Different Types of Enhanced Transfer Values
Ultimately, enhanced transfers are a means of incentivising members to leave the company pension scheme. Upon taking an enhanced transfer, individual members will be taking on the risks previously managed by the scheme. This is a key consideration, as there are 2 main types of ETV arrangement:
1. A true enhancement (or uplift) to the member's underlying transfer value
2. A one-off cash inducement to the member
It is also possible to combine these two types of arrangement (i.e. provide a cash inducement on top of an enhancement to the member's underlying transfer value).
While some people may be excited by the 'cash today' offer (especially in today's economic climate), these will be liable to tax and national insurance, whereas an uplift to the transfer value will not. Also, uplifted transfers can be funded from the pension scheme, whereas cash inducements must be provided by the employer through other means.
|
EXAMPLES |
|||
|---|---|---|---|
|
Uplift to transfer value |
Cash inducement |
||
|
Funding Reserve |
£50,000 |
Funding Reserve |
£50,000 |
|
Member's standard transfer value |
£40,000 |
Member's standard transfer value |
£40,000 |
|
Uplift to transfer value |
£5,000 |
Cash payment to member |
£5,000 |
|
New transfer value |
£45,000 |
Member's transfer value |
£40,000 |
|
Company 'saving' |
£5,000 |
Company 'saving' |
£5,000 |
Note: these figures are purely illustrative and do not include the value of future savings in administration costs, PPF levies, etc.
