The Pensions Regulator call for greater scrutiny of enhanced transfer value exercises

The Pensions Regulator has called for greater scrutiny of enhanced transfer value (ETV) exercises, warning trustees of the risks these pose to members’ benefits.

Speaking at the NAPF Annual Trustee conference today, David Norgrove, chair of The Pensions Regulator said that the effect of the economic climate on pension scheme deficits has led many employers to review the form of the pension provision they offer to their employees. This in turn has fuelled the level of activity in the de-risking and the liability-management markets.

Research by pensions advisor HamishWilson this week, which received 171 pension scheme responses (sizes ranging from under £50 million of assets to over £1 billion, with the smallest having just 60 members and the largest over 325,000) showed that 22% of schemes expect to carry out an enhanced ETV exercise within the next two years and a further 12% expect to do so beyond two years. This compares with just 8% who have done so to date.

Norgrove said: “Trustees should start from the presumption that such exercises and transfers are not in member interests. If a company is willing to encourage the transfer, the company’s gain is likely to be the member’s loss.”

Since regulatory guidance on inducements was published in January 2007, transfer incentives or enhanced transfer exercises have become more prominent and discussion about these exercises has increased. Many parties including trustees, employers and advisers have raised concerns over such activity.

Marc Hommel, partner and UK pensions leader, PricewaterhouseCoopers, commented: “Enhanced transfer values are a valuable tool in helping employers control the risks that their pension scheme poses to their business and, at the same time, many individuals have benefited from accepting deals.

“But it is essential that, when people are asked to make choices regarding their future retirement security, they can make comfortable, non-pressurised and well-informed decisions. Any employer considering these programmes must also be prepared to engage the trustees appropriately and provide quality communications and access to advice for the people being offered the deal.”

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