Regulator asks DB schemes to review transfer values

Sign-Signing-Letter-Contract-Business-700.jpgThe Pensions Regulator has sent a letter to trustees at defined benefit schemes saying it expects transfer values to be reviewed if there are concerns over their sustainability.

The letter has been sent to several large pension schemes experiencing a large volume of transfers as part of a drive to protect members from unsuitable transfers and from pension scams.

It was obtained in response to a Freedom of Information request by Royal London and notes that if trustees offer overly generous transfer values to those leaving the scheme this could be to the detriment of those left behind.

A critical part of the letter addressed to the trustees makes clear the regulator expects trustees to take advice from their scheme actuary on transfer values “in light of recent events concerning your scheme sponsors”.

It adds this would allow trustees to to judge whether a reduction or further reduction should be applied to transfer values in light of an assessment of covenant strength.

TPR’s letter reads: “We would expect you to take advice from your scheme actuary about whether the basis on which CETVs are calculated remains appropriate. We would also expect you to consider whether a new insufficiency report should be commissioned from the actuary. This would allow you to judge whether a reduction or further reduction should be applied to CETVs in light of their assessment of covenant strength.”

TPR’s role in monitoring transfers out of DB schemes has received attention in the context of British Steel where it admitted more could have been done to help members understand the consequences of leaving.

Commenting on the correspondence, Royal London director of policy Steve Webb says: “I would hope that well run pension schemes would be taking expert advice when deciding how much to offer to members wishing to transfer out.

“But the regulator’s letter is a helpful reminder to all schemes that they need to be fair not only to those transferring out but also those left behind, especially where the scheme in question is in deficit.”

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Comments

There are 3 comments at the moment, we would love to hear your opinion too.

  1. Very worrying when this story is in the mainstream media (e.g. BBC) as there are plenty of concerns members are transferring when they shouldn’t and yet the headline is effectively ‘scheme’s are being too generous with transfer values’.

    More ammo for the ‘buy now whilst stocks last’ approach.

    • Indeed, I heard a brief bit on Radio 2 and my initial thought was that this was the perfect example of why non experts like journalists, should never be allowed to comment on a subject they clearly don’t understand..

  2. Forgive me for sounding rather stupid, but I thought the CETV had to reflect the value of a members benefits. In addition, if the scheme actuary decides to enhance transfers, they have a very good reason to do this, usually to protect the long-term viability of the scheme for remaining members.
    So is TPR advocating that the scheme actuaries undervalue members benefits by providing a lower CETV or increase the growth assumptions the CETV has to reach to match the equivalent scheme benefits? Either way, if more deferred members decided not to take a CETV and life expectancy continues to rise and scheme funding continues to decrease, then DB schemes will be extinct far sooner than anticipated – is that what the TPR wants.

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