COVID-19 has brought unprecedented challenges to trustees.
There may be more demands on your administrators, and market volatility may impact the funding position of some schemes.
To help you manage, over the past few weeks we’ve produced new guidance on our web hub.
On transfers, we’ve said a lot and we’ve had a number of questions on this topic. Here, I want to bring that together.
It’s right that everyone takes the time to protect what’s important. Whether it’s setting security questions for your bank, checking an investment opportunity is suitable or carrying out a survey before you invest in property, a little bit of thought goes a long way.
Aside from perhaps owning a house, pensions are often the most significant asset held by individuals. Britain’s pensions are worth around £6.1 trillion, according to latest figures from the Office for National Statistics. As an industry, we must do all we can to keep pensions protected.
The country’s savers need to be confident that if they choose to transfer, trustees have their interests and the security of their benefits at the front of their mind.
Defined benefit (DB) transfers
COVID-19 may cause two problems for trustees of DB schemes:
- Calculating cash equivalent transfer values (CETVs) may take more time as trustees may wish to revisit the basis upon which they are calculated.
- Some schemes may see an increased demand for CETVs at the same time as facing shortages of administrative staff.
If COVID-19 presents these issues for trustees, they may consider taking advantage of the existing flexibility in the legislation which provides for additional time (up to three months) to issue CETV quotations for reasons outside their control.
Nevertheless, we have said that we will not take enforcement action where trustees have not been able to meet the statutory deadline for issuing a statement of entitlement or making a payment of a transfer because of these issues resulting from COVID-19. This easement is only in effect until the end of June 2020.
This isn’t a blanket pause and if you can process the requests, you should do so. Trustees should get advice before taking a decision to delay.
COVID-19 may see savers rush into decisions about their pensions.
We don’t want them to rush decisions which they may later regret, or worse still become the victim of scammers.
That’s why we’ve asked that if a member requests a CETV quotation, you send them a new letter with their valuation warning (PDF, 114KB, 2 pages) them such a move may not be in their best interests and urging them to think carefully.
The transfer letter, signed by The Pensions Regulator, the Money and Pensions Service and Financial Conduct Authority (FCA), also shows how savers can be ScamSmart and highlights where they can get support.
Defined contribution (DC) transfers
For DC transfers the situation is different. Unlike DB schemes, members of DC pensions may be more vulnerable to market volatility as they carry the investment risk.
Under pension legislation, DC transfers are a core financial transaction which should therefore be given priority along with the other core processes during the coronavirus crisis.
If transfers aren’t carried out in good time this risks hardship for members.
For all transfers, due diligence is still key.
Trustees must be alert to the risk of scammers during the transfer process and there is lots of helpful information available.
The Pension Scams Industry Group’s guide of good practice has practical steps for carrying out due diligence, assessing transfer requests and example letters for communicating with members during the transfer process.
We have asked trustees undertaking transfers to direct members to the ScamSmart website – where they find out how pension scams work, how to avoid them and what to do if they suspect a scam.
And we’ve also asked trustees to monitor transfer activity from their scheme and work with administrators if they encounter issues meeting demand.
You should also inform the FCA of unusual or concerning patterns, such as spikes or the same adviser across multitude of requests.
The challenges the coronavirus has dealt us are not over and there may be more to come.
In times of volatility and disruption it’s all the more important savers understand a pension remains a good, long-term investment, just as they would need to be confident about any other big investment, such as buying a house. If they lose confidence it may make it more likely they may make knee-jerk decisions about their money which may not be in their best interests.
If we take the time necessary to protect and prioritise what’s important together we’ll keep savers on a securer footing.
By Charles Counsell