Businessman hand put coins

Whilst this is perhaps not the question that Shakespeare had in mind when penning Hamlet, it is a question that will be at the forefront of the minds of many members, trustees and employers post April after the Budget 2014 flexibilities come into force.

Information, information, information

Various regulatory and governmental bodies including the DWP and the Pensions Regulator (tPR) will be publishing information, regulations and guidance designed to assist all key stakeholders in implementing the Budget 2014 changes. The most recent guidance consultation has been published by tPR and is addressed to Trustees of Defined Benefit (DB) schemes. Although it is based on the Pension Schemes Bill 2014-15 and therefore may change, ‘DB to DC transfers and conversions’ offers a useful and digestible insight into how trustees should approach this topic in light of the potential increase in member queries.

What are tPR’s views?

Whilst acknowledging that trustees’ duties, powers and the statutory basis for the calculation of transfer values has not changed, the consultation notes a number of key areas which trustees need to consider in addition to getting to grips with new benefit categories for the purposes of processing transfers i.e. ‘flexible benefits’ (broadly these are money purchase and cash balance benefits) and ‘safeguarded benefits’ (benefits that are neither money purchase nor cash balance benefits). A couple of these are mentioned below.

Independent advice requirement

Broadly, before a transfer is made trustees will be required to apply appropriate checks to each transfer case where a DB member with over £30,000 of safeguarded benefits wishes to transfer to flexible benefits. These checks include ensuring:

  • the member has taken advice;
  • the advice is from a Financial Conduct Authority (FCA) authorised adviser; and
  • the advice has covered specified prescribed matters (the adviser should provide signed confirmation of a number of points including confirmation of his FCA number, that he has the necessary permission to provide advice on safeguarded benefits, that advice has been given in respect of the transfer and the member’s name and applicable pension scheme).

Transfer requests and processing requests 

In addition to existing timelines for transfer value requests which trustees will be familiar with they also need to ensure:

  • within one month of a transfer request that a member has been notified of the requirement to take independent advice; and
  • when issuing the statement of entitlement they inform the member again that if he wishes to proceed with the transfer he must provide evidence that he has received independent advice within three months of the guarantee date.

TPR does make it clear that where trustees have made checks to ensure that appropriate advice has been taken but this cannot be confirmed, trustees must not proceed with the transfer request.

TPR also states that trustees should keep under consideration the impact that the number and size of transfer requests could have on their scheme’s funding position. For example, in respect of smaller schemes, the departure of a few members with large pensions could have a disproportionate impact on the scheme’s funding position. 

What should trustees do? 

Key areas for trustees to focus on will be:

  • reviewing member communications including scheme booklets to ensure they are appropriate and compliant;
  • supporting members by signposting relevant information and advice providers;
  • monitoring demand for transfers and their impact on scheme funding;
  • evaluating the impact of transfers on investments and the ability to make those transfer payments; and
  • checking that appropriate confirmations have been received from the advisers of members seeking to transfer and retaining records of the checks undertaken.

The closing date for responses to the consultation is 17 March 2015 and further guidance is expected in early March following publication of regulations by the DWP. The run up to April promises to be a hectic one for trustees whether members choose to transfer DB to DC or not.

This post was contributed by Suresh Bhatt. For more information, email blogs@gateleyuk.com.


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This blog is intended only as a synopsis of certain recent developments. If any matter referred to in this blog is sought to be relied upon, further advice should be obtained.