The Covid-19 pandemic could be tempting defined benefit (DB) scheme members into cashing in their “gold plated” pensions, Freshfields Bruckhaus Deringer has warned.
A blog post from the law firm pointed to a sharp rise in the number of pension transfer requests by Rolls Royce’s DB scheme members after the carmaker announced plans to cut over 9,000 jobs and confirmed 3,000 workers had applied for voluntary redundancy by June 2020.
Freshfields said that the manufacturer had “sounded the alarm” on the subject of DB transfers.
The law firm warned that, due to the potentially increased risks for trustees and administrators, it was "perhaps only a matter of time" before the first class action lawsuits were filed against the pensions industry.
The Financial Conduct Authority (FCA), The Pensions Regulator (TPR) and the Money and Pensions Service (Maps) have issued a joint statement in response to this surge in transfer requests, stating that “all advisers should be clear on the FCA’s expectations when offering advice to members of the scheme”.
The statement reiterated that the FCA would take action in instances of “unsuitable advice, or bad practice” and cautioned that the trio believed “transferring out of a DB pension scheme is unlikely to be in the best interests of most consumers”.
Freshfields also noted that the FCA had issued a data request to 65 firms who had advised scheme members looking to transfer out of the DB scheme.
The blog concluded: “The regulators’ actions in response to this issue are the latest example of the extreme scrutiny facing firms advising on DB scheme transfers.
"Coupled with potentially increased risks for trustees and administrators, this is an area fraught with risk and it is perhaps only a matter of time before the first class action lawsuits are filed against the industry.”
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