The Pensions Regulator’s (TPR) guidance on transfer incentives disappoints with its overriding “presumption of guilt”, says Hewitt Associates, implying that exercises should be approached from a starting point of not being in the members’ interests.

The guidance has otherwise been welcomed by the global human resources consulting and outsourcing company, with focus on the key principles that underpin a well run enhanced transfer value (ETV) exercise, said Alan Howard, pension consultant.

“We support the Regulator in its views on the need to provide impartial independent financial advice, the importance of involving the trustees in the process, and ensuring all communications are open, honest and transparent.”

Howard said the company had taken particular issue with the Regulator’s statement that only a minority of members are likely to benefit from accepting a transfer incentive. “We also feel that the comments on the possible legal action that could be face by employers and trustees who engage in these exercises may unnecessarily discourage companies from carrying them out – even when they completely comply with the letter and spirit of the guidance. As long as the member has access to the full facts, and suitable technical support, it should not be presumed that a member is incapable of taking an informed decision about his future benefits.”

He added that it is disappointing to see the Regulator fail to consider in any detail the possibility that defined benefit (DB) pension schemes may not pay out the full benefits promised to members. He said the Government’s proposal to replace the inflation index used to increase pensions from the retail prices index (RPI) to the consumer prices index (CPI) is a reminder that DB pensions do not provide “cast-iron guarantees of a certain benefit in retirement. Many members may prefer the flexibility of their own pension pot – which an enhanced transfer value exercise can provide for them.”

In response, the Pensions Regulator told Pensions Age: “We recognise that in some individual situations a transfer exercise may be in members' best interests.

However we have a duty to protect members' benefits and are aware of some concerning behaviour that puts members at risk. This risk is not the inability in principle of the member to make a decision that is right for them, but rather the risk of poor decision making due to a lack of appropriate, clear and not misleading information about the exercise.

“Our guidance is aimed primarily at trustees to encourage them to look carefully at all transfer exercises, thus fulfilling their duty to act in the best interest of members.”

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