Steve Webb told pensions industry executives today that employers are offering "bribes" to staff in order to reduce the amount of employers they have to provide in pension schemes, acting against previous warnings he has issued about the practice.
"I will not stand by while some companies try to get people in vulnerable situations or with limited financial knowledge to sign away their rightful pension entitlements,” Webb said, according to a statement from the Department for Work and Pensions.
“People accepting these offers could unwittingly find themselves worse off," Webb said. "These bribes, such as offering larger pensions upfront to give up valuable inflation indexing, or cash lump sums to transfer out of a more generous scheme are being hidden behind confusing language."
"I have no problem with firms managing their liabilities responsibly, but despite warnings early this year, I’m still seeing examples of this kind of bad practice. I am taking urgent legal advice and working with my colleagues across Government on stopping these kinds of dodgy deals," Webb said.
Alastair Meeks, a pensions law expert at Pinsent Masons, the law firm behind Out-Law.com, said that any efforts to prohibit incentivising would prove controversial.
"Any attempt to ban the use of such arrangements is likely to prove highly controversial with employers and pensions advisers, many of whom would point to the fact that these arrangements can often benefit individual members as well as employers," Meeks said.
Last month Webb told the Liberal Democrat Party Conference that the Government had a responsibility to protect employees from losing out on their pension rights without realising it.
"Some would call [financial incentives] a 'bung'," Webb said at the time. "Whilst firms have every right to talk to their workers and ex-workers about getting their pension rights in a different way, we need to make sure that people are making well-informed decisions and not losing out on valuable pension rights without realising it," he said.
Employers can offer a transfer incentive to members to move out of defined benefit pension schemes, which promise a set level of pension once an employee reaches retirement age no matter what happens to the stock market or the value of the pension investment. This incentive could be a cash payment or an increase in the transfer value of the member's benefits on the condition that the benefits are transferred out of the scheme to another provider.
Under the Pensions Act the Pensions Regulator is responsible for protecting the benefits of members of work-based pension schemes, promoting good administration of the schemes and reducing the risk of compensation having to be paid to members of failed defined benefit schemes.
The regulator has the power to "find out information about a scheme; to step in to resolve or manage problems within a scheme; and to act if an employer is intentionally trying to avoid paying its pension liabilities".
The regulator produced new guidance on offering incentives to leave defined benefit pension schemes in December last year. In the guidance the regulator said employers' incentive offers should be made subject to certain conditions.
"An offer should be made in a clear, fair and not misleading way, to enable members to understand the implications and make decisions that are right for them," the regulator said.
"The offer should be open and transparent so that all parties involved in the process are made aware of the reasons for the exercise and the interests of the other parties. Conflicts of interest should be identified and appropriately managed in a transparent manner and, where necessary, removed," it said.
"Trustees should be consulted and engaged from the start of the process, with any concerns arising through the exercise alleviated before progressing," said the guidance. "Fully independent and impartial financial advice should be made accessible to all members and promoted in the strongest possible terms. In almost all circumstances, the structure of the offer should require that members take financial advice."
The regulator said that the UK's Pensions Ombudsman, which investigates complaints about pension schemes and how they are run, could force companies to issue compensation to pension scheme members if the Ombudsman upheld complaints and showed the employer did not follow its recommendations.