The Pensions Regulator

Guidance to help trustees calculate transfer values

Ref: PN08-21
29 September 2008

Having considered the responses to its consultation paper, the Pensions Regulator has today published final guidance to assist trustees in calculating transfer values in defined benefit schemes.

From 1 October 2008, it will be the responsibility of trustees to take the decisions on which the calculation of cash equivalent transfer values (CETV) is based – as set out in government legislation. Previously, the calculation had to be certified by the scheme's actuary.

While many of the consultation responses have been taken into account for clarity in the final guidance, there are no new principles involved and its primary purpose is to assist trustees with their new responsibilities. The guidance covers:

• the calculation of CETV in respect of defined benefits;
• the calculation of other transfer values in respect of defined benefits which are not CETV as defined in legislation (including cash transfer sums);
• the calculations for schemes in wind up and dealing with enquiries in a PPF assessment period; and
• the calculation of defined benefits granted in exchange for a transfer-in.

Chris Dobson, Pensions Regulator executive director of strategic development, said: “Trustees will need to produce transfer values appropriate for their scheme. We have produced this guidance to help trustees understand and fulfill their responsibilities, and give our views on good practice.”

The consultation response report will be published in coming weeks.

Editor's notes

1. For further information on amendments to the Occupational Pension Schemes (Transfer Values) (Amendment) Regulations 2008 SI 2008/1050 please contact the Department for Work and Pensions.
2. Whilst the guidance is aimed primarily at trustees, it will also be relevant to actuaries and others involved with transfer values, such as scheme administrators. It is also likely to be of interest to employers.
3. Transfers of defined benefits are relatively uncommon in practice, principally because the risk-reward profile of the transfer value in a money purchase arrangement is not usually attractive to most defined benefit members. Nevertheless, there can be reasons why it is desirable for a member to take a transfer, for example, to take benefits early where the scheme does not permit it. The calculation may also be used to facilitate pension sharing on divorce settlements. Transfers are also completed where the member has accepted an inducement offer from the employer to transfer out of the scheme.
4. The guidance does not cover the calculation of money purchase cash equivalent transfer values as this is generally straightforward – it is the accumulated contributions made by and on behalf of the member together with investment returns. By contrast, in the case of defined benefits, the CETV is a value determined on actuarial principles and requires necessarily subjective assumptions to be made about the future course of events affecting the scheme and the member's benefits.
5. The Pensions Regulator is the regulator of work-based pension schemes in the UK, with objectives to protect members' benefits, promote good administration and reduce the risk of calls on the Pension Protection Fund. Our approach is risk-based focusing on education and enablement, with enforcement where appropriate. We have the ability to:
   • collect information about pension schemes; through scheme returns, under the scheme funding regime and as well as statutory (including whistleblowing) reports;
   • issue notices requiring actions to tackle non-compliance, prohibit trustees who are judged not fit and proper to carry out their duties or appoint independent trustees;
   • direct pension schemes as to how to calculate their liabilities and the contributions required;
   • issue a contribution notice where there is a deliberate attempt to avoid liabilities, or a financial support direction where the employer is a service company or insufficiently resourced.