Moves to make market value adjustments (MVAs) exempt from the early pension exit charges are being considered by the government.
In a consultation paper released on 26 May, the Department for Work & Pensions (DWP) said market value adjustments (MVA) would not be included in an exit charge cap.
To avoid any potential ambiguity, the DWP stated it will specify in the Financial Services and Markets Act 2000 that MVAs will not fall foul of a pension charge cap.
The paper said MVAs for occupational pension schemes would be defined as “adjustments generally found in with-profits, which are offered by insurers directly to members via personal pension schemes, or indirectly via occupational scheme investments.”
In July 2015, HM Treasury launched a consultation on transfers and early exit charges.
At that time, the government said while they may appear as a reduction to the consumer, the aim of an MVA is to return an individual to their ‘share’ of the pension scheme at the point at which they exit.
This is opposed to a nominal figure that may be quoted to them in their pension statement.
The regulations proposed today (26 May) will specify an adjustment to the value of a member’s benefits will not be treated as an early exit charge if the adjustment either:
• reflects a difference between the indicative value of a member’s benefits;
• is made to smooth market fluctuations;
• is for the purpose of ensuring the value of the scheme is fairly distributed between its members;
• is in a manner which aims to adjust the value of the member’s benefits in order to reflect the member’s asset share, and;
• is in accordance with generally accepted actuarial practice and all relevant regulatory requirements.
Pensions minister Baroness Ros Altmann said: “I encourage the industry and all those with an interest to contribute to this debate.” The consultation runs for 12 weeks, alongside similar work from the FCA on capping workplace pension exit fees.
Adviser view:
Daren O’Brien, director at Aurora Financial Solutions, said MVAs have always been a sticking point for advisers and clients, because they are seen as unfair.
He said: “A MVA should not be included – it isn’t a charge, it is fund performance - it is not technically a charge.
“In general, I agree that there shouldn’t be high exit charges, and a 1 per cent cap is still pretty high when you see some pension valuations.”
ruth.gillbe@ft.com
