Incentive exercises

1. This guidance relates to transfer incentives and other incentive exercises that are sometimes offered by employers to members of defined benefit (DB) schemes. They attempt to persuade members to give up or accept a reduction in certain benefits in a DB scheme. This guidance is primarily aimed at two distinct groups who need to understand and consider the issues involved in any incentive exercise. These groups are:
   1. sponsoring and associated employers considering offering an incentive exercise; and
   2. trustees to the pension scheme where an exercise is being considered or carried out.

      In addition to these groups, this guidance may be of interest to members, benefit consultants, professional advisers, pension providers and others.

2. The regulator has a statutory objective to protect members’ benefits. The purpose of this guidance is to inform those considering an incentive exercise of relevant issues from a regulatory perspective and of expected standards of conduct for all participants. It also highlights important areas of consideration for employers, trustees, advisers and members affected by an incentive exercise. It does not seek to impose new legislative requirements or legal duties upon trustees or employers.
3. The regulator is aware that employers have sought to reduce past service liabilities or modify benefit entitlements by means of incentive exercises. There are significant difficulties in structuring these exercises to meet appropriate standards. Incentive offers can create risks for members, trustees and employers, and those risks should be evaluated before a decision is made to proceed.

4. An incentive exercise is where a sponsoring or associated employer of a DB scheme seeks to remove some or all of its liabilities by persuading members to transfer or modify benefits. This usually takes place through providing some form of financial incentive. Our previous guidance on this matter was entitled ‘Inducement offers’. However, since the enactment of the Pensions Act 2008, the term ‘inducement’ has been given a particular meaning in the context of automatic enrolment schemes. To avoid any confusion of terms, in this guidance we have used the term ‘incentive’ rather than ‘inducement’. This guidance, whilst primarily covering transfer incentives or enhanced transfer values (ETVs) as they are commonly known, can equally be applied to scheme modifications affecting accrued rights where members are being asked to make a choice. It is not intended to apply to proposals for schemes being closed to future accrual or other modifications which only affect the future accrual of benefits, however our statement: 'Employer duty to consult on scheme changes' (PDF) may be relevant.
5. There are a number of ways in which an exercise can be constructed. For example, asking the member to give up non-statutory post-retirement pension increases in return for a higher flat rate pension within the scheme. The most common form is an enhancement to the calculated transfer value of the member’s benefits in the scheme, or a cash payment in addition to the transfer value, on the condition that those benefits are transferred out to another form of pension provision.
6. The purpose of making this offer will usually be to reduce risk and liability upon the employer. Where the employer provides a DB pension scheme, the employer retains the risk of needing to fund the pension liability. If, for example, this benefit is transferred as a cash sum, the value of the benefit is immediately crystallised. This may reduce cost and/or risk over the long term, and possibly improve the company’s balance sheet in the short term.
7. The employer reduces or eliminates its undertaking to pay a defined benefit pension, but the member is unlikely to be able to purchase an equivalent promise on the open market for the transfer value offered. If an employer is willing to encourage the transfer, the employer’s gain may well be the member’s loss.

8. The regulator is concerned that members will be disadvantaged by incentive-led transfers out of DB schemes or benefit modifications.
9. The regulator believes that trustees should start from the presumption that such exercises are not in most members’ interests. It recognises that there will be members whose personal circumstances mean it is more likely that they would benefit from accepting such an offer. Examples might include: where life expectancy is impaired; where there are no dependants that are allowed for under the scheme; where the level of benefit is such that it would be cut significantly were the scheme to enter the Pension Protection Fund (PPF); or where they are a sophisticated investor looking to balance the risks in a portfolio of retirement benefits. However, these cases are likely to be in a minority and, very possibly, a small minority. High quality financial advice is key to identifying those members. Accordingly, it is of vital importance that independent financial advice be made accessible to all members and be promoted in the strongest possible terms.
10. Trustees have a duty to ensure that all classes of members are treated fairly. If exercises are to proceed on an appropriate basis, trustees should ensure they consider the interests of both potential transferring members and remaining members. They should be content that members who are excluded from, or choose not to accept, an incentive offer are left in no worse position as a result of the exercise. Members should be given sufficient information to be able to make an informed choice about an incentive-led activity.
11. The regulator recognises it is important that scheme members retain responsibility for their own financial decisions where those decisions impact their DB scheme benefits. Trustees are not expected to make the member’s decision for them.
12. If an employer considers it worthwhile to make an incentive offer (and believes it is a viable alternative to funding the scheme liabilities that represent those promised benefits), then the regulator considers that its offer should adhere to the key principles listed below (which are further expanded in section 2). This is in addition to complying with the legal requirements for the particular exercise under consideration.

