Pensions minister promises to tackle pension transfer 'bungs'

Pensions Minister Steve 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.

The Government will also set out options later in the year to make it easier for people to merge small pension pots held with multiple employers, he said in his speech.

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.

The Pensions Regulator produced new guidance on incentive exercises in December last year.

"Some would call [financial incentives] a 'bung'," Webb said. "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.

However pensions expert Simon Tyler of Pinsent Masons, the law firm behind Out-Law.com, said that any government action must "strike a balance" between protecting pension scheme members and allowing employers to take legitimate action to reduce their liabilities.

"Transfer value incentives are coming under increased scrutiny. Cynics view them as a ploy by employers to induce members to give up valuable pension rights in return for some cash in hand. However, things aren't so black and white. For some members in certain circumstances, taking a transfer value may be the right thing," he said.

"Proper member communication is key. Any Government clampdown needs to be handled carefully. It must strike a balance between protecting members and allowing employers to take legitimate action to reduce liabilities," he said.

Last week Webb told the Observer newspaper that the state pension age would have to rise faster than previously anticipated. The retirement age for women is due to increase to match that of men in 2018 before it rises to 66 for both sexes in 2020. Currently the age is due to rise again to 67 in 2036 and then to 68 by 2046.

The rise is controversial, according to media reports, because it will give 330,000 women only seven years' notice of up to two extra years in work before retirement.

However, Webb promised in his speech that the Government would "do all that we can" to ease the transition for women most affected by the changes.