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Pension transfer retreat cuts member benefit by £5bn

The FSA says its decision to scrap plans to force advisers to compare all defined-benefit pension transfers using an RPI-linked annuity rate will lower the estimated benefit of the reforms to members by £5bn.

The regulator today confirmed changes to the way pension transfers are calculated in a bid to make it more difficult for advisers to recommend an investor quits their defined-benefit scheme.

However, it has backed down over proposals to force IFAs to use an RPI-linked annuity rate to calculate all transfers, including where the DB scheme has CPI or LPI-linked benefits.

The regulator has instead decided to use the same inflation measure for annuity comparisons as exists in the scheme the member is transferring out of. For example, CPI-linked benefits will be valued using a CPI-linked annuity rate.

The FSA says: “The benefit attributable to clarifying the annuity rate to be used for LPI pension increases has been reduced as a result of the change in our policy.

“We previously estimated that the benefit would be up to £15bn if we had proceeded with our proposal to value all LPI pension increases using RPI-linked annuity rates.

“However, the rules we are now making will value LPI pension increases in a way which is more consistent with the nature of the increase, given the cap and collar which are applied, and in some cases will place a lower value on them.

“While the benefit will depend on the mix of different rates of LPI, we estimate that it could be worth up to £10bn.”

The FSA says the total benefit to members as a result of the changes, including changes to mortality assumptions, could be £15bn.


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There is one comment at the moment, we would love to hear your opinion too.

  1. man on the moon 30th April 2012 at 9:38 am

    These comments are very different to the ones posted on Citywire.

    Most CF24 Pension Transfer Specialists will use either O&M or Selecta Pension systems which have FSA assumptions built in. Adding in the scheme details accurately alongwith Member info is key.

    When I first read the reports of the FSA update I was dismayed, now not so much.

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