Employers will have to offer staff much better incentives for switching their pension to a private scheme under new plans drawn up by the Financial Services Authority (FSA).Current FSA rules show firms how to calculate the benefits that a worker will have to give up when they transfer to a personal scheme as part of a process called transfer value analysis (TVA).The TVA compares the benefits available in a person's existing scheme with those that could be provided by the personal pension scheme.However, the regulatory body is concerned that the current TVA process is too complex and that staff rarely benefit from such pension transfers, and it has therefore launched a consultation into the issue.The main aim of the paper is to ensure that independent financial advisers give adequate advice to individuals about whether or not the pension transfer deal on offer from an employer is in their best interests.FSA officials estimate that pension transfers could undervalue defined benefits by billions of pounds, so they are keen to ensure that members have a much higher value placed on their pension.This practice could add around £20 billion to the value of transferred pension pots in the next five years, according to the FSA.Sheila Nicoll, the FSA's director of conduct policy, claimed it is vital that employees get a fair deal as more businesses look to offer members of defined benefit schemes a move to a personal pension.This practice is becoming increasingly popular as it reduces the risk that employers will have to inject more money into their own schemes.She said: "As things stand, there is a high risk members receive unsuitable advice as a result of the mechanistic approach to analysing transfer values taken by some advisers."These changes are important to make sure that members' interests are at the centre of any decision to transfer and that any advice to transfer is suitable."Ms Nicoll added that there is evidence that some advisory firms recommend a transfer when there is "little or no justification to do so", while some companies are believed to give reasons for an individual to transfer pensions which have nothing to do with their particular circumstances."We are not saying that every transfer exercise is bad and we recognise that there will be some people, albeit a small minority, who can benefit from such a move - but they must all be treated fairly," she added.More than 90,000 staff were offered incentivised transfers in the 39 months from the first quarter of 2008 to the first quarter of 2011, according to figures from KPMG cited in the consultation.If the current take-up rate continues, around 750,000 transfers could be made in the next five years which would cut £100 billion from the current cost of providing pensions in existing company schemes.The consultation period closes on 27th March 2012 and the FSA is inviting interested parties to respond to create a comprehensive debate on the issue.
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