The increasingly onerous regulatory environment and deficits in final salary schemes in recent years have led many employers to take various steps to reduce their pension liabilities. One option many sponsoring employers of final salary schemes have pursued has been to offer financial inducements in the form of direct cash payments or enhanced transfer values to encourage members to move to (typically) money purchase schemes or accept rule changes.

The Pensions Regulator’s guidance on inducements was prompted by concerns that scheme members do not fully understand the consequences of accepting such offers. In particular, the Regulator is concerned that many members fail to appreciate the risk that they could receive substantially lower pensions than they expected.