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Enhanced Transfer Values

We work with our clients to implement best practice Enhanced Transfer Value projects. This offers the deferred members the option to transfer out of the pension scheme at a level which is above the standard transfer terms and can also help the company and trustees reduce cost and risk in the pension scheme.

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The transfer value ordinarily paid from pension schemes is typically poor value for members unless they are close to retirement. An Enhanced Transfer Value (ETV) exercise offers members a once-off opportunity to transfer the value of the pension, on enhanced terms, to another pension arrangement while also offering the company and trustees an opportunity to de-risk the pension scheme. We work with clients through all stages of an ETV project, including design of the offer, communication of the offer and the financial impact of the acceptance rates.

Deferred members often make up a significant part of a defined benefit (DB)  scheme’s total liabilities. Whilst these members can transfer their benefits to another arrangement, few give this detailed consideration and even fewer actually transfer.

An ETV offer places members under no obligation and members who do not accept it will simply retain their deferred DB entitlements. However, the offer is typically attractive to members as it offers a temporary uplift to their transfer value entitlement and it also offers them increased flexibility.

Through enhancing the terms usually offered and arranging suitable financial advice, more members are likely to consider a transfer. There are many ways that the enhancement could be calculated, from a flat enhancement for all, to one varying with the individual age of the member, or to one that targets replication of benefits on a suitable defined contribution (DC) projection basis.

The level of enhancement offered to members and the choice of which cohort of deferred members to make the offer to are key considerations and we work with companies to carry out detailed modelling to choose the solution which makes most sense for each pension scheme.

There are many potential attractions with making an ETV offer to deferred members:

  • Useful for schemes with large deferred populations
  • Removes deferred pensioners at costs below annuity buy-out and the liability reserve held on companies’ balance sheets
  • Can significantly reduce the risk within DB schemes
  • Can generate significant accounting and funding cost savings while also offering very attractive terms to members
  • Gives members more flexibility and control of their savings.

It is important when implementing an ETV exercise that members who are assessing the offer avail of Independent Financial Advice before proceeding with a transfer payment out of the DB Scheme.   Willis Towers Watson can also facilitate provision of this advice through our large team of Independent Financial advisors.

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Liability Management PDF 11.7 MB
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