Companies with Defined Benefit Pension schemes typically offer their employees
Each employee’s pension fund calculations are directly related to their Final Salary and their years of service. The company is promising its employees to pay each member a certain amount of money on retirement for every year that they have worked in their business. The value of the Companies pension fund is irrelevant as the company is obliged to honour this pension promise.
The problem with DB schemes for the employers is;
In order to address these issues many companies, particularly those who wish to prepare for an acquisition or buy-out, have started to offer enhanced transfer values to its employees/ex-employees on their individual pension pots in order to entice them to transfer out of the scheme. This in turn will decrease the company’s liability on their balance sheet.
In summary ETVs give Companies a cost-effective means of materially reducing pension risk and potentially improving their scheme’s funding position. They also give members additional flexibility and choice.
How ETV’s work in more details:
DB pension schemes can allow members to take a transfer from their scheme. This applies to:
Current employees may be offered the option to transfer to their employer’s defined contribution scheme while deferred members may be able to transfer to another approved pension arrangement.
Typically Transfer values are not lucrative enough to entice employees, especially younger members, to transfer out of the existing DB scheme. To make the transfer option attractive to members, it may be necessary to offer them an Enhanced Transfer Value (ETV).
If either a current or ex-employee accepts an ETV, their liabilities are removed from the DB scheme. This, in turn, reduces both the size of the scheme liabilities and the associated risk. ETVs can offer a significant saving against company accounting reserves, scheme funding and ultimate buyout costs. This is why such lucrative Transfer Values are now being offered to members of their scheme.
The ETV also:
ETVs have numerous potential benefits for members:
If you are a deferred member of a pension scheme and would like to check if you
Please don’t hesitate to contact us as we have vast experience in this complex area and can clarify any issues you may have.