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Gov't seeks power to ban 'cash for pension' deals

by Brian Cantwell on Jan 21, 2013 at 10:20

Gov't seeks power to ban 'cash for pension' deals

The government could gain the power to ban companies from offering ‘cash for pension’ type deals to entice workers to transfer out of defined benefit schemes.

Under the draft pensions bill, the government will be allowed to prohibit enhanced transfer value (ETV) exercises that take the form of non-pension inducements.

‘The legislation will grant powers to draft secondary legislation to prohibit a non-pension inducement as an incentive for a defined benefit pension scheme member to transfer out of a salary-related scheme,’ it said.

The use of non-pension inducements is already subject to a voluntary code of practice drafted by the Association of British Insurers and the National Association of Pension Funds.

The bill states that the government would be granted the powers if the code proves to be ineffective.

‘The granting of powers will be dependent on the efficacy of the code of practice, with a monitoring board established to evaluate its effectiveness,’ it said.

Pensions minister Steve Webb has been a long-standing critic of ETVs, claiming he has seen many examples of bad practice by employers.

But Malcolm Small (pictured), director of policy at the Tax Incentivised Savings Association, was cautious about the move. ‘We’d be rather nervous of legislation being used to frustrate something that can sometimes be to the advantage of employees and employers,’ he said.

11 comments so far. Why not have your say?

Mike Morley

Jan 21, 2013 at 10:52

More tampering!

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Jan 21, 2013 at 11:03

TISA is a lobbying group paid for by investment houses. Of course they want to allow an incentive to transfer out of a defined benefit scheme into defined contribution. Firstly there are huge fees that can be earned, by doing this transfer on an execution only basis, they release loads of money previously locked up in schemes with low charges. The sponsering employers suddenly have no liability for shortfalls and only have to budget for annual employee contributions probably below the eventual auto enrolment rate. The management fee for DC schemes are higher than DB, with no PPF guarantee.

But to bribe employees to transfer without an adequate transfer analysis so the employee has no information to make a decision, is not ethical, and should not be suported by TISA

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the elephant in the room

Jan 21, 2013 at 11:21

Hmmm - reminds me of something that's happened before? Now who was it now? Ah yes, the Government! Wasn't there a cash incentive to leave SERPS? But that was okay though - that was different - why? Because as an addedd incentive our beloved Government pretty much halved the guarenteed pension accrued. Warms your cockles doesn't it.....

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Lyndon Edwards

Jan 21, 2013 at 11:53

Thanks Elephant, couldn't put it better myself.

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Michael Brown

Jan 21, 2013 at 11:58


Surely if the rules stated quite clearly that a TVAS is a pre-requisite then the issue goes away? However it is known for advisers to transfer the monies based purely on their and not the client’s needs? Hopefully that may now be reduced now? However, once has to accept that if a client wants to do it then the client wants to do it! I have come across several of these over the last few years and completed a TVAS before discussing all the options. In one case the company insisted that a fact find was completed before the paperwork was to be released. However, clients sometimes see the lure of “cash” in their pockets and opt out.

The other issue is caused by GVT legislation where the pension forms a part of the companies accounts. The companies are looking to reduce any pension liability so as to make the company more profitable and thus the shareholders higher dividends and rising share prices?

Some of the problem arises because the ceding company scheme's transfer value are based on what the trustees feel is fair whereas these are usually poor transfer values. Surely if the rules for companies were tightened to the same extent the TVAS figures up the issue would be seem to be fairer to the pensioner?

As said early in the blog “more tinkering”. We live in a democracy where we should let the people make the decisions please!

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Jan 21, 2013 at 12:15

@ elephant

Quite wrong, no cash in pocket for SERPS opt outs. Mind you anyone who are under 60 now who opted to divert their SERPS and S2P to an appropriate personal pension are now quids in since the flat rate pension was announced. I fail to see that being paid cash in hand to make a decision without proper advice and treating members like mushrooms can be compared to a decision on weather to invest money now in your own name or trust a government to keep their promises in 30 years time. The pension promises are enshrined in law, with a 90% backstop.

@ Michael

I agree that some clients wish to transfer against advice not to do so, however at least they made an informed choice. Yes, let people make decisions for themselves given balanced information. The incentive of cash in pocket, not cash in pension pot should be banned. It is the less educated that will fall for it, the bigger earners may seek and pay for advice!

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Ian Lees

Jan 21, 2013 at 12:24

The Gov't should do what Scottish Widows Pension Trusttes do. . . they go to Aegon pension Trustees and ask them to calculate the cash equivalent without knowledge of , and like Libor tinker with the assumptions of scottish widows actuaries - to commit the most henious of crimes - PENSION THEFT

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the elephant in the room

Jan 21, 2013 at 12:55


Please excuse my flippancy - you are correct I am not comparing apple with apples. The point I was making was more about inducements to leave a guarantee - not where it was paid. And which do I trust more - the government keeping a promise - or the market performing well?

Er....I'll have to get back to you on that one......

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Phillip H

Jan 21, 2013 at 13:59

Right, getting back on topic. Credit where credit's due, this makes complete sense.

Having dealt with such exercises in the past where the client is strongly advised not to transfer, they do not see past the cash on offer, especially where they are young. It's the worse kind of pension unlocking and quite frankly tantamount to bribery

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Phillip H

Jan 21, 2013 at 14:03

The point about "getting back on topic" incidentally was in reference to SERPS rather than the other posts which have appeared since I originally posted (most of course are "on topic"! ;-0)

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Jan 21, 2013 at 21:50

And tehre I was thinking cash for pensiosn referred the charlatans that offer to release cash from pensions which is where the focus should be.

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