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Pensions Regulator grants emergency rights to DB schemes

Regulator allows temporary pension transfer and employer contribution freeze for DB schemes
March 31, 2020

The Pensions Regulator has introduced emergency measures giving defined benefit (DB) pension schemes the right to delay transfers for up to three months, as well as letting employers delay or suspend scheme contributions.

Under updated guidance from the regulator, pension savers may find themselves unable to cash in a final salary pension pot or even get a valuation of its worth if the trustees refuse to grant it.

The pensions watchdog said that delaying transfers would give trustees more time to calculate cash equivalent transfer values, which have grown more difficult to calculate amid the extreme market volatility of recent weeks. Tom McPhail, head of policy at Hargreaves Lansdown, said the average value of a DB pension transfer came to £352,303. 

The regulator is also allowing employers and trustees to put pension funding payments on hold where “absolutely necessary”. Mr McPhail warned that “quite a lot” of employers could suspend contributions as the majority of businesses batten down the hatches. 

The three-month transfer delay comes after Ros Altmann, former pensions minister, requested pension transfers be put on hold for six months “to stabilise pension schemes and allow time for a clearer picture to emerge.” Ms Altmann warned that any current valuations would be “unreliable” given current market conditions, adding: “It is impossible for trustees of pension schemes to be sure of the underlying value of a pension.” 

There are still around 5,400 DB schemes in the UK covered by the Pension Protection Fund, which was reporting a funding ratio of 93.2 per cent across those schemes at the end of February 2020. Some 3,492 schemes were reported in deficit and 1,930 in surplus.

Margaret Snowdon, chair of the Pension Scams Industry Group and non-executive director of the Pensions Regulator, warned there was a risk that if the value of a scheme continued to decline, those wanting to transfer out may have to accept a lower price than the one available prior to a transfer delay.

“It will be interesting to see what stance the Pensions Ombudsman takes if people complain,” she said. 

Freezing DB pension transfers is also designed to prevent people from being targeted by scammers. There has been a surge in the availability of “buy now” pension offers in recent weeks according to Ms Snowdon, many of which are scammers hoping to lure vulnerable pension savers into inappropriate or outright fraudulent schemes.

In its updated guidance, the Pensions Regulator warned: “Pension trustees should give greater attention to the heightened risk of members being targeted by scammers and unscrupulous financial advisers.”