Trustees should be encouraged to proactively provide transfer value information to members, in order for them to make “informed choices” over their pensions.
A joint paper by Royal London and Eversheds Sutherland on pension transfers published today, 19 September, said that while there is “no single right answer” for all schemes, trustees must be aware of the legal risks over the lack of engagement with members on transfers.
Currently, trustees can take a “minimal compliance” approach to transfers and may face a legal challenge if they facilitate transfers for which the member gets a poor outcome.
Royal London director of policy, Steve Webb, said: “In my view, trustees need to engage fully in this process, and not make assumptions about what is right for individual members.
"Instead they should make sure that their members are well informed about their options and are equipped to draw on good quality advice before making a decision that is right for them.”
Furthermore, the paper highlights that trustees who offer no guidance could also face legal action from members if their transfer outcome is poor.
The freedom of choice reforms has seen dramatic changes over the past three years, and last month it emerged that The Pensions Regulator was actively advising some defined benefit schemes to reduce their transfer value offers to members over concerns around leaving the remaining members at risk.
Eversheds Sutherland partner and head of pensions, Francois Barker, said: “Each scheme needs to decide for itself where to draw the line on engaging on pension transfers, trustees should certainly make sure that they consider their approach in the round, taking account of all the relevant factors and evolving best practice – including on facilitating independent financial advice for members.”
The paper warns that while the regulator requires financial advisers to start presuming against a transfer, trustees do not know enough about their members to know who might benefit from transferring.