The Pensions Regulator accepts that scheme members are responsible for their own decisions, but its guidance emphasises that trustees and employers have particular responsibilities to enable members to make informed choices. The guidance provides a checklist of issues that employers and trustees should consider when communicating inducement offers. An offer letter should:
- explain why the employer is making the offer;
- explain the offer being made to that particular member in detail and include a deadline for acceptance;
- explain the nature of the benefits the member would be giving up. In particular, where the employer proposes to reduce future pension increases, the potential loss of inflation protection should be made clear;
- where a transfer to a money purchase scheme is proposed, explain that the new scheme may not provide the same level of benefits and refer to the guarantees inherent in final salary schemes which the member will be giving up (in particular, the protection offered by the PPF and, if possible, provide an estimate of the likely cost of replicating the PPF level of benefits);
- explain, where a rule change resulting in a reduction of benefits is involved, the likely cost of making good the lost benefit;
- explain that there may be tax implications for the member if the offer is accepted (see below);
- recommend that the member take independent financial advice before making any decision; and
- make clear that the member is not obliged to accept the offer and that the existing benefits may be retained.
The guidance states that trustees should check whether the employer’s communications of an inducement offer to members contain the issues listed above. If any of the issues are not included, trustees should raise their omission with the employer. Trustees should also consider issuing their own communication to members to ensure that they are made aware of the key points.