Regulator updates guidance on transfer incentives

A strengthened position on transfer incentives has been outlined in guidance published for consultation today by The Pensions Regulator.

It clarifies the role of the employer and trustee and aims to ensure that trustees become actively involved in managing the risks of such exercises. The guidance is accompanied by a new e-learning module and a joint statement with the FSA, all available on the regulator's website.

The regulator’s position is in accordance with that of the FSA and the guidance replaces the 'Inducement Offers' guidance published in 2007. It highlights that trustees should start from the presumption that such exercises and transfers are not in members’ interests and should therefore approach any exercise cautiously and actively.

Trustees play an important role in ensuring that scheme members are in the best possible position to make the right decision in relation to their benefits. In order for transfer exercises to be conducted in an open, fair and transparent way, the regulator expects:

• members to be provided with clear information that is not misleading;
• members to be provided with impartial and independent advice to ensure they make the right decisions;
• trustees to engage in the offer process and apply a high level of scrutiny to all incentive exercises to ensure members’ interests are protected;
• employers to ensure that any offers made are consistent with the principles in the guidance; and
• no pressure of any sort to be placed on members to make a decision to accept the offer.

The regulator’s chair David Norgrove said: “As our guidance emphasises, any transfer exercise should be conducted with the highest regard to members’ interests. Trustees should start from the presumption that such exercises are not in members’ interests and should be approached with caution.

“Since we published our initial guidance in 2007, we have seen behaviour that concerns us. There has been a box-ticking approach that has led to exercises being run without due consideration to scheme members.

“As a result we will be looking closely at exercises and working with other regulatory bodies to ensure that standards are improved. We expect trustees to play an active role in ensuring that members are able to make informed decisions.”

Mr Norgrove added: "The Pensions Ombudsman will take this guidance into account to determine whether any complaint is upheld. He can then direct trustees or employers to compensate members accordingly."

The consultation lasts for 12 weeks and responses should be submitted by 05 October 2010.

1. The revised guidance follows on from David Norgrove’s speech in December 2009 at the NAPF Annual Trustee Conference, where he outlined the role of trustees in the regulator’s protection framework.
2. The Pensions Regulator is the regulator of work-based pension schemes in the UK, with objectives to protect members' benefits, promote good administration and reduce the risk of calls on the Pension Protection Fund. Our approach is risk-based focusing on education and enablement, with enforcement where appropriate. We have the ability to:
   
   • collect information about pension schemes: through scheme returns, under the scheme funding regime and as well as statutory (including whistleblowing) reports;
   • issue notices requiring actions to tackle non-compliance, prohibit trustees who are judged not fit and proper to carry out their duties or appoint independent trustees;
   • direct pension schemes as to how to calculate their liabilities and the contributions required;
   • issue a contribution notice where there is an attempt to avoid liabilities, or a financial support direction where the employer is a service company or insufficiently resourced.

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