The Pensions Regulator revises guidance on pension transfer incentives

The Pensions Regulator (TPR) has issued revised guidance on pension transfer incentives to ensure trustees are actively involved in managing the risk associated with such exercises.

The incentives, outlined in the guidance published for consultation, include enhanced transfer values (ETVs), which are typically offered by employers who want to encourage staff to move from a final salary scheme to a defined contribution (DC) pension.

It highlights that trustees should start from the presumption that such exercises and transfers are not in members’ interests and should therefore approach any exercise cautiously and actively.

The revised guidance stipulates that:

•Members will be provided with clear information that is not misleading

•Members will be provided with impartial and independent advice to ensure they make the right decisions

•Trustees will engage in the offer process and apply a high level of scrutiny to all incentive exercises to ensure members’ interests are protected

•Employers will ensure that any offers made are consistent with the principles in the guidance

•No pressure of any sort will be placed on members to make a decision to accept the offer.

David Norgrove, chair of the TPR, said: “As our guidance emphasises, any transfer exercise should be conducted with the highest regard to members’ interests.

“Since we published our initial guidance in 2007, we have seen behaviour that concerns us. There has been a box-ticking approach that has led to exercises being run without due consideration to scheme members.”

Raj Mody, pensions partner and chief actuary, PricewaterhouseCoopers, said: “Our only concern is the statement that trustees must start from the presumption that such exercises are not in members’ interests. There could be many reasons why taking up such offers could have a beneficial outcome for members. For example, providing greater flexibility around timings for drawing a pension.

“The key is ensuring that individuals have enough information and independent advice to make a properly informed decision.

“Pension transfer incentives are an important tool for companies to manage pension liabilities. They can also be in the interests of pension fund trustees as they may help reduce the overall deficit and improve security for pension scheme members.

“Given that these incentives are set to become more common, it is all the more important that businesses have clear guidance on how to implement these programmes with integrity. Having such guidance should help remove some of the uncertainty associated with these exercises since companies will now have a clear and consistent regulatory position.”

The consultation will last for 12 weeks and responses should be submitted by 5 October.

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