Advisa Centa is backing the Code of Practice published by the Industry Working Group on Incentive Exercises, with a view to improving and making more transparent the processes that surround Enhanced Transfer Value (ETV) exercises in the UK. Concerns about the potential for bad practice are widespread, but Advisa Centa believes that the new code marks an important step forward in protecting pension scheme members as their employers increasingly look to limit the degree of uncertainty in their pension liabilities.
The main emphasis of the Code is the ban on cash incentives which have encouraged pension scheme members to take transfers from Defined Benefit pension schemes without realising what they are giving up. This decisive action is very welcome and perhaps overdue as it is the single feature that has caused the greatest concern about ETV exercises. Building on this, the Code requires scheme members to be independently advised and clearly informed of their options and the potential risks involved as they consider taking employer incentives to transfer their funds from a DB pension scheme to a Defined Contribution (DC) alternative.
Advisa Centa is pleased to note that the Working Group’s emphasis on ensuring that pension scheme members have a better understanding of the issues involved giving up DB benefits reinforces the need for tools like Advisa Centa’s Transfer Analyser, which forms part of Advisa Centa's suite of groundbreaking financial solutions and modelling systems.
“While the new Code of Practice clearly acknowledges that illustrating the risks linked to transfer exercises can help inform members considering the pension options open to them, the use of such illustrations will remain optional under the terms laid out by the new Code,” says Joanna Hall, Sales and Marketing Director, Advisa Centa. “We believe that illustrating the risks should be compulsory, given how important it is that members understand the risks they are taking on before deciding whether or not to transfer. This would help to ensure that all members are suitably protected and well informed as they consider their options."
The use of stochastic modelling systems within Advisa Centa’s Transfer Analyser tool is a highly effective means of communicating the range of potential outcomes for pension funds.
Key benefits of Advisa Centa's Transfer Analyser
• For pension plan members -the provision of a retirement modeller which gives a clear and comprehensive picture of the financial impact based on the options available, combined with best practice communications, makes it easy for employees to understand the implications of the offer. Post the transfer exercise, employees can continue to have access to the retirement modeller and to advice, if they wish, on an on-going basis.
• For trustees -the comfort and assurance that an objective comparison of risks and rewards is presented in a clear and graphically dynamic way that will allow different options to be considered together with the reassurance that the members will have on-going access to a retirement modeller and, if they want it, to advice so that they can keep track of their pension.
• For employers -the confidence that best practice and cost efficiency have been achieved throughout the processes as well as potential for significant improvements in the management of their pension liabilities.
• For advisers -the improvement in efficiency since much of the administrative work associated with risk profiling and fact finding is undertaken by the member and that advice is only provided to those members who are actively considering a transfer, thereby creating a specifically designed and truly robust compliant process.
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