ETVs and the Pensions Regulator

This is an historic event and has been kept here for reference purposes.

On 13 July 2010, the Pensions Regulator issued draft guidance on transfer incentives and benefit modification offers, as well as a joint statement with the Financial Service Authority. 

In this draft guidance, which is subject to consultation, the regulator sets out the principles that it expects employers to follow when running an ETV or benefit modification exercise. It says: exercises should be clear, fair and not misleading; the reasons for the exercise should be transparent; conflicts of interest should be managed and where necessary removed; trustees should be consulted and engaged from the start of the process; and fully independent financial advice should be accessible to members. These principles are considered in more detail below.

To help our clients understand the potential implications, and to help us formulate our response to the consultation, we will be running a series of seminars across the country over the next few weeks, each lasting no more than one-and-a-half hours. The seminars will also consider the impact on enhanced transfer value and pension increase exchange exercises of last week's announcement that some occupational pensions will, in future, increase with Consumer Prices Index inflation.

To book your place, please click here.

Principles outlined in the regulator's 'Guidance on transfer incentives'

In elaborating on these principles, the regulator says:

• Accepting a transfer incentive can be beneficial for some members but “these cases are likely to be in a minority and very possibly a small minority”.
• Cash incentives distort members’ decisions. (However, its detailed guidance covers things employers should do when offering cash incentives, including explaining the tax implications).
• Trustees should start from the presumption that the exercises themselves (rather than just a member’s decision to accept) are not in members’ interests, and that reduced risk for some members is not sufficient reason to allow increased risk for another group. 
• If the employer has any concerns about members’ ability to understand the offer, it should pay for independent financial advice and require members to take advice before reaching a decision. This appears to apply to pension increase exchanges as well as to enhanced transfer values.
• The basis on which financial advisers are paid should be disclosed to members, and members should be free to choose their own adviser.
• The information provided to members should include the cost of replicating their DB benefits through a deferred annuity purchased on the open market.