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Policy paper aims to improving pension scheme information provided to adviser firms

20 September 2018

Mutual insurer Royal London and pension lawyers Eversheds Sutherland have produced a defined benefit transfer policy paper aimed at helping pension scheme trustees improve upon the information they provide to adviser firms.

The paper explores whether trustees should be offering transfer values as part of routine communications, regardless of whether members have requested it, and what support trustees and employers should offer to members wanting a transfer value.

The paper outlines the ‘minimal compliance’ approach to transfers, where a scheme’s rules indicate that its primary purpose is to provide an income in retirement. If trustees stray beyond this, there is a risk they may face a legal challenge if they actively facilitate transfers and members subsequently get poor outcomes. There is also the risk that a large volume of transfers may damage the position of remaining members in the scheme.

The paper also explores the reasons why trustees might choose to go further than the legal minimum, including when there is a number of specific circumstances where a transfer would be in a member’s interests.

If trustees make the decision not to assist members, they does not automatically exclude them from legal challenge. Members might challenge the lack of engagement over transfers if a poor outcome is the result, and argue that trustees who do not help members who are considering a transfer to receive high quality and impartial advice are not acting in the best interests of the member.

According to Royal London and Eversheds Sutherland, while there is no single right tactic for all schemes, trustees need to be aware of the legal risks to both methods and recognise the impact the pension freedoms have had upon the pensions landscape.

Francois Barker, partner and head of pensions, Eversheds Sutherland, said: “The world of pensions has changed dramatically in recent years, particularly as a result of the ‘Freedom and Choice’ reforms. Current practice by DB trustees regarding pension transfers varies hugely. Although each scheme needs to decide for itself where to draw the line on engaging on pension transfers, trustees should certainly make sure that they consider their approach in the round, taking account of all the relevant factors and evolving best practice – including on facilitating independent financial advice for members.”

Steve Webb, director of policy, Royal London (pictured), commented: “In my view trustees need to engage fully in this process, and not make assumptions about what is right for individual members. Instead they should make sure that their members are well informed about their options and are equipped to draw on good quality advice before making a decision that is right for them.”