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Adviser  >  Technical Central  >  OPS Matters  >  New Transfer Value Calculation Proposals

New Transfer Value Calculation Proposals

As if the transfer inducement guidance wasn’t enough, the DWP has issued its response to the Consultation on how DB scheme transfer values should be calculated.

This response follows their consultation, published in June 2006 ‘Approaches to the Calculation of Pensions Transfer Values’ and sets out its decision on how transfer values are to be calculated going forward. Legislation will be laid based on this response, the first drafts of which are expected ‘in the early part of 2007 for consultation’. The aim is to have the final regulations in force on 6 April 2008.

What’s it all about?

In short, transfer values will continue to be calculated on the basis of the cost to the scheme of providing an alternative deferred pension.

So no change there then?

Well, yes and no. Whilst the calculation basis remains virtually the same, the DWP wants (guess who?) trustees to be more involved in the calculation process.

What does it mean for trustees?

Trustees will be required to determine:

• the actuarial assumptions to be used – with actuarial advice
• the assumptions in the calculation – on a ‘best estimate’ basis
• the discount rates to be used – on a ‘best estimate’ basis

Trustees will need to seek actuarial advice on all these factors.

Anything else?

Where schemes aren’t fully funded, trustees will still have the power to reduce transfer values. They’ll also be able to deduct ‘reasonable administrative costs’ and there will be a requirement to provide members who want to transfer with more information.

There were also other thorny issues raised during the consultation which the DWP has agreed to look at separately, such as:

• how transfer values should be calculated in pensions sharing on divorce
• how directors’ pensions should be valued in company accounts
• should a member continue not to have the statutory right to transfer within 12 months of normal pension age
• the restriction on partial transfers
• inducements used to enhance transfer values (again!)
• whether there should be standardised generic information available to members considering a transfer

Anything to do now?

While we wait for the draft regulations, it may be worthwhile for trustees to check that the assumptions currently being used are broadly within what they would see as ‘best estimates’. This may help in preventing the possible situation where transfer values all of a sudden increase or decrease dramatically after the regulations come into force.