06 January 2012
Fidelity, one of the UK's largest investment managers, has said
that the government should suspend the use of enhanced transfer
value exercises until an urgent review into the practice has been
completed.
Final salary and career average schemes are becoming
increasingly expensive to operate. This is due, in part, to
increased member longevity and disappointing investment
returns. As a result, to ensure funding obligations are
maintained, employer contribution rates are increasing, sometimes
to unmanageable levels. To reduce their liabilities, and
therefore their costs, employers may decide to take action.
It is becoming more common for employers with final salary and
career average schemes to offer active and deferred members
incentives to transfer out to alternative pension
arrangements. The incentive offered can be in the form of a
direct cash payment, an enhanced transfer value, or both.
This practice is not illegal and does not contravene any regulatory
rules or guidelines. Companies have business and commercial
reasons for needing to reduce liabilities and this is one
legitimate way of doing it.
However, members should seriously consider taking independent
financial advice before accepting an incentive offer to ensure it
is in their best interests.
Read more about enhanced transfers here.
The Department for Work and Pensions (DWP) set up a working
group in autumn 2011 with the intention of producing a code of
conduct for the industry by the spring. The Pensions Advisory
Service has accepted an invitation to participate in this
undertaking.
the Pensions Regulator has previously issued guidance for
employers and trustees. Click here to see this guidance.