13. If parties adhere to these principles in addition to their legal obligations, then the regulator expects that any member will be given all the information they need to understand the implications of accepting the offer, and will be able to make the right choices for their own specific circumstances. This may not, however, remove all legal or reputational risks to those making any offer.
14. The regulator takes an interest in incentives because of its statutory objective to protect the security of members’ benefits. It will proactively identify and investigate reports of cases where behaviours give us cause for concern. Where appropriate it will consider the use of its powers.
15. The Appendix to this guidance provides some examples of the types of information that should be included in offers to be consistent with these principles. This list is not exhaustive and does not attempt to address all the information which would be required to comply with these principles, which will be specific to the circumstances of the offer being made. Information provided in any exercise should balance the need to be open and transparent, whilst being clear, fair and not misleading. Trustees and employers should consider how the advice process will interact with this, including whether members are required to take independent financial advice when considering the offer, and the information that would be provided to the member as part of that process.

16. An offer should be made in a clear, fair and not misleading way.
17. This principle is key to ensuring offers are communicated in an appropriate manner. It reflects the principles of the rules applicable to financial promotions regulated by the Financial Services Authority (FSA).
18. The principle supports the provision of information that is tailored and meets the needs of its audience, ensuring that it is relevant, accessible, comprehensive and focuses on the key and important points. The offer should avoid providing excessive or confusing details, jargon, understating or overstating positions, or concealing or omitting essential pieces of information.
19. To align with this principle the offer should provide a clear indication of the value of benefits being given up (both in today’s terms and on retirement). This could be illustrated in the information provided by the employer, for example as the cost of purchasing equivalent benefits on the open market today, or will be addressed through the advice process where taking advice is a requirement of accepting the offer. It should also outline fully the risks involved in accepting the incentive offer, including investment, longevity and annuity risk, compared to the position should the member choose not to accept.
20. The British Code of Advertising, Sales Promotion and Direct Marketing provides clarification of what clear, fair and not misleading means to advertising in that context:
    • Honesty: marketers should not exploit the credulity, lack of knowledge, or inexperience of consumers.
    • Truthfulness: no marketing communication should mislead, or be likely to mislead, by inaccuracy, ambiguity, exaggeration, omission or otherwise. Marketing communications must not omit, hide or provide in an unclear, unintelligible, ambiguous or untimely manner any material information.
    • Fear and distress: no marketing communication should cause fear or distress without good reason.
21. The regulator believes these are good principles to apply in this context, and employers should seek to comply with these principles when communicating incentive offers to members.

22. The offer should be open and transparent so that all parties involved in the process are aware of the reasons for the exercise and the interests of the other parties.
23. A number of people will be involved in the creation and structuring of an incentive offer, each with specific roles and responsibilities in designing and undertaking the exercise. The relationship of the parties involved should be accurately and openly communicated to all, including the nature and arrangements of that relationship. Reference to the regulator’s guidance, the reason why the exercise is being undertaken, and the employer’s long-term funding objectives for the scheme (eg as set out in the Statement of Funding Principles) are all examples of transparency consistent with this guidance.
24. No undue pressure should be placed on individuals to accept an offer. Members should be provided with a reasonable amount of time to make an informed decision. The regulator recognises that there are statutory timescales for which transfer value quotations must be guaranteed in order to ensure members have enough time to consider their options. The regulator considers that at least the same amount of time should be afforded to members to consider a transfer incentive offer.
25. In particular, the basis for remuneration of advisers should be clearly articulated, as well as the process used for selection of any adviser where services are offered.

26. Conflicts of interest should be identified and appropriately managed in a transparent manner and, where necessary, removed.
27. Conflicts can arise when parties involved in the exercise have multiple interests, for example if they are both a trustee and a director or employee of the employer or where financial advisers are remunerated on the level of take-up of the offer.
28. Such a conflict can inhibit open discussions or result in decisions, actions or inactions that are not in the best interests of scheme members. This may lead to parties acting improperly, or a perception that the parties have acted improperly, which could result in invalid decisions or actions.
29. Steps should be taken to manage any conflicts of interests effectively. In every case they should be proactively identified, disclosed to relevant parties and appropriately managed. This includes any partnerships, exclusivity deals and adviser or broker incentives. For this purpose, please see our guidance on conflicts of interest.

