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Transfer incentives and pension increase exchange
Your employer may use transfer incentives and pension increase exchange exercises to try to reduce the running costs of their defined benefit or CARE pension scheme.
If you have left your defined benefit or CARE workplace pension scheme, your employer may offer to increase the transfer value to encourage you to transfer your built-up pension benefits to a new pension scheme.
You may also be offered a similar incentive as an active member of a scheme, if you agree to transfer your benefits to a new scheme.
In each case, your employer is looking to reduce the running costs of their workplace pension scheme by moving future liabilities (your future pension benefits) out of the scheme.
If your employer offers you a transfer incentive, they are expected to follow a code of conduct to ensure that you are able to make an informed decision about what is best for you, without being pressured by your employer to transfer. A key element of the code of conduct is that your employer should offer you access to independent financial advice, paid for by your employer, to help you decide whether to transfer your pension benefits to a new scheme.
Pension increase exchange (PIE) exercises
If you're receiving a pension from your pension scheme, or are about to start receiving it, your employer may offer a one-off increase to the amount that you are receiving as a pension in return for you giving up your right to receive the annual pension increases that are set out in the scheme rules. If you accept the PIE, your pension will be paid at the new, higher rate for the rest of your life, but without any future annual increases.
Over time, this means that the purchasing power of your pension income may be eroded by the effects of inflation.
Your employer doesn't have to offer you access to independent financial advice provided that the PIE you are offered meets certain minimum standards set out in the code of practice and you are offered some guidance.
The Pension Regulator has set out five key principles that it expects to be followed in any transfer incentive or PIE exercise. These are set out, with further information, in a statement called “Incentive Exercises”, which you can read here. The Pension Regulator will investigate cases where it receives reports that the key principles have not been followed.
You should obtain all necessary information and consider the long-term implications of transfer incentives or pension increase exchange very carefully before you decide to accept an offer. If you are offered independent financial advice, this could help you to reach the right decision.
Where can I find out more?
If you need more information, please contact us. A pension specialist from our team will be happy to help with whatever pensions-related question you have. Our help is always free.