GKN defaulting DB members into transferring out

The GKN Group Pension Scheme is transferring members’ defined benefit entitlements into cash without them having requesting a transfer.

Scheme members with smaller entitlements are being given cash sums for their benefits based on a multiple of 14 if they do not return a form saying they wish their benefits to be transferred to a newly established scheme.

Corporate Adviser has seen transfer documentation stating that around £6,000 will be paid in lieu of £400 a year benefit index-linked from age 65, if the member does not return a form requesting a transfer to a new scheme.

A brochure sent to members explaining the 14x factor for the lump sum offer says it is ‘based on the terms which are currently used by the Trustee for members the option of converting pensions into a lump sum when they reach normal retirement date’. But the offer does not include a calculation of a cash equivalent transfer, which GKN admits could be higher, even though it knows members being moved out of the scheme are not at normal retirement date.

While the GKN offer does not include the likely higher CETV figure, it spell out in detail potential impediments to accessing a CETV, including the likely need for advice and the requirement that any transfer be paid into a pension plan. It does not explain that that potentially higher pension could, once transferred to a DC plan, be accessed as a cash lump sum subject to the same tax rate as the sum being offered by GKN.

GKN has refused to confirm whether the factors for at retirement lump sums are lower than those used to calculate its annual CETVs.

The brochure says ‘your lump sum payment has been calculated based on the average life expectancy of a member of the Scheme of your age and the average time a spouse’s/civil partner’s pension is paid for’.

The Pensions Regulator’s Code on Incentive Exercises states that trustees should start from the presumption that incentive exercises are not in most members’ interests.

Earlier this year GKN agreed a £190m buyout with Pension Insurance Corporation, covering 20 per cent of its UK liabilities. GKN’s annual report said its DB liabilities across the UK, US and Germany totaled £4bn at the end of 2015.

A GKN spokesperson says: “Last year GKN successfully undertook an exercise to ensure it was effectively managing its pension scheme liabilities and administration costs, which involved winding up an old DB fund and creating a new one.

“Eligible scheme members in the wound up fund, were offered the option of moving their pension into the new fund or taking their accrued benefit as cash, this offer was accompanied by extensive information. Cash offers were calculated on the same basis as is used for all members at retirement regardless of amount, payments were only made at the end of the offer period and if members had opted to take their benefit as cash.”

Pensions and Lifetime Savings Association senior policy adviser, EU and international James Walsh says: “We can’t comment on individual cases. There is a clear code of practice for incentive exercises that we would expect people to follow.”