Code of practice on enhanced transfer values and pension increase exchanges published

An industry working group has published a voluntary code of practice for incentive exercises on enhanced transfer values (ETVs).

The code is made up of seven principles, which include:

  • No cash incentives should be offered that are contingent on the member’s decision to accept the offer.
  • For transfer exercises, advice should be provided to the member. For modification exercises, advice should either be provided to the member or a value requirement should be complied with and guidance should be provided to the member.
  • Communications with members should be fair, clear, unbiased and straightforward.
  • Records should be retained by the various parties involved in an exercise so that an audit trail is maintained that can be examined in the future.
  • Exercises should allow sufficient time for members to make up their mind with no undue pressure applied.
  • Incentive exercises should only be offered to members who are over age 80 on an opt-in basis.
  • All parties involved in an incentive exercise should ensure that they are aware of their roles and responsibilities, and act in good faith in the areas over which they have direct control.

Margaret Snowdon, chair of the industry working group, said: “I was pleased to lead on producing this code of practice aimed at improving the protection for pension scheme members involved in incentive exercises.

“I was fortunate to have a working group of experts from across the industry, which pulled together to create the principles and guidance that will ensure that good practice becomes the norm rather than†the exception and will restore confidence in incentive exercises as a
legitimate liability-management tool.

Steve Webb, minister for pensions, added: “While it is understandable that firms need to manage their pension liabilities, this must be done in a way that enables scheme members to make informed choices about their pensions.

“The practice of offering cash incentives for people to give up valuable salary-related pension rights was a source of particular concern.

“I therefore very much welcome the work that has been done to come up with an industry code to stamp out bad practice.

“This new code of practice must be adopted as the standard for all transfer exercises in the future, without exception.”

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