30. Trustees should be consulted and engaged from the start of the offer process, with any concerns addressed, before progressing further with the offer process.
31. Trustees have an important role to play in ensuring that the interests of the scheme and its membership are properly addressed at all times. Consistent with their fiduciary duties and statutory obligations, trustees should question and challenge the appropriateness of an incentive offer and ensure it is in keeping with the principles of this guidance. Trustees will also need to manage the scheme’s investment, funding and cash flow through any cycle of membership or benefit change to meet the need for liquidity requirements of the potential take-up of any exercise.

32. Fully independent and impartial financial advice should be made accessible to all members and promoted in the strongest possible terms. In almost all circumstances, the structure of the offer should require that members take financial advice.
33. Members of most pension schemes will not have, and should not be expected to have, sufficient knowledge to make an informed decision on their own. Steps should be taken to ensure they fully appreciate the risks involved.
34. Employers should ensure that fully independent and impartial advice is accessible to members, and the impartiality of that advice should not be compromised, so that members can make informed decisions as to what is in their interests, with clarity and understanding on what is an important and complex matter.
35. Unless the employer is confident that scheme members have the ability to understand the structure and implications of the offer, then it should not only pay for independent financial advice but also require that members take advantage of advice before making a decision. It is highly unlikely that members will understand the offer except where they possess a high level of financial expertise and understanding of pension provision. Each member should be able to choose whether he or she takes advice from any appointed adviser, or takes advice from one of his or her own choosing, which may not be subsidised by the employer.
36. This advice will need to be tailored to the individual and their circumstances as a whole and cannot be generalised for the membership as a whole or even groups of members.
37. The regulator acknowledges that there will be members who, despite having received advice to the contrary, believe that it will be in their interests to go ahead and accept an offer. The regulator recognises that the trustees do not have any power to prevent members from accepting an offer.
38. The basis on which advice is remunerated, and who is paying for that advice, should be made clear to the member before it is provided.
39. It is in everyone’s interest that members make the right choices, and that the decision-making process should not be adversely affected by conflicts arising. As such it would not be appropriate for those providing financial advice to members to receive commission-based remuneration, or payment based on the level of take-up or the amount of reduction in scheme liabilities.
40. Trustees should ensure that they are comfortable that the selection, remuneration and broader commercial interests of the adviser are aligned with members’ interests.
41. Financial advice should only be provided by those authorised to give advice on pensions by the Financial Services Authority (FSA) – see our ‘Relations with advisers’ guidance. (Contact details for organisations who may be of assistance to employers, trustees and members are given in section 5.) Members need to understand the specific implications for their pension benefits in accepting the offer. The complexity involved in understanding and advising in this area means that advice must only be provided by those deemed capable to do so.
42. FSA authorised advisers have a broad range of skills and expertise. Employers and trustees must ensure that the adviser selected for the task has appropriate qualifications and demonstrable expertise in advising members on the specific area of pensions.
43. Employers who wish to appoint advisers should consider a due diligence process for appointment to ensure that the adviser has the capacity and competence to advise members.

44. Employers constructing offers and trustees considering whether the communications are appropriate are encouraged to consider: the member’s perspective; the nature of the decision for them; and their needs in making that decision.
45. A member who is offered an incentive to transfer out of a scheme, or to agree to a rule change leading to a reduction or modification in benefits, can be faced with a complicated financial decision.
46. In many instances it will not be within a member’s retirement interests to accept enhanced transfer offers. However, only the member can truly determine whether it is the right option for them.
47. For example, in the case of an incentive offer to transfer, the member will probably need to consider:
    • whether the transfer value that he or she is offered represents good value for his or her DB scheme benefits;
    • the type and likely amount of benefits the transfer value will secure under the scheme to which it is paid, and the likelihood of those benefits being provided; and
    • the degree of security of his or her benefits in the employer’s scheme and the role of the PPF.
48. In the case of an offer to accept a reduction or modification in benefits, the member will need to consider how the incentive offer compares to the benefits being given up.
49. Members need to fully understand the implications of a decision to accept an incentive offer. In most cases impartial, independent and properly qualified financial advice will be crucial in making the right decision on that offer. This is generally the case for all decisions involving retirement provision, whether or not as part of an incentive exercise.
50. Some of the terminology used in pension literature can be very confusing for members. For instance, the words ‘incentive’ and ‘enhancement’ can suggest the member is getting good value for the level of benefit being forgone. This cannot be determined without further consideration.
51. There are many factors beyond the rate of investment return (critical yield) that the member will need to weigh up. These factors may differ depending upon the type of incentive offer the member is asked to consider. They may include: assumption of longevity and annuity risk; the significance of the member’s DB scheme benefit in overall retirement plans; how they value their benefits and protections awarded under the DB scheme; and their overall personal and financial circumstances. Members will need adequate time and advice to consider these factors.
52. When accepting advice, members will be influenced by the employer’s future intentions towards the scheme or, for instance, the basis of remuneration of advisers. Without clear and concise information, members may later feel unjustly treated. Or they may feel they have made the wrong decision by not knowing or understanding all the relevant facts.

