Pensions: what are enhanced transfer values?

If you read nothing else, read this…

• An enhanced transfer value (ETV) is the value an employer offers an employee for their defined benefit (DB) fund in return for them transferring out.
• Employers typically use ETVs as a risk management tool with which to reduce long-term DB liabilities and costs.
• The Pensions Regulator (TPR) has expressed concerns about employers’ use of such incentives.


Enhanced transfer values have attracted employers’ attention as a means of reducing their defined benefit (DB) pension scheme liabilities, says Padraig Floyd

Defined benefit (DB) pension schemes have been a thorn in the side of employers for the past decade, which is why their interest in enhanced transfer values (ETVs) has been soaring.

A survey by accountants KPMG, Enhanced transfer values, published in August 2011, found that of 91,200 members of DB pension schemes who were offered ETVs in the previous three years, one in four had accepted. About 70,000 DB scheme members were expected to be offered ETVs in 2011 alone.

Ever since former Conservative chancellor Nigel Lawson created personal pensions in 1989, staff have been able to exchange their DB pension for a transfer value, which is a sum that may or may not be equivalent to the contributions paid into a DB scheme. This value may be transferred into an alternative pension vehicle, such as a personal pension.
An ETV is a transfer value that has been enhanced, either by offering an employee a larger sum than their pension, or by offering a cash bonus in return for taking the ETV.

ETVs enable DB scheme members to transfer their funds into a more flexible retirement savings vehicle, giving them more control over their investment choices and, potentially, a bigger pension. An ETV can also protect an employee’s pension pot if their employer goes into administration.

ETV benefits for employers include the ability to reduce their long-term DB scheme liabilities and costs. However, a number of employers do not feel they can justify offering scheme members something that is potentially of less value than their DB pension.

This concern has sparked much debate about ETVs’ suitability. The Pensions Regulator (TPR) issued guidance in December 2010 about the suitability of incentives, such as cash bonuses, that employers were using to encourage members to take up ETVs.

Kevin LeGrand, head of technical services at Buck Consultants and president of the Society of Pension Consultants, is also concerned about employees’ ability to make decisions on such complex issues. “Employees have a poor grasp of pensions, yet are being asked to make a decision,” he says. “Some are not making an informed choice.”



In June 2012, a TPR working group, comprising the Association of British Insurers, the Association of Independent Financial Advisers and the National Association of Pension Funds, delivered a code of practice on ETVs. Employers are expected to undertake a comprehensive communications process with DB pension scheme members to whom they are offering an ETV.