Defined Benefit  

Diageo proposes pension transfer to members

Diageo proposes pension transfer to members

The trustees of the Diageo Pension Scheme, the final salary plan of the consumer goods company with more than 37,500 members, will be writing to deferred members to remind them that a transfer out is an option for them.

As first reported by FTAdviser's sister publication Pension Expert, the defined benefit scheme, which has a surplus of £234m, will be contacting members based in the UK with transfer values in excess of £100,000 in March.

The scheme currently has 12,423 deferred members, according to its annual report.

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Charles Coarse, chairman of the trustees of the Diageo Pension Scheme, explained the decision to offer this option was due to an increase in the number of deferred members at the scheme and growing transfer activity by members approaching retirement.

The total amount transferred out during the year to March 2018 was £271m, he said, adding that members were being lured in by higher transfer values and the flexibility given by the pension freedoms.

Mr Coarse noted, however, that transferring out was a significant decision.

He said: "There is no ‘right answer’ and each member to whom options are available will need to decide what, if any, action to take and avail of independent financial advice."

According to the scheme’s annual report, eligible members will have access to IFAs appointed and paid for by the pension fund.

Alongside the deferred members, the trustee will also be contacting active ones about the possibility to transfer out the benefits accrued up to March 31, 2018.

Diageo Pension Scheme is still open to future accrual and currently has 1,136 active members.

However, the company changed the way these savers build up pension benefits in April 2018.

Active members now accrue benefits based on the member’s salary in each year rather than their final pay at retirement.

Alistair Cunningham, financial planning director at Wingate Financial Planning, was critical of the trustees' communication to its members.

He said: "I cannot see how this is anything other than a cynical attempt to encourage members to transfer out.

"It has been well demonstrated that people make poor decisions when offered the large values associated with a transfer, and even though there is obviously a necessary requirement for advice in most circumstances this does not limit the harm caused to zero.

"Those limited numbers of people who could be well served by a transfer, for example due to very poor health are likely to be aware of their options.

"I for one would like to see trustees responsible for harm caused, but no doubt they will hide behind 'freedom and choice' and wanting to improve member outcomes. Any communication would need to very, very carefully worded to mitigate the risk of serious damage."

FTAdviser reported earlier this month that the take up rate of DB transfers remained steady at 30 per cent in the year to June 2018, despite the number of people requesting a quote declining, according to data from consultancy firm LCP.

Last May the Financial Conduct Authority stated the value of money transferred from DB to defined contribution schemes had leapt to £20.8bn in 2017 from £7.9bn in 2016.