Despite government warnings, employers prefer ETVs to de-risk DB schemes

KPMG Research Found More Employers are Offering ETVs Despite Government Caution

KPMG Research Found More Employers are Offering ETVs Despite Government Caution

A research by KPMG shows that employers are increasingly choosing Enhanced Transfer Value exercises to de-risk their DB pension schemes despite the government’s warning of possible mis-selling.

The survey found that over 90,000 defined benefit scheme members in the past three years have been offered ETV options for leaving their DB schemes.

The KPMG study found the trend is set to continue this year with another 70,000 offers in the pipeline. In ETV options, the employer offers higher amount to a scheme member than the standard transfer value if the member wished to leave the scheme.

The employer reduces its long term risk exposure as well the scheme liability when it offers ETVs to employees.

However, pensions minister Steve Webb had warned at the beginning of the year about the possibilities of mis-selling of ETVs and said he wanted the Pensions Regulator to identify examples of bad practices and subsequently remove them.

There have been debates going on if scheme members can be enticed by “superficially attractive” offers and specific concerns have been used about the use of cash.

Typically 25 per cent of the scheme members accept the ETV offer, the KPMG survey found while the others chose to continue in their present DB scheme.

“ETVs have become a key element of many companies’ pensions de-risking strategy and our data indicates that their prevalence is going to increase,” said Mike Smedley, pensions partner at KPMG.

“The Pensions Regulator and more recently the pensions minister have raised concerns about mis-selling, and our survey data suggests that market practice has already responded to some of these concerns,” he added.

“However, the use of cash payments direct to members is changing; a number of recent exercises have had no cash option and others have had strict limits on the maximum amount of cash that could be taken,” he explained.

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