The Pensions Regulator's (TPR) latest trustee guidance document Understanding Employer Support for Defined Benefit (DB) Schemes implies a relaxation of its attitude towards to members transferring out of schemes, says Towers Watson.

The consultancy firm has claimed that TPR will not routinely seek to scupper employers' plans to reduce pension risks by giving members the choice of transferring out as was previously feared. Instead, TPR has told employers who offer incentives for members to transfer out of DB schemes that they should structure these exercises so that, "members have access to the information and impartial advice that they need" to make sensible decisions.

Transferring out of schemes "may not be in their best interest," says the statement, although Towers Watson noted that TPR's earlier claim that "if a company is willing to encourage the transfer, the company's gain is likely to be the member's loss", is not repeated in the most recent announcement.

"Last year, there were suggestions that the regulator wanted to stamp out transfer incentives," commented John Ball, head of defined benefit pensions consulting at Towers Watson. "However, members have a legal right to take their pension elsewhere and it would not have been credible for the regulator to oppose transfers only where the employer sweetens the deal. Letting members make their own minds up while ensuring they understand what they could lose as well as what they could gain is a much more sensible approach."

Incentives for employees who choose to transfer their accrued pensions out of DB schemes are being increasingly offered by employers, as they want to settle their pension obligations for a known cost. These offers, Towers Watson said, are typically made to former employees below retirement age. In a recent Towers Watson survey, 35 per cent of employers with DB schemes expected to at least consider putting an offer to members of this kind in the next three years. Only 23 per cent were uncomfortable with the idea.

"Employers provide these incentives because they want to be able to stop worrying about how poor investment performance or people living longer could affect their pension costs. If the member is prepared to risk getting a lower pension in order to have a chance of getting a bigger one, or if they want more flexibility about how to take their benefits, transferring the pension can be a win-win situation."

Ball added that it is essential that employees understand what they are gving up, and that the employer will no longer step in shod things go wrong.

And not all ETV offers should be tarred with the same brush: "The employers we're working with know their reputations are on the line and that things must be done properly. For example, they take it for granted that they will have to pay for members to get independent advice and that the adviser's pay cannot be linked to the choices members make."

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