The number of Irish defined benefit transfer value enquiries from members of LCP-managed pension schemes increased during the pandemic lockdown.

Speaking at the Irish Association of Pension Fund’s (IAPF) virtual Investment Conference, yesterday 20 July, LCP partner, Roma Burke, said administrators were feeding back to trustees that they were seeing an increased number of transfer value enquiries for defined benefit schemes.

“Now the issue that that raises for a pension scheme is on the cash-flow front,” she explained. Pension funds, she said, want to keep as little money as possible in a bank account and hopefully cover outgoings with contributions or investment income.

“Even if you have a pensioner payroll of say a 100,000 a month, which would be considered big, a single transfer value of €500,000 might just swamp any cash flow projections, just totally knock them off line,” Burke explained.

As a result, there was an investigation into whether schemes could meet potential transfer request that found there was assets that could be liquidated if needed.

“The second issue was the minimum funding standard (MFS). Most schemes are very MFS positive so even when the markets turned down we were still reasonably happy that they were still MFS positive,” she said.

“One thing that was difficult to work out was the actual MFS position because that was changing minute by minute. So there were some reasonable assessments built in.”

However, Burke said the biggest issue for LCP and schemes, was the concern that the transfer value enquiries weren’t coming from a perspective that the member was sure that it was in their long-term best interests.

“Trustees have a very paternalistic perspective so it was important to make sure that they weren’t just knee jerking or reacting, [because they were] worried that potentially transfer values could be suspended or indeed cut,” she said.

In response to this, LCP reviewed the transfer value forms and built in some extra questions for reassurance. Questions such as: did you get financial advice, who provided it, do you fully understand that implications of taking money out of a DB scheme and do you understand the cost of taking that money out, were asked.

“Actually what we found was even though there was a surge of transfer value enquiries, the actual number of transfer values processed was a lot smaller, so that was good,” Burke noted.

She also said that as the UK regulator had issued warnings about potential scams, it was in the back of their minds that it could also affect the Irish market. “We were very careful about that,” she said.

Responding to a question from IAPF CEO, Jerry Moriarty, Burke said she believes scams are not so prolific in the Irish market partly due to the paternalistic instinct of trustees but also how rigorous they are when it comes to DB transfers, in making sure all the boxes are checked when a transfer value is completed.

“That’s not just ourselves that’s the administrators also doing that… When it comes down to scams better to be safe that sorry, and it’s good processes and procedures on behalf of the administrator as well,” she concluded.

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