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Defining moment

If Opra&#39s decision to allow scheme trustees to stop members leaving schemes has achieved anything, it is to ram home the point that final-salary schemes are in serious difficulty.

What Opra is effectively saying is that defined-benefit schemes are in so much trouble that we cannot let members have their money until the Government gets round to making new rules that will give them less of a transfer value – and we do not know when those rules will be in place.

Many in the pension world will wonder whether this a foretaste of what to expect from the “new kind of regulator” that the Department for Work & Pensions plans to set up to replace Opra.

A blanket refusal to allow transfers has not only shocked IFAs but also catapulted the issue to the front pages of national newspapers and TV news. For IFAs and their clients, it is the open-ended nature of Opra&#39s policy move that is particularly scary – the closing date for submissions to the consultation on the new regulations is the end of March but the DWP refuses to say when new rules will take effect, with estimates varying between four months and a year.

Millfield pensions specialist Graham Duckett says: “At least with Equitable you were able to get your money out, albeit with a big penalty. There is no other situation in financial services where someone decides you cannot get your money at all. This approach flies in the face of Sandler&#39s principles of transparency.”

Advisers have been taken aback by the severity of the sanction that Opra is allowing – leaving advisers and the public wondering that things in the world of occupational pensions are even worse than has already been amply described in press coverage of the pension crisis.

Syndaxi Financial Planning principal Robert Reid thinks Opra&#39s approach will create a panic. He says: “For DB, you should now read discretionary benefit. This is the first sign of the market value adjuster coming into the world of definedbenefit pensions.”

Opra is right to want to stop directors with prior knowledge of a scheme wind-up getting their cash out before other members, allowing any scheme that wants to refuse a transfer seem excessive to many IFAs.

Opra head of communications Nick Edmans says: “This relaxation of rules is designed to protect members who remain in schemes that are underfunded. It allows time for the DWP to give trustees more leeway to reduce transfer values in underfunded schemes.”

After the pension misselling scandal of the 1990s, IFA pension transfer business has slowed massively, so what kind of a run on final-salary schemes did Opra want to stem?

The NAPF says it did not ask Opra to allow transfers to be blocked but supports the move. NAPF director of benefits David Astley says: “Pension schemes have been concerned for some time at the level of quotes they have been obliged to give.”

But Reid says Opra has shot itself in the foot. He says: “Opra have started a run rather than stopping a run. What this situation reveals is a conflict of interest, where trustees are being advised by actuaries who are being paid by the companies. Employers now have an interest in getting rid of people so they take lower transfer values.”

Some in the industry argue that its action is exactly the sort of proactive approach that Pickering had in mind when he first put forward the idea of a new kind of regulator in his 2002 paper, A Simpler Way To Better Pensions.

Astley says: “Only in the last month has Opra had sufficient confidence to move towards being a new kind of regulator. If they had done this six months ago, people would have wondered what Opra is doing. This could be the first tangible sign of Opra trying to metamorphose into what Pickering wanted the new kind of regulator to be.”

But Duckett, who does transfers for his own clients and for business referred to him by other IFAs, says Opra&#39s approach contradicts the law of transfers.

He says: “This contravenes the Social Security Act 1985 that sets out the entitlement to a transfer value.

“It is heavy-handed and if transfer values, which at best will match the value of the pension promised to the employee, mean that remaining members are left short, it should be for the employer to make up the difference. Why should employees take the hit for employers&#39 underfunding?”

Advisers argue that the current transfer regulations should apply until the new regulations have been put in place but Opra says it has acted within the law in telling sch-emes that it will not punish trustees that breach the Social Security Act.

Edmans says: “Breaches of the Social Security Act are only enforced by Opra. But our discretion about how we enf-orce the law is very wide. We do not have to punish anyone for anything.”

Opra&#39s measure is supposed to be temporary. The new framework for transfer values, whenever it comes in, will effectively be a halfway house between the current minimum funding requirement approach and the schemespecific regime under consultation in the DWP pensions Green Paper.

Employees will have to hope that having the door closed on exits from final-salary schemes while that consultation takes place does not mean that their pension promises are set to be further eroded.


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