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IFAs will see rising demand for advice on enhanced transfer value (ETV) exercises as companies improve their cash-for-pension offers, KPMG said.
An ETV offer is where an employer offers members of its pension scheme lump sums or a cash injection into their pot in exchange for transferring to a less generous arrangement.
Often, the transfer is from a defined benefit (DB) to defined contribution (DC) pension, reducing the employers' open-ended liabilities.
Pensions minister Steve Webb raised concerns in May about the practice of ETV exercises, saying in some cases members received poor advice and took bad deals.
However KPMG's Enhanced Transfer Values Survey analysed 83 ETV offers made to 90,000 pension scheme members since 2008 and concluded practice was improving.
All employers in the study paid for independent financial advice for their employees to help them consider the offers.
The study found cash was still the most prominent incentive to transfer to new pension arrangments. Almost 90% of offers contained a cash component.
However, the study identified a trend towards limiting the cash component, with 24% of offers doing so.
James Ellison, head of ETV delivery at Alexander Forbes, which advised on 13 of the 83 offers examined, welcomed the limitation of the cash incentive.
"The main driver should always be whether the member can afford the level of risk that is involved. Cash should not be the reason to transfer," he said.
Wide variety of take-up rates of ETV offers could point to variation in the quality of offers made to employees, however.
In one in seven exercises fewer than 10% of pension scheme members accepted the deal. But in a sixth of cases, more than 50% took the offer up.
KPMG pensions partner Mike Smedley (pitured) said: "This begs the question: are the differences because of circumstances, or actually because some people are doing this well and some less well? I think it is both."
Smedley predicted a boom in ETV exercises, with IFAs reporting offers affecting 70,000 members in the pipeline this year.
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ETV's
"Done right, with well advised and sophisticated investors these enhanced transfer offers can be mutually beneficial" ...and yet you want to ban all DB to DC transfers? That doesn't make sense and DB transfers are already one of the highest regulated areas in finance. It's only the cash incentive that is contraversial, since they could be effectively selling their pension benefits for cash. Perhaps all incentives should be paid into their pension fund.
Posted by: MarkG
Nero fiddled...
This area of business is yet another example of the FSA's abject failure to discharge their regulatory responsibilities...all DB transfers start from the basis that they are unsuitable...the adviser has to prove that it is suitable, and only then should it go ahead...so IF these transfers are suitable, just ask one question; Why are sponsoring employers paying cash bonuses to members to leave the scheme? It is crystal clear to me that the advisers are in fact acting on behalf of the employer/trustee (often the same thing as far as members are concerned), not in the best interests of their client (ostensibly the member). They are getting members out to reduce the long term liabilities of the scheme, which would indicate that the actual TV + Cash incentive does not in reality reflect the true value of the current DB entitlement. This is another mis-selling scandal waiting to happen, so why not nip it in the bud and ban the payment of cash incentives altogether? And simply use the basic principle of "best advice"? Would any decent adviser recommend the bleeding Sun Alliance over-50's plan, based on the fact that their customer quite fancied a new Parker pen???????
Posted by: Andy C
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Done right...
Done right, with well advised and sophisticated investors these enhanced transfer offers can be mutually beneficial. However these deals are massively in the minority; my experience of these deals has been a woefully small taxable carrot to unsophisticated people who understandably are suckered in by small short terms gains, at the expense of their long-term future. Roll on the banning of DB to DC transfers - this will give the best outcome for the majority.
Posted by: Alistair Cunningham