• The proportion of members requesting a quote to transfer out of their DB pension scheme has trebled over the past 6 months compared to pre ‘pension freedoms’ levels[1]
• The proportion of people actually transferring out is up four-fold compared to pre-April 2015
• Criticism of BSPS from the Work and Pensions Select Committee should be seen as a warning to all schemes
• Trustees and employers have a moral duty to protect members and can no longer take a passive approach

Trustees and employers of all DB schemes must learn from the Work and Pensions Committee’s criticism in its British Steel Pension Scheme report and do more to guide scheme members facing transfer choices or the industry could face a mis-selling scandal, warns Hymans Robertson.

Commenting on what schemes should learn, Ryan Markham, Head of Member Options, Hymans Robertson says:

“Schemes need to wake up and realise that the pensions landscape has changed beyond recognition from how it was a few years ago. Those who do nothing to support member decision making risk facing a scandal as big as some of the high profile mis-selling ones of the past.

“The Work and Pensions Committee’s report on British Steel Pension Scheme brought the trustees under the spotlight about their approach to helping members with the transfer decisions they faced.  Trustees made members aware of the need for advice and made sure this had been received before transfers were paid out.  However, it is clear that much of the advice members found was poor and incredibly expensive.  Despite trustees’ warnings they were sitting targets for scammers and ‘preyed upon’ by some unscrupulous advisers.   

“Lessons can be learned from this, not just by the trustees of schemes that fail, but for all schemes.  With pension freedoms enabling members to access their benefits flexibly, all the evidence suggests that many more are doing so. The number of people choosing to ‘cash in’ their final salary pension has soared. In the past six months we have seen a three-fold increase in requests for transfer values and actual transfers out have quadrupled across our client base compared to pre-April 2015 levels.

“The approach taken by the trustees of the BSPS is similar to the approach many trustees and employers are still are taking towards transfers, now that pension freedoms are in force.  Too many schemes are taking a passive approach to both communicating with and supporting their members with the freedoms. Not only does this put members at risk of poor retirement decisions and scams, it also puts trustees and employers at risk of being accused of not providing sufficient information for informed choices to be made.”

Continuing with what trustees and employers should be doing, Ryan says:

“Trustees and employers have a moral duty to protect members of DB schemes. They work hard to fund and safeguard the valuable benefits promised to members up to the point of retirement. Schemes now have a responsibility to make sure these new flexibilities are communicated properly and can be accessed in a safe and supported environment. Ensuring members make the right choice when making one of the biggest financial decisions of their life is a natural extension of their duties. Members staying or transferring must do so on an informed basis and with access to quality advice.

“By facilitating financial advice, trustees and employers can make sure members are able to access good quality advice when they need it, at an affordable cost.  Facilitated advice also reduces the burden on administration teams.  The detailed member information required by financial advisers can be provided in a streamlined way which makes it a far more efficient process for all parties and a much better experience for members. 

“Schemes also need to think about the benefits of technology to help educate members. It can be used to provide reliable pension information to them quickly, at the push of a button and in a safe environment.  We are seeing these types of solutions reduce the burden on administration teams who are currently overloaded with transfer value requests and paper work.

“Trustees and employees need to take this report as a wake-up call for action, whichever route they decide is right for them.”                   

[1] According to Hymans Robertson’s Third Party Administration business.