53. Employers should be aware that:
    • Incentive exercises are fraught with legal and reputational risks. Without the utmost regard and diligence to members’ needs in this very complex financial decision, members’ claims on the employer could be made many years after the exercise has taken place.
    • Employers should consider how incentives to transfer or modify benefits present risks that may arise in their own specific circumstances. For example, selective offers to certain scheme members can carry a greater risk of one section of membership being advantaged over another. Any attempt to exploit the protection of the PPF is likely to attract sanction from the regulator.
    • Evidence suggests that cash incentives distort the members’ decision-making process in respect of their retirement provisions. Given the evidence the regulator is concerned that an offer involving immediate cash incentives may not lead to sound decisions being made about retirement income provision in the long term.
    • The Pensions Ombudsman can investigate complaints made by members about employers. When reviewing a complaint the Pensions Ombudsman will take this guidance, as well as other factors, into account in determining whether the employer is at fault. If the complaint is upheld, the Pensions Ombudsman can direct the employer to compensate the member accordingly. The Pensions Ombudsman’s decisions are final and binding on the parties (unless there has been successful appeal on a point of law).
    • When providing information on incentive offers to members, employers should be aware that they have a duty of care. They should ensure that advice is fair, accurate and not misleading. Employers need to take care that they do not find themselves giving financial advice to members.
    • Incentive exercises can be very costly in nature, from taking the appropriate legal, financial, and actuarial advice and providing enhancements or incentives in order to offer fair value to the member in exchange for the benefits being given up. The costs may outweigh the perceived benefit of any such exercise.
    • The regulator expects that an employer will not conduct an incentive exercise if it could have an adverse effect on the employer’s ability to fund the scheme’s deficit in accordance with the scheme’s existing recovery plans.
    • There are strict laws and provisions governing the modification and forfeiture of benefits under a scheme. This includes the scheme’s governing documentation which sometimes contains relevant restrictions.
    • Coercing or placing undue pressure on members to transfer or give up benefits held within their pension scheme is a serious risk to members’ benefits and will result in action taken by the regulator where appropriate.
    • The regulator expects employers to make independent and fully impartial financial advice available to members, tailored to the members’ individual needs. Unless the employer is confident that scheme members have the ability to understand the structure and implications of the offer, then it should not only pay for independent financial advice but also require that members take advantage of advice before making a decision

