Connected Research

Union policy research in the 21st century

Pensions Regulator warns on inducements

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Speaking at the National Association of Pension Funds’ annual trustee conference yesterday, David Norgrove, the chair of the Pensions Regulator, spent a large part of his time in focusing on the risk management role of trustees on the ‘worrying tactics’ of employers offering inducements to pension scheme members to leave their schemes, particularly where enhanced transfer values are offered (press release; full speech).

Norgrove referred in particular to four such tactics:

– the offer of advice paid for by the employer on the condition that members take that advice

– excessive pressure to make a decision

– misinformation, including over the future of the scheme

– putting excessive time pressure on members to make a decision, including making time-limited inducements.

Agreeing with the advice of the Financial Services Authority in such situations that:

… it is very difficult to make a direct offer financial promotion for a DB pension transfer that is fair, clear and not misleading… The FSA will start from the presumption that such transfers are not suitable,

Norgrove offered scheme trustees the Pensions Regulator’s own interpretation:

Trustees should start from the presumption that such exercises and transfers are not in member interests. If a company is willing to encourage the transfer, the company’s gain is likely to be the member’s loss.

Such a clear statement of intent is welcome and gives trustees clear guidance as to at least the initial view they should adopt, particularly in view of the ‘strong influence’ that such inducements are likely to have on scheme members, at least at the immediate, superficial level. There may indeed be some individually-specific circumstances in which a transfer out of a defined benefit scheme offers an improvement in the pensions position, but the Regulator’s belief that:

… in general it is unlikely to be in member’s interests to transfer out of a DB scheme

offers a timely perspective which is likely to be useful to those in the position of giving advice to scheme members faced with such an offer, especially at a time of continuing deficits in schemes wrought by the economic environment.

The advice is nevertheless likely to be controversial, firstly in principle with the directness of the ‘if the employer is offering it, there’s a reason for that’ line; and secondly with regard to the encouragement of trustees set out in the speech to take a more proactive line on the issue by engaging with such inducement exercises and taking the responsibility of ensuring that members are aware of the issues involved.

Hopefully, the speech is sufficient to sound the death knell for such exercises at the generic level.


Written by Calvin

11/12/2009 at 3:34 pm

One Response

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  1. […] But for many Trustees and employers, ETVs are a step too far. After all, the DB company pension scheme was set up to give members with a guaranteed pension and the Trustee’s job is to ensure those pensions are paid in full. Why should Trustees duck such a responsibility? The Company may want to get rid of its obligations but they must also be mindful of their reputation , especially where industrial relations may be strained. Unions do not generally look kindly at ETVs. David Norgrove- the Pensions Regulator doesn’t either […]

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