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Regulator to launch pensions transfer clampdown

The Pensions Regulator chairman David Norgrove is set to launch a final attack on firms who encourage workers to switch from defined benefit to defined contribution schemes, the Mail on Sunday reports.

In his final speech before stepping down from the role at the end of the year, Norgrove (pictured) is expected to suggest this week that some employers are applying excessive pressure on employees when offering enhanced transfers.

Under such an exercise, known as an ETV, employees can be offered a financial inducement to swap their DB pension for a DC alternative. The regulator has previously indicated that trustees should assume such exercises are not in the best interests of members.

The report suggests Norgrove is convinced the pensions industry could face a mis-selling scandal if it fails to clamp down on the use of ETV exercises. The regulator is also set to publish its final guidance indicating how ETVs should be treated by trustees and the employer.

Norgrove told the paper he hoped the new rules would reduce transfers and block 20 to 30 deals currently in the pipeline. He said that only under exceptional circumstances, such as in ill health when an impaired annuity could offer improved benefits, should transfers go ahead.

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Comments

There are 13 comments at the moment, we would love to hear your opinion too.

  1. Incompetent Regulators Awards Team 6th December 2010 at 9:32 am

    This man needs to get real. The order of prioritues are:

    1 Company needs to make a profit
    2 Company needs to look after staff and pay salaries
    3 Pension schemes are next in line of importance

    Shuffling the order of importance is commercial suicide. These comments are from public sector employee attitude that know little about the real commercial world.

  2. Steven Farrall (Adviser Alliance) 6th December 2010 at 9:46 am

    Here we go again. Another regulator about to precipitate another disasterous cost on business already struggling under excessive taxation and regulation. This ‘inititaive’ will lead to the failure of more businesses, as they are effectively held to ransom by their pension schemes. They will fail and more wealth will be destroyed.

  3. It’s about time too. Too many employees have been tempted out by short term incentives when it is against their best interest.

    I have seen several cases where the board have split commission on the transfers out and this has amounted to £10s of £1,000s

    Too often the trustees are that same board and they talk about “wearing different hats” in the same meeting.

    Hmmm.

  4. I’ve come across this practice myself with one of my existing clients whad had a preserved pension with Granada TV which is now ITV. There was a financial incentive given above the normal transfer value when you take into consideration indexation of benefits the offer made was detrimental. I personally think this practice should be banned as all it does is put financial advise industry in bad light.

    There are many good reasons for transferring pensions but the advantages to the client should be clear. Many of these schemes are attempts to water down benefits under a final salary scheme are only there to benefit the adviser and the trustee.

  5. I’ve come across this practice myself with one of my existing clients had a preserved pension with Granada TV which is now ITV. There was a financial incentive given above the normal transfer value when you take into consideration indexation of benefits the offer made was detrimental. I personally think this practice should be banned as all it does is put financial advise industry in bad light.

    There are many good reasons for transferring pensions but the advantages to the client should be clear. Note I mean the EMPLOYEE ! Many of these schemes are attempts to water down benefits under a final salary scheme are only there to benefit the adviser and the trustee.

    For some of the people above that are arguing against a better regulation maybe I’d asked them two questions.

    How would you feel if you were cheated out of your final salary pension scheme? (As many people that are IFA have them from when they worked with Banks or Insurance companies)

    Would you be so supportive of the firm that did it?

  6. Mr Norgrove, please let IFAs help the DB members decide – quite frankly, and obviously, you do not have the breadth of knowledge required to be making diktats in this type of situation if you say that transfers with ETV should be ‘only in exceptional circumstances’. Yes, the majority of members will probably be best advised not to transfer, but “it depends” in all cases.

