The Pensions Regulator (TPR) has updated its guidance on transfer incentives, taking a strengthened position on the subject and clarifying the role of the employer and the trustee.

The guidance, which has been published for consultation, aims to ensure that trustees are actively involved in managing the risks of these exercises, and is accompanied by a new e-learning module and a joint statement with the Financial Services Authority (FSA).

The position of TPR is in accordance with that of the FSA, and the guidance replaces that published in 2007, the ‘Inducement Offers’ guidance.

Trustees should start from the presumption that transfer incentive exercises and transfers are not in the members’ interests, and therefore should be approached with caution.

The Regulator expects trustees to provide members with clear information, impartial and independent advice, and for trustees to engage in the offer process and apply a high level of scrutiny to all exercises in the interest of protecting the member. Employers must ensure that offers made are consistent with the principles in the guidance, and no pressure must be placed on members to make a decision to accept the offer.

David Norgrove, chair at TPR, said: “As our guidance emphasises, any transfer exercise should be conducted with the highest regard to members’ interests.

“Since we published our initial guidance in 2007, we have seen behaviour that concerns us. There has been a box-ticking approach that has led to exercises being run without due consideration to scheme members.”

Norgrove said this is resulting in TPR looking closely at exercises and working with other regulatory bodies to ensure that standards are improved.

“The Pensions Ombudsman will take this guidance into account to determine whether any complaint is upheld. He can then direct trustees or employers to compensate members accordingly.”

The consultation will last for 12 weeks, and responses should be submitted by 5 October 2010.
PricewaterhouseCoopers LLP (PwC) said the Regulator’s five main points are critical to the success of these exercises for all stakeholders, although they are concerned that trustees must start from the presumption that such exercises are not in members’ interests.

“There could be many reasons why taking up such offers could have a beneficial outcome for members,” explained Raj Mody, pensions partner and chief actuary. “For example, providing greater flexibility around timings for drawing a pension. Members could also re-shape their pension so that it better matches their individual circumstances. For example, unmarried individuals could convert the value of benefits that would be available to married members into additional benefits for themselves. The key is ensuring that individuals have enough information and independent advice to make a properly informed decision.”

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