54. Key considerations for trustees:
    • Trustees should start from the presumption that such exercises and transfers are not in most members’ interests. They should therefore approach any exercise cautiously and actively.
    • The trustees should have a clear understanding of their duties and legal obligations throughout the enhanced transfer exercise. The trustees are subject to requirements under legislation when calculating and providing transfers, as well as considerations under the scheme rules. Specifically, where an offer is made to a member who is being asked to give up an entitlement to certain accrued benefits through a modification of scheme rules, the trustees must ensure compliance with the provisions of s67 of the Pensions Act 1995 (in particular s67E – the trustee approval requirement, and the informed consent requirements). In addition the employer consultation requirements must also be complied with where relevant (s18A Consultation by Employers and Miscellaneous Amendments 2006). Trustees should therefore consider their legal position in any decisions they will be required to make. They should also consider their fiduciary duties more generally and whether or not this will require them to take action. If necessary, they should seek their own legal advice.
    • Fundamental to the trustees’ role in administering a pension scheme are their duties of care and skill, and in particular their duty to act in the best interests of beneficiaries. The trustees should be mindful of this obligation throughout an enhanced transfer exercise because they must ensure members’ interests are properly protected at all stages. They may need to take active steps in order to meet their legal obligations.
    • The trustees should engage with the employer from an early stage during a proposed incentive exercise. This will assist in satisfying the trustees (and keeping them satisfied throughout the process) that any offer made is in keeping with the principles of this guidance.
    • Trustees should already be alert to conflicts of interest or close personal relationships between employers and advisers, or trustees and advisers. Conflicts are a particular risk during enhanced transfer exercises. So trustees should identify and manage appropriately any conflicts of interests or potential conflicts of interest from an early stage.
    • The trustees will need to ensure they understand the structure and process of the proposed enhanced transfer. This will enable them to recommend safeguards to ensure the members’ interests are sufficiently protected and that the members properly understand the decision they are being asked to make. To alleviate any concerns about the scheme members’ ability to understand the structure and implications of the offer, trustees should request that the employer pays for independent and impartial financial advice.
    • A key role for trustees is to reassure themselves that the broader commercial interest, remuneration basis and process for selection of advisers does not militate against the likelihood of members seeking or receiving impartial advice.
    • The trustees have an ongoing legal obligation to establish and operate adequate internal controls. The trustees’ ongoing maintenance of effective internal controls should ensure that the trustees are alert and able to identify potential enhancement offers by the employer at an early stage, even when not alerted to it by the employer. For example, increased requests for personal data by third-party advisers may alert trustees to a potential exercise.
    • At the preliminary stages of structuring an enhanced transfer, the trustees may be asked to provide scheme data to employers or other advisers. The trustees should be mindful of their data protection obligations and be satisfied that they would not be breaching the relevant legislation if they were to release any personal information about members to employers, financial advisers, or any other third parties. If the trustees are uncertain as to their legal obligations, they should take their own legal advice in this regard before releasing the data.
    • Trustees should ensure that the funding position of the scheme does not deteriorate so as to materially impact the ability to provide benefits to the remaining members as a result of any exercise.
    • Trustees should consider the source of the employer’s capital used to fund the incentive exercise. They should consider its effect on the employer’s covenant including, for example, whether additional security has been given over the employer’s assets in exchange for the financing.
    • Trustees should also consider the implications of the employer’s capital being used to fund any incentive exercise on the company’s ability to directly repair any deficit in the scheme. If necessary they should bring forward a formal scheme valuation.
    • The employer will communicate and/or manage communications to employees. However, in order to fulfil their duty to protect members’ interests, the trustees should ensure that the communications to members are accurate and complete. This will include ensuring that:
      • members are presented with an offer they can properly evaluate;
      • employer’s communications contain the key messages described in this guidance; and
      • based on the trustees’ knowledge, the information to members is not misleading. For example, comments relating to the ongoing financial health of the employer should be reconciled with the trustees’ own knowledge and information.
    • The trustees should raise any concerns formally with the sponsoring employer and work with the employer to ensure those concerns are alleviated. This includes reviewing and commenting on the employer’s communications to members.
    • The trustees should at all times be mindful of their fiduciary duty to act in the members’ best interests. Trustees are not expected to make members’ decisions for them, but should ensure members are properly protected in making a decision on an incentive offer. Therefore, if the trustees consider that the information and / or communications to members are insufficient to enable the members to make an informed decision, the trustees will need to consider what action to take to address this issue; they may wish to issue their own communication to ensure key messages reach members. In engaging with members, however, the trustees need to take care that they do not find themselves giving financial advice if they are not authorised to do so.
    • If the trustees are unable to resolve concerns with the incentive exercise, they should seek their own legal advice and should consider raising any unreconciled concerns with the regulator in a timely manner.
    • The Pensions Ombudsman can investigate complaints made by members about trustees. When reviewing a complaint the Pensions Ombudsman will take the regulator’s guidance, as well as other factors, into account in determining whether the trustee is at fault. If the complaint is upheld, the Pensions Ombudsman can direct the trustee to compensate the member accordingly including personal redress on individual trustees. The Pensions Ombudsman’s decisions are final and binding on the parties (unless there has been successful appeal on a point of law).
    • Alternatively, a member could bring a claim against a trustee for losses arising as a result of a breach of duty by the trustee.
    • Where an incentive exercise warrants review by the regulator, this review will take into consideration the trustees’ involvement in the exercise. Where the regulator has concerns as to the ability of the trustees to act in accordance with their trustee duties and to demonstrate sufficient knowledge and understanding, this may result in a much wider review of the general administration and governance of the scheme. Where significant concerns exist in this area, the regulator has powers to impose sanctions on the trustees (such as the removal of trustees or the appointment of an independent trustee).

55. The organisations listed below may be of assistance to employers or trustees, and can be recommended to members with any information needs or concerns.

