UK regulator issues guidance on transfer ‘inducements’
UK - Pension funds are less likely to be accused of "tricking" scheme members into transferring out of defined benefit (DB) schemes following guidance issued by the regulator requiring scheme operators to inform members of the implications of transfer.
The Pensions Regulator in guidance just issued urged scheme members to weigh the value of "inducements" offered to transfer out of DB schemes against likely benefit reductions.
The guidance follows new rules published last week by the Department for Work and Pensions (DWP) that will allow pension schemes to offer cash sums smaller than those that would allow them to buy equivalent benefits with an insurer.
Although the DWP demanded that fund trustees tell scheme members what the transfer values represent, regulator chief executive Toby Hoberman expressed concern that "some transfers are being proposed to avoid an employer's full pension liability".
Tim Keogh, a partner at Mercer Investment Consulting, had argued that, given sufficient information, scheme members would be unlikely to transfer their entitlement.
Asked today whether the risk that scheme members were negligible or significant, Keogh told IPE: "Somewhere in between. Our frustration has been that they would get the information eventually and choose not to transfer out of the scheme - but in the meantime, they would go to a lot of trouble to get the information."
Hymans Robertson partner Patrick Bloomfield said he saw no problem with employers offering inducements if they accompanied these with "clear, complete, balanced communication".
"We fail to see how offering individuals an informed choice, supported by a full and frank explanation, is problematic. It is a matter of choice, not compulsion," he said.