Trustees have been urged to proactively highlight to members when a pension transfer is available, even if the amount is only disclosed on request.
Pensions lawyers Eversheds Sutherland and mutual insurer Royal London published a discussion document for defined benefit trustees this morning (19 September), in which they say there was no "single, easy, intuitively right answer" to the question if scheme members should proactively be approached about transfers.
However, legally, provided trustees go through a proper process in deciding what approach to adopt, there should be no problem, the paper stated.
Eversheds and Royal London suggested trustees could include a reference to the availability of transfer values in routine member communications, in order to help them make an informed decision.
However, the firms warn that these communications shouldn’t promote or encourage the transfer option. The overriding theme for trustees in this context should be facilitating, not influencing, the paper said.
The paper stated: "Provided that the process used is appropriately robust, this is also likely to enhance the ability of members to make well informed choices.
"It may also reduce the risk of employers and trustees being found responsible for DB transfers out which ultimately prove sub-optimal."
Francois Barker, partner and head of pensions at Eversheds Sutherland, said the world of pensions had "changed dramatically" in recent years, particularly as a result of the freedom and choice reforms.
He said: "Current practice by DB trustees regarding pension transfers varies hugely.
"Although each scheme needs to decide for itself where to draw the line on engaging on pension transfers, trustees should certainly make sure that they consider their approach in the round, taking account of all the relevant factors and evolving best practice – including on facilitating independent financial advice for members.”
Since pension freedoms, the number of people transferring out of their DB pension transfers has been soaring, as savers seek to take advantage of sky-high transfer values and to move their nest eggs into defined contribution (DC) schemes.
According to figures from the Office for National Statistics (ONS), funds transferred out of pension schemes almost tripled to a record £34.2bn in 2017.
Eversheds and Royal London also called on trustees to help give their members access to financial advice.
Sir Steve Webb, director of policy at Royal London and former pensions minister, said "hundreds of thousands of people have transferred out of their company pension in the last few years having taken impartial financial advice.
"In my view trustees need to engage fully in this process, and not make assumptions about what is right for individual members.
"Instead they should make sure that their members are well informed about their options and are equipped to draw on good quality advice before making a decision that is right for them."
According to Martin Bamford, chartered financial planner and managing director at Informed Choice, scheme trustees "should resist the temptation to get proactive around publicising the availability of transfer values".
He said: "Once they become aware of the existence and scale of a transfer value, investors find it difficult to consider this logically with reference to a guaranteed income for life.
"Promoting the availability of a transfer value option will surely just increase levels of unsuitable transfers from schemes."
maria.espadinha@ft.com
