Pension providers are predicting an upsurge in members transferring their defined benefit pensions to more accessible defined contribution pensions in a bid to ease the financial burdens of the Covid-19 pandemic. Acumen explains why we and much of the financial services industry, including the major regulators, strongly discourage such action.
Defined benefit pension transfers predicted to rise
According to the FT, the nation’s biggest pension providers are preparing for a surge in requests from savers hoping to cash in their retirement benefits. With the government’s furlough scheme due to end in October, some of the 5.8 million savers lucky enough to hold a defined benefit (DB) pension may be tempted to transfer to a defined contribution (DC) pension and cash out funds to alleviate their crisis-fuelled money concerns.
Defined benefit pensions are considered the “gold standard” of pensions because they pay a secure, inflation-proof income for life, based on your final salary and length of tenure. Such schemes are often safer and more generous than other pension arrangements. Which is why regulators like the Financial Conduct Authority and Pension Regulator are advising savers against gambling with their futures to ease present-day problems.
The hardest hit sectors of the economy have already witnessed a sharp increase in members seeking transfer quotes. For instance, British Airways recorded twice as many requests for quotes from April through to September compared to the same six-month period in 2019. In June of this year, regulators even took the unusual step of penning a joint letter to discourage savers from looting their defined benefit pensions in haste.
Decisions now can have “catastrophic consequences” later
“We understand that Covid-19 has hit many sections of business and society hard”, said Angela Maher, Managing Director at Acumen Financial Partnership. “However, despite the financial havoc and uncertainty that this crisis continues to wreak, we would strongly discourage pension savers from making any rash decisions about their pensions in the current climate – particularly those with defined benefit pensions.
“The decisions people make now can have catastrophic consequences for their retirement prospects in later life. Whilst we completely understand the temptation to dip into pension funds in order to relieve any financial pressures that may have occurred in light of the pandemic, we advocate a longer-term attitude to pension savings if possible. Defined benefit pensions offer unparalleled benefits, which should be protected at all cost.
“Not only do you lose some generous benefits when you transfer from a defined benefit pension to a defined contribution scheme, but you also inherit greater risk and responsibility. You have to question whether the flexibility of a DC pension outweighs the security of a DB scheme. These types of decisions should only be made with the advice of an independent financial adviser who can offer alternative options and strategies”.
Seek out expert pension advice from Acumen
Your pension is the most important financial investment you will ever make. Through our expert pension advice, Acumen can ensure you enjoy a comfortable retirement even in a world coping with Covid-19 and all the changes that has brought. We have experts on all things pension-related who can analyse your financial situation and provide the most appropriate and effective pension advice for your specific financial situation.
For more information about our tailored pension advice, or to arrange a consultation, please contact Acumen today on 0151 520 4353 or email us at [email protected]