Warning businesses against offering “superficially attractive” incentives to encourage people transfer out of defined benefit schemes, Pensions Minster Steve Webb said the practice must stop immediately.
Pension providers have devised a new practice called the incentivised transfers offering short-term benefits such as cash payments in exchange of transferring out money from DB schemes to defined contribution (DC) schemes.
In order to address the problem, Webb is scheduled to meet industry representatives and The Pensions Regulator officials today.
“We urgently need to make sure we root bad practice out of the market. The industry cannot go on offering superficially attractive deals to people that ultimately leave them badly out of pocket”, said Mr. Webb.
“I am very concerned that people are making the wrong choices about their pensions and are missing out on substantial amounts of retirement cash”, added Mr. Webb.
“Final salary benefits are so valuable because they are guaranteed by the employer, have no investment or annuity rate risk and are inflation linked and come with a spouses pension”, said Laith Khalaf, pensions analyst at Hargreaves Lansdown.
“There are many pension saving decisions investors can make themselves, however when it comes to transferring out of a final salary scheme they should always seek independent financial advice”, added Khalaf.