Concerns raised over inducements offered to DB pension scheme members

The Pensions Regulator has outlined its concerns relating to the practice of inducement in guidance published today (Wednesday).

• Regulator expresses concern about inducements to transfer out of DB schemes
• Members must be fully informed of the implications of transferring out
• Trustees and members encouraged to seek independent advice
• Guidance published for trustees, members and employers

The guidance has been published to help employers, trustees and scheme members identify and fully understand the implications of inducements to transfer out of DB occupational pension schemes or to agree to rule changes leading to benefit reductions.

In deciding whether to transfer out, the regulator's guidance makes it clear that members will need to carefully consider the value of the inducement offer and the financial risks involved. Trustees must ensure that members are given all the information they might reasonably need in order to make an informed choice.

Chief executive Tony Hobman said: “While we recognise that employers may not break any laws when they offer an inducement, whether it is cash payments or an increased transfer value, we are concerned that some transfers are being proposed to avoid an employer's full pension liability.

“Trustees, in particular, have a duty to scheme members to take whatever steps they can to help ensure that members recognise the full impact of what is being asked of them. This should include encouraging members to take independent financial advice and to consider carefully the current and prospective funding position of the scheme.”

1. To view the guidance in full visit: www.thepensionsregulator.gov.uk 
2. The guidance is intended to raise awareness of the kinds of issues that the Pensions Regulator would like the pension community to take into consideration when employers propose to offer:
   • an inducement to transfer-out a DB scheme;
   • a cash inducement in return for the member consenting to give up non-statutory post retirement pension increases under a defined benefit (DB) scheme.
3. The Financial Services Authority (FSA) has a pensions guide to help consumers understand the risks of salary-related occupational pension transfers on their new website http://www.moneymadeclear.fsa.gov.uk/. The guide is also available by calling their consumer helpline on 0845 606 1234 (Call rates may vary).
4. A trustee is required to act in the best interests of the scheme beneficiaries, to act impartially, in line with the trust rules and prudently, responsibly and honestly.
5. The Pensions Regulator is the regulator of work-based pensions in the UK, with wide-ranging and flexible powers under the Pensions Act 2004. Its powers include the ability to:
   • collect detailed scheme information;
   • issue improvement notices and third party notices, enabling the regulator to ensure problems are put right;
   • freeze a scheme that is at risk while the regulator investigates;
   • prohibit trustees who are judged not fit and proper to carry out their duties; and
   • issue a contribution notice or financial support direction.

   The Pensions Act 2004 also imposes a statutory obligation on 'whistleblowers' to report to us suspected breaches of the legislation

• Amy Balchin 01273 627207
• Ruth Hallam 01273 627752
• Katherine Long 01273 811859
• Out of hours 01273 648496
• http://www.thepensionsregulator.gov.uk/

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