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A large pension scheme has decided to give active defined contribution members access to their pension via personal pension accounts, but is the option right for everyone?
Freedom and choice allows people with defined contribution pensions – and those in defined benefit if they transfer – access to their pots from age 55, but members usually have to leave their occupational scheme and go through a retail drawdown option.
In-scheme drawdown has remained a rarity among occupational schemes, but it appears that one pension plan has decided to do so via its provider.
The new option allows active members to access some of their pension savings from the DC Section whilst continuing to work and contribute to the plan, an October statement by the fund reads.
The option works by allowing members to move a portion of their pension savings into a personal pension account.
The member can then begin to access the savings moved out of plan, whilst continuing to build up savings in their existing plan account, the fund explains.
Members aged 55 and over must meet several other conditions to be eligible, partly to reduce the risk of scams and partly to manage administration costs, the fund says, including taking a transfer amount of at least £10,000 and leaving at least £10,000 in the plan. Members can only use this option once in any 12-month period and twice in their lifetime.
Risk of litigation
Granting members access via the scheme is a decision most schemes and employers have shied away from so far; employers might not be interested in offering a service to people who are no longer employed, whilst trustees are principally concerned about cost and liability.
“It can be very onerous,” says Richard Butcher, managing director at professional trustee firm PTL, as it involves building infrastructure, accounting for tax and covering conduct risk and communicating or disclosing any risks the members might face.
Where members can access pots via the scheme, this retains the link with the employer, often perceived as a trustworthy source, but Butcher does not think that there is a particular advantage for schemes to doing so.
“It may well be in members’ best interest but that doesn’t necessarily mean it is going to be in schemes’ best interest to provide it,” he says, adding: “The number of people drawing too fast or too slow is high. I can see all sorts of litigation.”
Recent Pensions Ombudsman determinations and other regulatory developments are making trustees more cautious about providing services that could allow members to make poor decisions, as schemes could end up having to pay redress.
“I can completely understand that trustees would want to do best by their members but would urge them to consider very carefully the conduct risks,” said Butcher. “Trustees can’t tell what standards they will be held to” in the future, and members could claim that trustees had a duty of care or a fiduciary duty.
Should trustees be more open to providing in-scheme drawdown or are the risks too high?