Debi O’Donovan, editorial director of Employee Benefits: Staff will make poor choices if offered cash as part of an enhanced pensions transfer

When the chips are down, HR works for the corporate and not the workforce. It is this key understanding, that HR are there to help the company be more productive and avoid legal issues and not as some form of staff union, that explains the apparent soft attitude of many HR departments have had to the closure and winding up of defined benefits schemes.
However, there is a rising trend that should cause HR departments to join forces with their IFAs to kick up more of a fuss. And that is the issue of using cash lump sums as part of enhanced transfer values (ETV) when enticing members to transfer out of a defined benefit (DB) scheme. Sadly, I am not sure that all HR departments fully understand ETVs.
With the economy being as it is, pension funding levels are low, which means that most ETVs are low. This is making them popular with employers trying to reduce DB liabilities.
With the implementation of new regulations on pension transfer values coming into play on 1 October 2008, trustees have clear guidance on how to calculate a transfer value – so I don’t plan to quibble with people who know far more than I do on this matter.
The fear that IFAs have expressed, is that too often employees are swayed to transfer out of a DB scheme by the offer of cash in the hand – even when it is not in their best interest to take it in the long term.
Yes, one can use the excuse that for some employees it will provide a chance to get out of debt, or avoid their house being repossessed, but for more many more it will simply reduce their long term pension. There are times when us humans have to be protected from ourselves, and I believe that this is one of them.
Whatever their own views, FDs are under pressure to make ETVs work if that is the chosen route to reduce the DB risk to their organisation. And I can understand that if cash in the hand increases take up of ETVs, then FDs will use it.
But there needs to be a much greater resistance from pensions, benefits and HR managers to prevent this from happening. By the time it is in place it is very hard for IFAs to give good advice, as employees are likely as not to make inappropriate choices and take the cash anyway.