Government publishes guidance to pensions trustees on new bulk transfer rules

The guidance (24 page / 211KB PDF) supports amendments to the Occupational Pension Schemes (Preservation of Benefit) Regulations 1991, which came into effect on 6 April 2018 following a consultation last year.

The regulations permit transfer without member consent of relevant money purchase rights between occupational pension schemes when the transfer is to a scheme authorised under the Pension Schemes Act 2017, such as a master trust; or where the transfer is between schemes where the controlling or principal employers are within the same group, such as in cases of corporate restructures; or where trustees have obtained appropriate independent advice if either of the first two conditions are not met.

Advice is not required if members are being transferred to an authorised master trust, as these must satisfy minimum criteria to be authorised – although this does not prohibit trustees from seeking advice.

The exemption on seeking advice does not apply if the scheme has ‘orphan’ members, for example former employees of an employer that is no longer connected to the scheme due to a sale or wind-up. Trustees still need to obtain independent written advice in relation to such members unless they were being transferred to a scheme authorised under the Pension Schemes Act 2017.

The guidance provides some tips for trustees on how to choose an adviser if one is required. For example, the government recommends that advisers have experience of assessing value for members of defined contribution schemes and experience of advising trustees on without consent bulk transfers. Advice should cover areas such as the default investment strategy of the receiving scheme, the length of time it has been established, how benefits can be withdrawn, costs and governance.

Trustees are encouraged to adopt a principles-based approach to assessing a receiving scheme when carrying out a bulk transfer. The guidance notes that there is no single test which needs to be met in relation to member outcomes and the decision to transfer should be based on qualitative and quantitative considerations.

The receiving scheme should be compared to the transferring scheme in terms of value to members. Not every aspect of the receiving scheme has to be equal or superior to the transferring scheme, if trustees think one aspect of the receiving scheme is sufficiently improved to outweigh another being worse. Members do not need to be transferred into identical funds, as long as the risk-return ratio remains appropriate.

The new regulations also implement safeguards to ensure members who were protected by a cap on charges do not lose out after a transfer.

The guidance provides examples of good practice which trustees should follow when carrying out a bulk transfer of money purchase rights, including taking reasonable steps to trace non-active members, ensuring data is up to date, and considering any one-off costs such as investment transition costs.