DB trustees should flag availability of transfer values, report says

Royal London has published a discussion paper with pensions lawyers Eversheds Sutherland to help defined benefit trustees handle members interested in transfers.

It aims to help trustees understand both what the law requires of them and what good practice might look like.

The paper calls on trustees to make members aware that transfer values are available on request as part of routine communications, regardless of whether members have asked for information on getting them.

Royal London notes that members “don’t know what they don’t know” so need support on all the options available, but trustees should also not present information on transfer value availability as either pro or anti-transfer.

The paper reads: “Explaining options legitimately open to a member, with appropriate risk warnings, is not the same as steering the member in a particular direction (which trustees should be careful not to do).”

“Pensions Regulator guidance does not rule out or actively discourage the inclusion of a transfer value – or referring to its availability – in member communications: in fact it refers specifically to just this scenario and says ‘trustees can support members in a number of ways to ensure they have the information they need to make a fully informed decision…’.

It also looks at what support trustees and employers should offer to members who seek a transfer value.

The first part of the paper examines the case for trustees doing the legal minimum on transfers such as potential legal challenge if they actively facilitate transfers and members subsequently get poor outcomes.

There is also the risk that a large volume of transfers may damage the position of remaining members in the scheme, as noted in a recent letter from The Pension Regulator to a number of DB schemes.

The paper then sets out the reasons why trustees may wish to go further than the legal minimum such as specific circumstances where a transfer would be in a member’s interests.

Similarly trustees could face a potential legal challenge from members if they are not seen as doing enough and proactively providing transfer value information will help members to make informed choices.

The paper concludes there is no single right answer for all schemes and trustees need to be aware there are legal risks to both approaches.

Eversheds Sutherland partner and head of pensions Francois Barker says current practice by DB trustees varies hugely and they should consider their approach in the round.

Royal London director of policy Steve Webb adds: “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.”

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  1. This raises a very good point as once again trustee is “damned if they do and damned if they don’t”, all the more reason for schemes to align with regulated advisers to support individual members with one of, if not the most important financial decision anyone has to make.

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