Are pension transfers too generous? Yes says The Pension Regulator who has written to 14 schemes this year encouraging them to make reductions, amid concerns that overly generous payouts could damage the remaining funds.
A record £21 billion was transferred out of defined schemes in the last financial year, with some firms offering people large cash sums to transfer out of their pension scheme as it gets more expensive to cover their obligations. The Regulator's letter was revealed following a Freedom of Information request.
"In light of the recent events concerning your scheme sponsors, we would expect you to take advice from your scheme actuary about whether the basis on which CETVs are calculated remained appropriate," says the letter.
The Regulator said this process would allow the trustees to "judge whether a reduction, or further reduction, should be applied to CETVs" in light of their assessment of the strength of the employer standing behind the pension scheme, also known as the covenant.
Sir Steve Webb, former pension minister commented:
"I would hope that well-run pension schemes would be taking expert advice when deciding how much to offer to members wishing to transfer out," Sir Steve said.
"But the regulator's letter is a helpful reminder to all schemes that they need to be fair not only to those transferring out but also those left behind, especially where the scheme in question is in deficit."
"If large numbers of members transfer out on generous terms there would be a risk that the funding position of the scheme could worsen and the risk of remaining members not getting their full pensions could increase."