    A number of circumstances spring to mind, other than for those in serious ill health or who anticipate having a shortened lifespan, such as (and this list is nowhere near exhaustive):-

    • DB benefit is too small to make any difference, even for someone with no other pension benefit – member may wish to go ultra aggressive to try to gain a decent pension entitlement
    • DB benefit represents only eg 10% or 20% of overall pension entitlement, and remainder is DB and the member’s minimum income requirement in retirement is already covered.
    • DB benefit is so large that if the DB scheme fails in the future, the terms of the PPF (assuming that the DB scheme falls into this) will catastrophically decimate the member’s entitlement
    • Member may be seriously intending to move or retire abroad in the foreseeable future; an ETV with 20% extra would likely assist here
    • DB member over age 55 wishes (or perhaps ‘needs’) to take (tax free) cash entitlement to start a new business / bolster an existing one / reduce or eliminate mortgage, but doesn’t require the income yet
    • DB member has a spouse with a significantly higher (DB) benefit, so the rationale changes here
    • DB member and spouse both in same scheme – all eggs in one basket syndrome; perhaps smaller entitlement should transfer out?

    In short, a client’s full circumstances should be considered, twas ever thus

    Is Mr Norgrove saying that he would never transfer away in this situation if the opportunity arose? If so, more fool him …

  7. I wish Tom and the rest of the Money Marketing staff could find something positive to write up. What are they trying to do, scare us out of existence.It is the seaon of hope and goodwill, Final Salary Schemes have had their their and impose too onerous burden on employers. However, Norgrove wants to make a name for himself.

  8. Strange that the private sector gets so much pressure, when the funding in 1997 was 1 and a 1/2 times more than the whole of Europe put together, untill Blaire and Brown started to raid it. Why is it that the Public sector has no funding and continues to enroll people into a scheme with no money?

  9. The Incompetent Regulators Awards Team comment is surely the one that matters. Yes, in many cases it could be said that the transfer to DC from DB is not in the member;s interest, but sure as hell it’s in the employer’s interest if the alternative is to go bust, and in that case it would be in the member’s interest too

  10. Oh dear! Many of the ETVs are around 20 percent enhancement, a very nice incentive. Compare that to a continually underfunded DB scheme that at some point will need to have the benefits reduced by 20 percent or more.

    In a perfectly funded world he may have an argument but the relality is that companies won’t be able to keep these schemes fully funded.

  11. As someone involved in this market place the previous joint TPR and FSA paper is fine. Where I work as the Independant IFA to the Employees I work on an agreed fee paid by employer with no commission what so ever and the fee not dependant on the outcome of advice to the employee. A fixed fee relative to each employee seen regardless of outcome and more often with me not taking on the employee as a client. Where I act for the trustee and/or employer my role includes protecting them from the suggested misselling issues raised above which invariably means overseeing ifa reponsible for employee advice everything done on a nil commision basis with any fee paid not depending on outcome. Simple,fair best advice what else is required.

  12. Anonymous | 6 Dec 2010 9:53 am

    It’s about time too. Too many employees have been tempted out by short term incentives when it is against their best interest.

    I have seen several cases where the board have split commission on the transfers out and this has amounted to £10s of £1,000s

    Too often the trustees are that same board and they talk about “wearing different hats” in the same meeting.

    Hmmm.
    ——————

    I’ve never heard of any scheme or trustees getting “commissoin” on a transfer out of an occupational scheme. If anyone gets commission it is normally the IFA invovled (if any). Can you give some examples please?

  13. The Pensions Regulator would be better employed as a window cleaner? That way he’d see more of the world!

    It is a fact of life that final salary schemes are dead, they died years ago and the Pension Regulator seems to have missed the funeral. They died from an acute failure of funding assumptions, in part thanks to endless pension regulation and reforms.

    Now I know regulators would not understand this but it is a fact of life that Ltd Co’s exist to make a profit and not to extend the benefit of an open cheque book for their staff. If they make a profit then and only then can they afford to be generous.

    The only final salary scheme that does not follow this rule is the public sector scheme and that is bleeding the UK tax payer dry – oh yes and the FSA scheme which allows the FSA to raise a levy on the advisers they regulate to cover any shortfalls.

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