New rules and guidance on how pension transfer values are calculated

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4 May 2012
In March, we highlighted (see Updates) the FSA’s consultation on their to change the way that pension transfer values are calculated.

These are often considered in the context of moving a pension pot from an existing defined benefit arrangement into a separate defined benefit scheme but also have influence in other areas of establishing cash equivalence: e.g. tax-free commutation, inter-scheme transfers, purchase of addditional years accrual and so forth. The FSA has noted, particularly given the risk involved in given up the certainty of DB, that they would expect the starting point for pensions transfer advice to be that a proposed transfer would not be in the members interest.

The core of their paper, however, seeks to update the basis of permissible assumptions made in transfer value analysis (typically by financial advisers) to bring them into alignment with pensions actuaries. The FSA is of the view that the impact of these changes : longevity/mortality, gender equivalence, CPI/RPI/LPI and projected fund growth rates linked to likely return of pension assets : is likely further to make the do-nothing option of remaining in DB look more attractive to members.

As a result of this, the FSA elected to consult on an accelerated basis and required immediate implementation from 1 May to mitigate the risk of detriment for members already considering such a move.

Link to the FSA press release on the FSA

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  • Author: Martin Veasey
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