Or transfers in of DC pots?

This afternoon I am meeting a senior LGPS officer, this morning a senior trustee is coming to our morning meeting. Both meetings will focus on what can be done with pension schemes with surplus funds to help members get better pensions.

Most people who are in active or deferred pension schemes have pots of money from DC saving schemes they’ve been in. What if these pots could be absorbed into the DB pension and swapped for more income from the scheme they are already in?

I know this sounds a little contrary but read on..this transfer would happen “at retirement” and would enable people in DC plans to reckon on a pension from their scheme. They would make the transfer when they wanted the extra pension so the LGPS or private DB scheme would only be taking on a liability to pay a pension , not one to build up a right to one and people would recognise that they were consolidating into one pension at the point they moved into being a pensioner. I am not saying they would have to stop working, I am getting on for 10 years a pensioner but that doesn’t stop me flogging my old butt!

I think that DB schemes that have a surplus should simply open up their schemes to transfers-in of DC pots and savers should swap pots in personal or occupational plans provided the rate of pension offered is better than what’s offered by annuities.

I think that immediate information from the pension provider is needed and that involves a few variants such as joint and single life pensions and maybe some enhancement if there is clearly a threat of early death for the pensioner but all this can be dealt with by technology linking savers to digital-savvy annuity brokers and pension funds that can quote online on a variety of basis’s.

I say this because I read this week that the Pension Regulator is interested in ideas that provide better outcomes for members. I think this idea does just that and it offers DB plans an opportunity to take on more liabilities at a rate controlled by actuaries and modelled against the offer made to savers by the annuity market.

Of course we may see in time the development of new ways to help savers get pensions from some DC plans – I hope from the DC schemes that are going to be around in 25 or 30  years time when  kids are thinking about pensions. But necessarily, most people have got pots of money that are unlikely to have a right to buy pensions unless ideas like this take up.

Interestingly , you can buy pension through the LGPS if you act quickly when joining the pension scheme and I’m interested to find out how well taken up this option is. I don’t think people will be able to make a decision on future rights based on an actuarial projection of what might happen in the future, perhaps LGPS might start thinking about paying pensions to people as I have suggested above.

As for private market occupational pension schemes, one of which I am meeting this morning, what is the incentive for them? Well this one clearly thinks that it is creating good will among staff by offering this service as a later life perk to enhance the worker (and former worker’s) immediate pension. I have a whole lot of questions around eligibility for this perk but here is an employer and the trustees considering improving worktime conditions with the prospect of a better pension paid for from the excellent management of the DB pension (the surplus is substantial).

I hear a lot about financial companies like Aberdeen and Schroders using the DB scheme’s surplus to pay contributions into DC but I don’t hear of many who consider the DB pension could be used to pay pensions for people with pots of retirement cash.

When I was a younger man, around the turn of the century, I was an agent for Unilever who at this time accepted DC pots as “transfers in”. They were delighted to do so and I , a financial adviser, encouraged Unilever employees I met to use their pension scheme to absorb their DC pots. I remember having conversations with Mr Lewin, the scheme actuary who explained how he could afford to pay people much more than they could get from an insured annuity. I believe Chris Lewin had it right.