Former pensions minister Baroness Ros Altmann has said that all pension transfers should be on hold for around six months amid the financial instability being caused by the covid-19 pandemic.
In the current market turmoil, experts suggest that it is impossible for trustees of pension schemes to be sure of the underlying value of the pension funds, or each individual’s share.
Altmann said in her Pensions and Savings blog on 23 March: “Recently calculated CETVs (cash equivalent transfer values), or fund values that were produced a few days ago, could be significantly inaccurate, due to the wild market movements during the coronavirus panic.
“It is not clear where markets may settle, or what long-term interest rates will be in coming weeks or months.
“Pension scheme trustees will be struggling to understand what the underlying investments are worth and the turmoil in the markets, coupled with staff being out of the office, suggests that any current valuation risks being unreliable.
“Therefore, introducing measures to delay all pension transfers for up to six months would seem a sensible way of helping to stabilise pension schemes and allow time for a clearer picture to emerge.”
Teething issues
Some in industry have agreed with this suggestion; including Aegon’s Steven Cameron, who said that it is not surprising to the idea to halt defined benefit (DB) pension transfers has come up.
This is because the current market “will have affected the funding position of many DB pension schemes”.
But Cameron added: “The problem with suspending transfers is that it could have a severe impact on those individuals barred from doing so and who planned to start taking flexible benefits.
“Individuals do have a statutory right to transfer, so halting that even temporarily can’t be done lightly.
“Many individuals who might have been considered transferring may now place greater value on the guarantees within their DB pension.
“But for a minority, being able to invest their transfer into stocks and shares when markets are depressed might have particular appeal. It has always been essential for individuals to seek advice on transferring and the current conditions make this even more valuable.”
Unite pensions
Moira O’Neill, head of personal finance at Interactive Investor, took another angle and suggested that this might be the time for clients to “track down your pensions and be clear on what you are paying for them”.
“You can view them at-a-glance, you don’t have to keep digging out paperwork from different companies and you can make changes if you believe that some investments aren’t working for you or are no longer suitable for your risk appetite and/or objectives,” she added.
“You can see what you’re paying and more easily compare costs, making sure you’re getting a good deal and benefit from paying a single charge for one larger fund, rather than separate charges for several smaller funds.”
