Enhanced Transfer Values (ETV)

The increased desire by trustees and sponsoring employers to de-risk their pension scheme liabilities has also led to a greater focus on Enhanced Transfer Values (ETVs). In simple terms, Enhanced Transfer Values offer an incentive for members to leave the DB pension scheme, in favour of a personal (defined contribution) arrangement. This is achieved via an enhanced payment by the employer, that is above the value of the underlying cash equivalent transfer value, yet below the full cost of funding the member's pension.

One of the reasons why pensioner only buy-ins have become so popular is that the equivalent buyout cost for deferred members is often much higher than for pensioners, relative to their respective funding liabilities. In addition, many more DB schemes are closing to future benefit accrual, resulting in a significant increase in deferred pension liabilities.

However, ETVs can provide schemes with a more cost effective solution for reducing their risk exposure relating to deferred members. The 'enhancements' may be offered via a cash sum, or as an increase to the member's cash equivalent transfer value. However, the Pensions Regulator (tPR) have provided guidance on such transfers and employers, trustees and scheme members should take this into consideration. Enhanced Transfer Values are not likely to be beneficial to a large proportion of members, however they will be appropriate to some and any such exercises will rely on a robust communications process, fully adopting the FSA's principles on 'Treating Customers Fairly'.

For more information on our Defined Benefit proposition, please email DBSolutions@Prudential.co.uk.