Defined Benefit  

Regulator urges troubled schemes to cut transfer values

Regulator urges troubled schemes to cut transfer values

Trustees of schemes of troubled companies are being advised by The Pensions Regulator (TPR) to consider cutting the pension transfer values on offer to their members.

According to a letter obtained by Royal London in response to a freedom of information request, seen by FTAdviser, the watchdog has been writing to schemes it deems troublesome due to recent events with their sponsoring employers.

In the document, the regulator says it would expect such trustees to take advice from the scheme actuary about whether the basis on which cash equivalent transfer values (CETVs) are calculated "remains appropriate".

It added: "We would also expect you to consider whether a new insufficiency report should be commissioned from the actuary.

"This would allow you to judge whether a reduction or further reduction should be applied to CETVs in light of their assessment of covenant strength."

The names of the schemes have not been revealed but trustees of these schemes were also asked to pass on a letter from TPR, the Financial Conduct Authority (FCA) and The Pensions Advisory Service (Tpas) to their members, warning them about rogue advisers and pension scams.

FTAdviser has learnt that J Sainsbury and Asda, which announced a merger in April, have received this letter.

According to a FOI published on TPR’s website at the end of July, 12 schemes have received this joint correspondence so far.

Royal London said a particular concern for the watchdog "appears to be the situation where workers transferring out are offered a cash lump sum on relatively generous terms at a time when the pension scheme itself is in deficit. 

"If large numbers of members transfer out on generous terms, there would be a risk that the funding position of the scheme could worsen and the risk of remaining members not getting their full pensions could increase."

An exponential increase in the number of people transferring out of any pension scheme can also hit the value of the remaining members' retirement nest egg.

Sir Steve Webb, director of policy at Royal London and former pensions minister, said he hoped well run pension schemes would be taking expert advice when deciding how much to offer their members wishing to transfer out. 

He added: "But the regulator’s letter is a helpful reminder to all schemes that they need to be fair not only to those transferring out but also those left behind, especially where the scheme in question is in deficit."

Craig Harrison, managing director of Creative Wealth Management, welcomed the "sensible approach" from TPR, saying "while the majority of schemes will be well aware of the requirement to be fair to all members, it serves as a helpful reminder to make sure that all members are considered when setting transfer values".