Pensions  

Webb weighs in on DB pension crisis

Webb weighs in on DB pension crisis

Former pensions minister Steve Webb has called on the Financial Conduct Authority to overhaul the regulatory framework for defined benefits transfers.

He told MPs on the Work and Pensions Select Committee, a clearer framework could make it easier for members to transfer out of DB schemes, which could be in the mutual interest of members and sponsoring companies.

It would be in the interest of members because transfers were at record highs, while it would be in the interest of sponsoring companies because it would help them de-risk, he said.

Mr Webb, who is now director of policy at Royal London, made the comments on Wednesday (12 October) during a Work and Pensions select committee hearing on the under-funding crisis facing DB schemes.

Currently the committee is looking at the possibility of allowing companies in crisis to reduce the benefits their schemes pay members in order to prevent them falling into the Pension Protection Fund (PPF).

Mr Webb said reductions of benefits should be a last resort, and urged the committee instead to "have a think" about the role DB transfers could play in preventing more schemes failing.

"The golden scenario is it's a win-win," he said, adding that transfer values are currently at "eye-watering" levels. He cited one case where an adviser had seen an increase in a client's transfer value that was worth "as much as a house".

But he said the regulatory advice framework was unsuited to the post-pension freedoms environment, and meant "advisers are terrified to advise".

"The advice framework was created when everyone bought an annuity. But nobody buys an annuity anymore," he said.

"We need a proper advice network on this, which we don't have."

Mr Webb's comments came as Xafinity revealed transfer values hit a new high in September. For someone aged 64 with a £10,000 a year defined benefit pension, the value of their average lump sum at the end of September was £243,000 - a month on month increase of £2,000.

Mr Webb's view echoed that of Nigel Chambers, director of pension transfer technology firm CTC Software, who last week also urged the FCA to stop discouraging DB transfers.

The FCA states on its website:  "In most cases you are likely to be worse off if you transfer out of a defined benefit scheme, even if your employer gives you an incentive to leave." 

However, Mr Chambers said up to 40 per cent of people may be better off if they transfer out of a DB scheme.

james.fernyhough@ft.com