TPR encourages schemes to cut DB transfer values

The Pensions Regulator (TPR) has advised some DB pension schemes to consider reducing their transfer values on offers to workers transferring out of the scheme.

The letter, sent to 14 leading providers, details concerns regarding unsuitable transfers and pension scams that could affect members who decide to transfer their scheme in one large lump sum.

A freedom of information request by Royal London, published today, 29 August, found the letter highlighted the problems that could arise if trustees offer generous transfer values to members leaving the schemes to those that remain in them.

Some providers are offering relatively generous cash lump sums to those transferring out, even when their pension schemes are currently in deficit, causing concern that large numbers could transfer and leave the remaining members at risk of not receiving their full pensions.

Royal London director of policy, Steve Webb, said: “I would hope that well run pension schemes would be taking expert advice when deciding how much to offer to members wishing to transfer out.

“But the regulator’s letter is a helpful reminder to all schemes that they need to be fair not only to those transferring out but also those left behind, especially where the scheme in question is in deficit.”

However, TPR are not calling for every DB pension scheme to cut their transfer values, but rather reminding trustees to seek the relevant advice should they experience an increase in cash equivalent transfer value (CETV) requests.

A spokesperson from TPR said: “Our primary concern is that DB scheme members requesting a CETV have all the information they need to make an informed decision about what is in their best interests.”

In an effort to help members understand, TPR will also send the trustee a joint letter from TPR, Federation of Communication Services and The Pensions Advisory Service to issue to members that have requested a CETV.

Aegon pensions director, Steven Cameron highlighted the complexity of the situation: “It does highlight how difficult it is for trustees, with their scheme actuary’s help, to strike the right balance, as too cautious an approach might lead to those who transfer out receiving less than their fair share.

“This is made even more complex as changes in economic conditions and investment performance can produce quite sharp changes in scheme funding levels over relatively short periods of time.”

    Share Story:
An alternative approach
Laura Blows speaks to NEST’s CIO Mark Fawcett to discuss its investment into alternative asset classes