In February this year the Occupational Pensions Regulatory Authority (OPRA) gave the green flag allowing Final Salary pension scheme trustees to refuse cash-equivalent transfers. The ability for trustees to do this was removed on 4 August when new rules for calculating a member's entitlement were introduced.
OPRA says the reason for the removal was because the rules of the Department for Work and Pensions now allow scheme trustees to offer reduced values to transferring members if the scheme is underfunded. This gives protection to the scheme itself to ensure more money is not leaving the scheme that can be sustained, and jeopardising the remaining member benefits.
Our View:
Whilst we understand that many final salary pension schemes are underfunded, one side of the argument is that members leaving and wanting to take their pensions with them should not be penalised.
The other side of the argument is that the employer, not the employee, majorly funds most final salary pension schemes. Therefore, is a reduced transfer value not fair when the scheme is underfunded due to poor investment returns?
New legislation is in the pipeline regarding the protection of final salary pension scheme members, both within the scheme and those that have left. It will help erase the problem of people building up large pensions, only to find they have nothing when they come to retire. This cannot come too soon.