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Pensions Transfer Values

Volume 455: debated on Thursday 18 January 2007

Last year we consulted on approaches to the calculation of pensions transfer values.

Members of defined benefit occupational pension schemes are usually best served by leaving their pension rights in the scheme when they change employment. Transfers are an option that members can exercise. But transfers should not jeopardise the success or sustainability of the pension scheme.

The great majority of respondents to the consultation favoured an approach to the calculation of pensions transfer values based on the expected cost to the scheme of providing the alternative deferred pension benefits. This approach is consistent with what happens now. It is also an approach which does not affect the ongoing viability of the scheme. The Government therefore intend to regulate on this basis.

The regulations will also provide that:

the trustees of the pension scheme will be responsible for the determination of the actuarial assumptions used to calculate transfer values. They will be required to seek the advice of the actuary. This is consistent with the framework of responsibilities under the rules on scheme funding;

the trustees will be required to determine the assumptions in the calculation of transfer values on a best estimate basis;

the trustees will be required to use a discount rate in the calculation of transfer values which reflects a best estimate of future returns, having regard to the existing asset mix of their scheme;

the trustees will continue to be able to reduce transfer values where the scheme is underfunded;

the trustees will be allowed to deduct any reasonable administrative costs incurred from the transfer value;

the trustees will have to provide members considering whether to transfer with more information.

These arrangements will apply to private sector pension schemes.

Public service pension schemes are different in a number of ways from funded private sector schemes. The Government are still considering arrangements for these schemes and hope to make an announcement soon.

The Government's formal response to the consultation is being published today. We intend to bring all of these new arrangements into effect in April 2008.