On 18 January 2007, the Department for Work and Pensions (DWP) published its response to last year’s consultation on the calculation of transfer values. This was followed closely by two separate announcements on 24 January 2007 by the Pensions Regulator and HM Revenue and Customs (HMRC), regarding financial inducement offers made by employers to employees to encourage them to transfer their benefits out of a final salary scheme or accept reduced benefits. Typically, such inducement offers take the form of enhanced transfer values or direct cash payments to members or a combination of both.
The Pensions Regulator’s Guidance on inducement offers advises employers and trustees to ensure that scheme members are given proper advice and sufficient information to enable them fully to understand the implications of transferring out of final salary schemes or accepting rule changes in return for financial inducements. The guidance also contains a checklist of issues that inducement offers should include. At the same time, HMRC announced that cash inducements paid directly to members would be subject to Income Tax and National Insurance.
This briefing sets out the DWP’s proposals for calculating transfer values, what employers need to consider when making inducement offers to members of their pension schemes and the steps that trustees should take if an inducement offer is made.