Trustees’ obligations towards transferring members have been clarified in draft guidance published by The Pensions Regulator today.
The guidance explains the processes trustees must have in place to manage transfer requests, and confirms they will be free to enact transfers even if they suspect the member may be making a poor decision, provided they have had the requisite advice.
Pension professionals have welcomed the guidance, which has been published alongside a consultation on it, as clarifying the steps that will be required of trustees under the new rules.
The guidelines help trustees ensure they have appropriate processes in place to manage transfer requests, prompt trustees to consider the impact of transfer values as part of an integrated approach to risk management of their scheme and require them to provide clear information for members so that they can get independent advice on the best option for them.
TPR interim chief executive Stephen Soper says: “The regulator believes that for most members, it is still highly likely in current conditions to be in their best financial interests to remain in their DB scheme. However members’ personal circumstances may mean they wish to consider the other options open to them.
“The provision of clear, timely information from trustees and the use of independent regulated financial advice will enable members to make informed decisions that suit their personal aims and circumstances.
“We will be working closely with the FCA as the advice regime develops, and producing guidance for trustees considering member requests at all points in their journey, for example decumulation options, to ensure those decisions are also well informed.
“We would like to hear the views of the industry on our guidance so we have launched a consultation which ends on 17 March.”
Hymans Robertson partner and head of trustee DB Calum Cooper says: “The retirement revolution puts the spotlight on trustees in two ways. They have a duty to act in members’ best interests which may span to engagement to help prevent them from making bad decisions in light of the new freedom they’ll have, but also to educate them on the options that are available them.
“The key to ensuring that decision making is sound is providing members with access to quality, bespoke guidance and advice and helping them understand the range of options they now have. Answering the question of whether or not to take a transfer, and the magnitude of that, will very much depend on the individual member and their circumstances.
“Where we may see considerable demand for a DB-DC switch is around partial transfers, where scheme members wish to access some cash from their DB scheme for a variety of reasons. In our experience the vast majority of DB retirees take tax-free cash. From April 2015, many will be able to access cash on better terms by transferring some DB benefits to DC pots. Currently individuals receive around £15 for every £1 of pension given for tax free cash; but in today’s low bond yield environment they could get more like £25 for every £1 of DB pension surrendered if they move to DC instead.”
Barnett Waddingham partner Danny Wilding says: “Prior to the publication of today’s consultation from the regulator, trustees had very little clear guidance on how to handle transfer requests once the requirement to take “appropriate financial advice” comes into force in April. Trustees will no doubt breathe a sigh of relief following the publication of these clear, step by step guidelines. Trustee’s will also welcome confirmation that, so long as a member has received the required advice, it will not be the trustees’ role to stop them from transferring, even if the trustees have doubts on the appropriateness of the member’s decision”.
Xafinity head of proposition development Paul Darlow says: “Many pension schemes are already revisiting their communication strategy to ensure that members do indeed have access to this information. A key challenge for Trustees is making sure that all such communications are factual, clear and balanced to avoid any perception of being seen to be recommending transfers to members.”