Former National Association of Pension Funds chairman Robin Ellison says the “prohibitively high costs” of running an enhanced transfer value exercise mean they almost never provide value for money for employers.
The ETVs are facing increased scrutiny from both The Pensions Regulator and the Department for Work and Pensions amid concerns that employers are offering employees cash incentives to ditch their defined-benefit pensions.
Last month, pensions minister Steve Webb said he was very concerned that people were making “the wrong choices” about their pensions as a result of poorly executed ETV exercises.
Pinsent Masons head of strategic development for pensions Ellison claims the costs and resources required to complete an ETV exercise mean it is rarely worthwhile for the employer. He says: “ETV exercises are very expensive because you have to do the calculations, the communications and the advice. The costs and time involved are prohibitively high and the savings are usually pretty modest, so it is almost never worth it for the employer in the end.
“I have been through quite a few of these exercises over the past five years and I have yet to find one where it has been worth the candle for the pension fund.”
Hargreaves Lansdown head of advice Danny Cox says: “About five years ago, companies started to ask us if we wanted to be involved in ETV exercises but we decided we wanted to keep as far away from these things as possible.
“If we had been involved, our advice in almost every case would have been not to transfer anyway.”