The Pensions Regulator is facing calls to soften its stance on enhanced transfer value exercises over concerns that defined-benefit pension schemes leave retirement income exposed to the solvency of a single company.
TPR advises pension trustees to start from a position that an ETV exercise is not in members’ interests, a view that has angered pension consultants offering the deals.
JLT Pension Capital Strategies managing director Charles Cowling says the regulator’s stance runs counter to basic investment principles.
He says: “The Pensions Regulator’s aggressive stance towards ETV exercises runs counter to the basic principle of investment diversification.
“If you have a defined-benefit scheme, you have a massive exposure to the solvency of your employer. You have all your eggs in one basket.
“You would not encourage someone to invest their entire pension in Italian debt, so you have to question why the regulator is effectively requiring people to expose all their savings to a single company.”
Last month, pensions minister Steve Webb issued a stinging rebuke to firms offering DB pension scheme members an up-front cash payment to move their savings into a less generous defined-contribution arrangement. He cited evidence that “a high proportion” of people who are advised not to accept an offer ignore it, leading to speculation that ETV exercises could be banned.
Tax Incentivised Savings Association director of policy Malcolm Small says: “There are perfectly valid reasons for accepting an ETV offer. It could be in members’ best interests if a scheme has a few high-earning, deferred members who pose a liquidity threat to the remaining members, or if a pension scheme is underfunded or offers a significantly lower widow’s pension if the member dies.”
Hargreaves Lansdown pension investment manager Laith Khalaf says: “It is true that your pension is dependent on the solvency of the company but this is mitigated to a great extent by the Pension Protection Fund. The regulator’s stance is spot-on.”