By Dale Critchley, Technical Reform Manager, Corporate Benefits - Friends Life part of the Aviva Group
DC to DC transfers happen for a number of reasons but the growth in the popularity of Master Trusts means that employer and trustees are able to use the Master Trust to buy out some or all of their own trust scheme and either, walk away following a wind up, continue to participate in the Master Trust or operate their Own Trust scheme with reduced overheads.
The advantage of non consent transfers is obvious, the outcome can be predicted. With a transfer offer requiring member consent take up from active members might be as high as 80%, depending on the offer, but take up from deferred members is likely to be pitifully low. This leaves the scheme with assets which prevent the wind up of the scheme or DC section, or which means that more members are retained in the employer’s Trust.
The requirement to obtain Transformations TAS certification is designed to protect member’s benefits but prescribing how trustees should satisfy their fiduciary duties can lead to poorer outcomes for members if trustees seek a simpler option and arrange a transfer to a Trustee buy out plan. No actuarial certification, no legal advice and quite often a simple price driven comparison of providers has obvious appeal to cost conscious employers. But no independent governance for the membership, and limited capability to transfer to another plan, risks members’ benefits remaining in a plan with limited future proofing.
The focus of legislation has to be on providing the best member outcomes and I think that given a straight choice most trustees would choose a transfer to a sustainable scheme with on-going governance and value for money assessments, over a Trustee buy out plan that falls between the cracks of statutory independent governance.
Trustees should be trusted to perform their duties and I expect to see principles replace prescription on this issue. I also think that most trustees will continue to see the value of independent advice and actuarial opinion, even if the legislative imperative falls away. Professional advice provides comfort to trustees that they have made the right decision, and a possible indemnity if they haven’t. Regardless of what legislation says that is always going to be valuable to Trustees, and their members.
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