UK - Trustees have given a cautious welcome to new regulations that will allow schemes to bring member transfer values in line with available assets.
Under the regulations – which come into force on August 4 – schemes will be allowed to reduce transfer values if their latest actuarial report finds that there are insufficient funds to pay all scheme members the full amount of their cash equivalents.
However, the department for work and pensions stressed that schemes would only be able to reduce transfers below the minimum funding requirement cash minimum if the most recent actuarial valuation revealed an MFR deficit.
If trustees want to reduce transfers below MFR because they feel the funding position of the scheme has deteriorated since their last valuation, it will be necessary to commission another valuation.
CIS Employees’ Pension & Death Benefit Scheme trustee Brian Holden said: “This will keep schemes that would otherwise not be in such a healthy state, going.
“I don’t know if I’d welcome the regulations overall, but it’s probably a necessity in some extreme cases – I just pity the members involved.”
Thomas Eggar Trust Services director Vernon Holgate explained that trustees had been “living in a rather unsatisfactory situation” of having to delay transfer requests until the new regulations came into force.
“I don’t think anybody’s comfortable with that, so the regulations are quite welcome from that perspective,” he said.
But Holgate added that the new regulations would lower transfer values in underfunded schemes.
“It is unfortunate – and I sympathise with members in this plight – but essentially, in this time, it’s not going to allow them to take transfer values which decrease the underlying security of the remaining members. “Therefore, to make transfers in line with current solvency seems quite reasonable.”
Law firm CMS Cameron McKenna said it was important to remember the new regulations merely gave trustees the power to reduce transfer values.
It said: “They need to consider this carefully and take legal advice on the issue of whether they should use these powers in any particular case.”
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