Of interest to DB schemes is the draft guidance published by the Pensions Regulator (TPR) on member requests for transfers from DB to DC schemes. It is the first part of a package of communications from TPR to help trustees prepare for major pension reforms that will be implemented from 6 April 2015. The consultation closes on 17 March 2015.

In the context of the Budget flexibilities, the first step for many pension scheme members will be seeking a transfer of the DB benefits to a DC scheme, enabling them to access their pension flexibly. It is expected that DB scheme trustees will experience an increase in transfer requests after 6 April 2015. TPR has therefore published consultation guidance to assist DB trustees to manage both the volume of transfer requests and their potential impact on the funding and the investment policy of the transferring scheme.

In the guidance, TPR recognises that it is not the trustees’ role to second-guess a member’s individual circumstances and choice to transfer DB benefits; nor is it their role to prevent a member making decisions which the trustees might consider inappropriate.

The guidance highlights the trustees’ obligation to check that the member has taken “appropriate independent advice” (the definition of which will be finalised once the Pension Schemes Bill is enacted) before making a transfer application where the benefits are valued above £30,000. The cost of obtaining the advice will be met by the member, except where the transfer is instigated by the employer, and advisers will be required to comply with FCA rules.

TPR also outlines the ways trustees will be expected to support members, for example by:

  • ensuring that members have access to all the information required to make a fully informed decision;
  • complying with all reasonable requests for information from the member’s adviser;
  • monitoring the effect of members’ transfer demands on scheme funding, especially in respect of large transfer values. Transfers should be considered bearing in mind the guidance in Code of Practice 3: funding defined benefits; and
  • monitoring the potential impact on scheme investments, particularly in relation to the liquidity required to pay large numbers of individual transfers.

The steps in the transfer process and the time limits involved are also provided.

View the draft guidance.