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UK roundup: FSA, pension transfer value, Policy Exchange, police pension schemes

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  • UK roundup: FSA, pension transfer value, Policy Exchange, police pension schemes

UK - The UK  financial regulator has accused advisers of basing their transfer value analysis (TVA) - the value of benefits pension members give up when they move out or defined benefit scheme - on misleading and out-of-date assumptions.

The Financial Services Authority (FSA) said it decided to publish a consultation document on the practice after being advised of potential misuse that allows pension schemes to offer departing scheme members collectively £20bn (€23.6bn) less than the transfers are worth.

The report said: "Feedback from the industry suggests that the basis is being interpreted in different ways and that clarification is required."

"We would expect the starting point to be that the transfer will not be in the client's best interests.

"Where assumptions are being misused or are out of date, it will result in unrealistic outputs from the analysis and the potential for consumer detriment if members are advised to transfer inappropriately."

The report cited questionable growth and mortality assumptions, as well as the use of different interest-rate assumptions for consumer price index (CPI)-linked schemes and those linked to the retail price index (RPI).

It said TVA comparisons should adopt a growth assumption "that takes account of the member's attitude to risk and the recommended personal pension assets, as well as being conservative enough to reflect that the member has taken on the investment and longevity risks".

The closing date for responses to the consultation is 27 March.

Meanwhile, a UK think-tank has urged the Home Office to ditch its defined benefit police pension scheme, claiming the cost of a 79% increase in the value of police pensions over the past 15 years had fallen disproportionately on taxpayers.

In a report published today, the right-leaning Policy Exchange cited drivers including reduced employee contributions to one of the UK's two police schemes, increased life expectancy and a lower proportion of working police officers relative to pensioners.

Report author Edward Boyd described as "increasingly unaffordable" the UK's two unfunded police pension schemes, pointing out that on average police officers receive annual payments double the public-sector average.

Boyd also criticised "disproportionately high" senior officers' pensions compared to those who retire in the lower ranks.

"Final salary schemes skew the benefits in favour of senior officers. This approach is outdated, regressive and can be gamed (through temporary promotions late in a career)," said Boyd. "By moving away from this and towards a career-average scheme, the pension benefits would be more equitably spread across the police ranks."

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