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Briefing Note: Final Salary Transfer Values
Parliamentary Ombudsman Ann Abraham s criticism of the Government in her recently published
report attracted much media attention, especially since the Government is fiercely defending its
case and resisting calls to grant compensation.
Her report may also lead to an often overlooked and misunderstood part of the pensions
landscape transfer values being given, Lazarus-like, a new lease of life. It makes the
important upcoming review of the way transfer values are calculated, worthy of more interest than
might otherwise have been given.
Final salary transfer values the amount of money which an individual early leaver can take out
of their pension scheme are calculated by actuaries. But few members transfer out of final
salary schemes nowadays. In fact some pensions managers say that the commonest use of
transfer value calculation procedures is to assess the value of an individual s pension benefits for
use in divorce proceedings.
The Abraham report has drawn attention to the member s right to transfer-out of a final salary
scheme. This is one of the remedial actions that Ms Abraham considers could have been taken
by some of the members affected before their scheme collapsed, had they only been better
informed. The Government disputes this conclusion, saying that
leaving an occupational
scheme in such a way was in any normal circumstances a decision fraught with financial risk.
So what is the financial risk to which the Government refers? And why is the Pensions Board not
proceeding with its proposals for change of GN11, following the consultation on its possible
replacement exposed to members as EXD54?
This briefing note explains further.
A key difficulty with transfer values lies in deciding exactly how a transfer value should be
calculated. There are two key questions. Should the transfer value be calculated taking into
account the assets which the scheme is holding to support its ben