Some defined benefit (DB) scheme trustees are proactively including a cash equivalent transfer value (CETV) in the retirement packs they send to its members without them asking, an adviser warned.
Alistair Cunningham, financial planning director at Surrey-based Wingate Financial Planning, said that this is “a worrying development”.
He told FTAdviser that he has seen this information in a couple of retirement packs of clients, and other advisers have also mentioned this fact to him.
DB transfers have been soaring, as savers seek to take advantage of sky-high transfer values and to move their nest eggs into defined contribution schemes in order to access them via the pension freedom rules, which were introduced in 2015.
Mr Cunningham said: “It is caused by freedom of choice. They [trustees] are saying: 'Look there is another option'.
“Why are they sending them [transfer values] unrequested? The only reason for them to be doing that is because they want to get rid of some members and lose scale. And that is not in members’ best interest.”
Mr Cunningham, who has a negative stance on DB transfers, said that this is a “one-off decision, irrevocable, and that involves a large sum of money”.
He said: “I have yet to see a pension scheme giving out a forty or fifty multiple of the pension value unless something is going on.”
Scheme trustees normally issue one CETV in any 12-month period, apart from the 12 months before normal retirement, when there is no statutory right to transfer.
He said: “A scheme can offer transfer values more often if it wants to, and it can send it out [to members] if it wants too.”
Other industry players are aware of this, such as Les Cameron, retirement expert at Prudential.
He told FTAdviser that this “could be seen by some as trustees encouraging members to leave what is very valuable DB provision”.
He said: “In the defined contribution world, there is a lot of regulation ensuring scheme members are made aware of all their options as they approach retirement and it could be said that DB schemes are merely ensuring their members are aware of their options.
“Transferring will make sense for some people while others will be best staying put.”
According to Mr Cameron, this is not a worrying development.
He said: “Most transfer values are in excess of £30,000, so anyone making what is a big decision to transfer out is required by law to have received advice from a suitable qualified financial adviser before any transfer can go ahead.”
The Financial Conduct Authority (FCA) presented this week new figures on DB transfers.
Advice in more than half of the transfers where the recommendation was to move the retirement pot was unsuitable or unclear.
From a total of 88 DB transfers analysed by the watchdog since October 2015, only 47 per cent were suitable.
The regulator found that 17 per cent were unsuitable and in the remaining 36 per cent suitability was unclear.
At the start of the year, the FCA expressed concern about the processes advice firms were using when recommending DB pension transfers.
The regulator published a paper on this matter in June, when it opened a consultation, which closed on 21 September.
A policy statement is expected to be published in the first quarter of 2018.
maria.espadinha@ft.com
