ETV code of conduct to push mandatory member advice

The Department for Work & Pensions (DWP) is publishing in May a code of conduct on switching defined benefit savers to defined contribution schemes, in exchange for retirement pots designed to give them equivalent annuities to their final salary accrual.

It has created two panels of industry and regulator representatives to come up with ways to prevent mis-selling of ETVs, of which pensions minister Steve Webb has been an outspoken critic for much of his time in office. In particular, he is in favour of an outright ban on cash lump sums for members’ DB entitlements.

He has also launched a steering group to consider aims for reforming the ETV market, as well as a ‘working group’ to ascertain how to put these into practice. The steering group recommendations will form the basis for the May document.

PW understands one of the new strictures will be compulsory financial advice, either worked out as part of the deal struck between the sponsor and the consultant designing the exercise, or paid for independently by the employer.

One source close to the discussions said this is supported widely across both groups and consideration is being given to how the Financial Services Authority (FSA) – responsible for regulating financial advice – will take part in ensuring members receive proper guidance. Also, the cost of this advice is likely to deter some companies from proceeding with ETVs, says Premier Pensions’ head of consulting John Reeve.

The Pensions Regulator currently mirrors Webb’s tough line on ETVs, issuing a statement in August (jointly with the FSA) saying: “Trustees should start from the presumption such exercises and transfers are not in most members’ interests, and they should therefore approach any exercise cautiously and actively.”

The code of conduct is likely to require them to soften this approach, requiring employers and consultants to focus on quality of provision, rather than justifying the practice outright.