Debate: Given concerns that pension transfers are too generous, should people be allowed to cash out of defined benefit schemes?

Given concerns that pension transfers are too generous, should people be allowed to cash out of defined benefit schemes?

Yes – Steve Webb is director of policy at Royal London

For most people who have built up valuable pension rights in a salary-related pension scheme, leaving their rights in the scheme will be the best thing to do.

But for those who want more flexibility, taking a cash transfer gives them additional options. For example, you could potentially retire a bit earlier and live off the transferred pension pot until you reach the age when you can start receiving payments from your state pension.

As long as the transfer value is fair to all parties, cashing out is a freedom that should be protected.

The regulator has warned that some schemes may be offering transfers that are too generous, but this will only be a problem if the sponsoring employer goes bust.

So while it is right that pension trustees make sure that they are being fair to all members – meaning those left behind and those transferring out – it would be draconian and unnecessary to block all transfers on the basis of this very specific concern.

No – Karen Partridge is head of client services UK and Australia at AHC

No, people shouldn’t be allowed to cash out of defined benefit schemes.

In reality, that’s a qualified no, because it’s not the financially-savvy members we should be concerned about, but those who are not well placed to consider the comparative benefits. Many members are getting a (potentially large) immediate cash benefit in exchange for the longer-term security of a defined benefit pension, without exploring how else they provide for their income in old age.

It’s far easier for people to see their short-term needs (and the problems that this cash windfall would solve), than to consider what tomorrow might bring.

The shift in our pension systems from paternalistic defined benefit to freedom and choice has happened with little consideration of how we educate people about the enormous shift in responsibility to them as individuals.

There will be a cost for society to bear – and we need to wake up to that while we’re still able to do something about it.