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Webb warns over superficial pension deals
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PostPosted: Wed May 25, 2011 12:30 pm 

Joined: Fri May 29, 2009 3:09 pm
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The Pensions Minister has raised concerns about companies that offer 'superficially attractive deals' encouraging people to move out of final pension schemes.

Steve Webb warned that thousands of workers could be left 'badly out of pocket' by the practice known as incentivised transfers.

The practice sees people being offered a cash lump sum or other short-term incentive to transfer their accrued pensions from a final-salary scheme into a defined-contribution one.

But unlike final-salary schemes, under which companies guarantee how much a pension will be worth on retirement, under defined-contribution ones they promise only to make set contributions, leaving the individual to shoulder all the risk of investment volatility and increased life-expectancy.

People also have to use the sums they built up in defined-contribution schemes to buy an annuity when they retire, and annuity rates are currently at record lows, meaning people need to save significantly more to achieve the same benefits they would have received under a final-salary scheme.

Mr Webb said: 'We urgently need to make sure that we root bad practice out of the market. The industry can't go on offering superficially attractive deals to people that ultimately leave them badly out of pocket.

'I am very concerned that people are making the wrong choices about their pensions and are missing out on substantial amounts of retirement cash.'

The Minister warned that with people now expected to spend an average of 24 years in retirement, and one in six people likely to live until they are 100, mistakenly transferring to a less generous pensions scheme could lead to them missing out on thousands of pounds during their retirement.


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