivised members to transfer out of DB schemes.
Mr Fink said he advised that it was acceptable to encourage transfers out of defined benefit arrangements as long as employers follow the Code of Practice for Incentive Exercises.
The code states that no cash incentives should be offered that are contingent on the member’s decision to accept the offer, and for transfer exercises advice should be provided to the member.
He said: “I think there has been an increase since April (when pension freedoms came into force) because it has given that impetus and there are more reasons for a member to transfer their benefits than ever before.
“But the default position has got to be that a DB transfer is not going to be in a member’s best interests unless maybe you have taken a loan out from a shark who is going to break your legs.”
Mr Fink said encouraging members to transfer from a DB scheme is attractive to employers because it removes liability and, while there is an “up-front hit”, it would be for long-term gain.
He added that schemes offering incentives under the code, which is voluntary, would have to pay for financial advice, but advisers should not necessarily be concerned about insistent clients.
“Living in a free society means the freedom to make mistakes, provided they are informed mistakes,” he explained.
Sarah-Jane Gemmell, a counsel at Ashurst, said: “Record keeping is going to be increasingly important for anyone who gets advice, as well as for the adviser and the provider.
“These incentive schemes were popular in 2009, and it was decided that the industry could self-regulate. I think The Pensions Regulator is quite comfortable with where we are.”
Dan Farrow, director of Essex-based SBN Wealth Management, said: “Some of the enhancements on some of these defined benefit schemes for transferring out can be pretty generous.
“There are a huge amount of variables when you look at a DB transfer because everyone has a different personal situation.”