Following on from the Pensions Regulator's guidance on incentive exercises, Steve Webb, the Pensions Minister, challenged the pensions industry to put together its own Code of Practice concerning good conduct in relation to incentive exercises.
The industry's response was the Code of Conduct published in June 2012. The Code was put together by the great and good from across the pensions industry.
The Government accepts that the Code of Conduct is voluntary, but it has not ruled out future legislation, should it prove necessary. Generally, the type of incentive exercises that have caused concern have been either: exercises designed to encourage individuals to transfer their defined benefit into a defined contribution scheme or have encouraged members to give up non-statutory pension benefits, for example non-statutory pension increases.
Key points to note on the Code of Conduct are as follows:
- there should be no cash incentives offered outside of the pension scheme. This encompasses both cash goods and services that are paid directly to the member;
- the employer should provide free independent financial advice to all affected members or demonstrate that the value of the new benefit is equal to, or greater than, 100% of the value of the surrendered benefit when looked across the scheme as a whole. Where advice is provided it must be provided at the employer's expense and the fee for the IFA must not relate to the take up rate;
- communications should be clear, fair, unbiased and straightforward. Therefore, they should be in plain English and not cause fear or distress, be unbiased and factual and should point out that the member does not have to take up the offer. In addition, the employer's reasons for making the offer must be outlined as well as the downside to the member of accepting the offer;
- as part of the process all parties should retain records of what was intended and what was actually done;
- should allow a member sufficient time to make a decision without being rushed and without undue pressure. The member should be provided with at least three months from receiving information about the offer and at least a further two weeks from receiving the final advice or guidance before any deadlines would expire. In addition, a two week cooling off period should be allowed for members to change their decision;
- where there is a vulnerable member (i.e. due to age or disability) extra care is required; and
- the employer and trustees should be aware of their roles and responsibilities and act accordingly.
A copy of the full document can be found at http://www.incentiveexercises.org.uk/.
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