    Contact The Pensions Advisory Service with any questions or concerns about an offer at:

    The Pensions Advisory Service
    11 Belgrave Road
    London
    SW1V 1RBT
    0845 601 2923
    E enquiries@pensionsadvisoryservice.org.uk
    W www.pensionsadvisoryservice.org.uk

    Contact the Pensions Ombudsman if you feel you are or have been unjustly treated (their booklet headed ‘What to do before you come to us’, available on their website, should be consulted before making an official complaint):

    The Office of the Pensions Ombudsman
    11 Belgrave Road
    London
    SW1V 1RBT
    020 7630 2200
    F 020 7821 0065
    E enquiries@pensions-ombudsman.org.uk
    W www.pensions-ombudsman.org.uk

    Contact the Financial Services Authority with any concerns on regulated advice provided, or for more information on pensions and pension transfers generally:

    Financial Services Authority
    25 The North Colonnade
    Canary Wharf
    London
    E14 5HS
    T 0300 500 5000
    W www.fsa.gov.uk

    Contact the Consumer Financial Education Body for more information on pensions and pension transfers generally:

    Consumer Financial Education Body
    T 0300 500 5000
    W www.moneymadeclear.org.uk

    Contact The Pensions Regulator with any reports  of coercive, pressurising or misleading behaviour or with any concerns regarding the structure or the conduct of parties involved in the exercise at:

    The Pensions Regulator
    Napier House
    Trafalgar Place
    Brighton
    BN1 4DW
    T 0870 606 3636
    F 0870 241 1144
    E customersupport@thepensionsregulator.gov.uk
    W www.thepensionsregulator.gov.uk

56. As employers or trustees receiving professional advice: if you have concerns about the advice you are being given, contact the adviser’s regulating professional body, or in the case of financial advice contact the FSA.

The regulator has identified below some of the information that it may be necessary to include in an offer that is consistent with our guidance principles. This list is not exhaustive and is for illustrative purposes only. It is likely that different or additional information will be required in the individual circumstances of your particular scheme, membership, and incentive offer. Information provided in any exercise should be open and transparent, clear, fair and not misleading.

This should not be used as a checklist to guarantee the offer complies with the principles of this guidance.

Offers may include information to:

• explain the nature of the benefits being given up in exchange for the offer. In particular, where reductions in pension increases are involved, it should explain the potential loss in inflation protection;
• explain, where a transfer out of a DB scheme is involved, that the scheme which accepts the transfer value may not provide the same level of benefits;
• explain the protections offered where a transfer out of a DB scheme is involved. This should cover the degree of protection afforded by scheme wind-up legislation, and that of the PPF in employer insolvency;
• explain, where a rule change leading to a reduction of benefits is involved, the likely cost of making good any forgone benefit;
• explain that there may also be tax implications for the member if he or she accepts a cash incentive payment;
• explain why the member should take independent financial advice before making any decision about the possible transfer-out of his or her benefits from the DB scheme or accepting a reduction or modification of benefits. They can provide a link to the website www.unbiased.co.uk to facilitate any wish for finding an adviser of their own choosing;
• explain, where a transfer out of a DB scheme is involved, that there are various risks that the member will be taking on. These will include investment risk, longevity risk and annuity risk, and the member should ensure his or her independent financial adviser (‘IFA’) explains these risks to them;
• explain any limitations of the financial advice being made available to members, the basis for remunerating any financial adviser retained, and who is paying for that advice;
• where a transfer is being offered and the scheme is in deficit, state the amount of the reduction applied to the member’s transfer value and when the trustees expect the scheme to be in a position to offer full and unreduced cash equivalent transfer values;
• specify the amount being offered to the particular member concerned;
• say whether the incentive is: a cash payment (and if so how and when it will be paid); an increase to the transfer value that would otherwise be paid by the scheme; or a combination of these; and whether the member is able to pick and choose from these options;
• say if the amount offered is affected by any member choice (for example, if the member chooses to accept a cash incentive instead of an enhancement to the transfer value);
• say how long the offer will be open;
• say why the employer is making the offer, and disclose any longer term plans for the scheme. It would be helpful if the impact that the assumed level of take up would have on the employer’s accounts could be quantified;
• make clear that the member does not have to accept the offer and that the member can retain his or her benefit entitlement under the scheme. The communication to the member might also usefully outline the consumer protection available to the member under the law with this type of financial transaction; and
• recommend and direct members to the relevant pages of The Pensions Advisory Service website www.pensionsadvisoryservice.org.uk, and recommend that members use this free and impartial service to address any questions or concerns they may have.