The paper discusses the key issues of:
Whether trustees should be offering transfer values as part of routine communications, regardless of whether members have asked for them, and
What support trustees and employers should offer to members who seek a transfer value.
The paper first describes the case for a ‘minimal compliance’ approach to transfers. The case for trustees being largely passive and reactive when it comes to transfers includes:
A scheme’s rules may indicate that its primary purpose is to provide an income in retirement and therefore trustees should not stray beyond this remit;
The risk that trustees might face legal challenge if they actively facilitate transfers and members subsequently get poor outcomes, especially given that regulators have a presumption that a transfer will not be in a member’s interests; and
The risk that a large volume of transfers may damage the position of remaining members in the scheme, especially in light of the Pension Regulator’s recent letter to some DB schemes.
The paper then sets out the reasons why trustees may wish to go further than the legal minimum. These include:
Despite the requirement by regulators that financial advisers should start from a presumption against transfer, there may be a number of specific circumstances where a transfer would be in a member’s interests, and trustees simply do not know enough about their members to know which members might benefit from a transfer;
Trustees who take no steps to assist members in this area are not necessarily immune from legal challenge; members who get minimal support from their trustees might challenge the lack of engagement over transfers if a poor outcome is the result, and it could be argued that trustees who do not help members who are considering a transfer to source high quality and impartial advice are not doing the best for the members; and
Proactively providing transfer value information will help members to make informed choices about their options where transfers to DB are an inherent part of a ‘freedom and choice’ pensions world.
The paper concludes that whilst there is no single right answer for all schemes, trustees need to be aware that there are legal risks to both approaches and should recognise that the ‘freedom and choice’ reforms have changed the pensions landscape in a way that they need to take account of.
Commenting on the paper, Francois Barker, Partner and Head of Pensions at Eversheds Sutherland said: “The world of pensions has changed dramatically in recent years, particularly as a result of the ‘Freedom and Choice’ reforms. Current practice by DB trustees regarding pension transfers varies hugely. Although each scheme needs to decide for itself where to draw the line on engaging on pension transfers, trustees should certainly make sure that they consider their approach in the round, taking account of all the relevant factors and evolving best practice – including on facilitating independent financial advice for members.”
Steve Webb, Director of Policy at Royal London said: “Hundreds of thousands of people have transferred out of their company pension in the last few years having taken impartial financial advice. In my view trustees need to engage fully in this process, and not make assumptions about what is right for individual members. Instead they should make sure that their members are well informed about their options and are equipped to draw on good quality advice before making a decision that is right for them.”
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