Regulator updates incentive exercises guidance
The Pensions Regulator has reviewed its guidance on incentive exercises and replaced it with a short principles-based statement, following publication last month of an industry code applying to this area.
The regulator said the practical guidance in the industry code as to how employers should properly conduct incentive exercises, if they choose to do so, is well aligned with the regulator’s principles.
However, The Pensions Regulator has abbreviated its guidance to avoid any confusion arising from two standards - focusing on the overarching principles published in its December 2010 guidance.
The regulator’s guidance also addresses the role of trustees, which is not covered in detail in the industry code.
It remains the regulator’s view that trustees should approach incentive exercises with caution and presume that they will not be in most members’ interests. This will involve taking advice, where necessary, and acting in accordance with their legal obligations to scheme members.
Bill Galvin, the regulator’s chief executive, said: “The regulator welcomes the industry’s bid to drive up standards. This is important because any transfer out of a defined benefit scheme poses a significant risk to members who may not be equipped to make an informed decision, and such offers won’t be in most members’ best interests.
“For those employers that decide to undertake such an exercise, the industry code sets out the good practice principles that should be applied. If conflicts are appropriately managed, trustees are engaged throughout the exercises, and the principles in the industry code are followed, then exercises should fulfil and be consistent with our principles.”
Darren Philp, policy director at the National Association of Pension Funds, said that although this is welcomed, it would have preferred to see the code as the only source of reference to keep things simple.
He said: “However, we are pleased that this guidance is a streamlined version of the previous edition and that it points the reader towards the code.
“We need to ensure that people make the right decisions for their retirement, so it is essential that employers comply with the new code of practice. The Napf will play its role in helping to monitor compliance over the next year.”