Opra has announced a temporary relaxation of policy allowing trustees to delay issuing "statements of entitlement" (ie transfer value quotations) in certain conditions.

Once in every 12 months, any member of a final salary scheme who has more than a year to go to normal pension age and asks for a cash equivalent transfer value (CETV) quotation must be given one, within 3 months. The scheme actuary is required to calculate CETVs consistent with GN11, which in simple terms says that a fair actuarial value should be given. However GN11 states that any value calculated must be at least equal to the MFR value.

In the current volatile economic climate of falling equity markets, many actuaries feel that CETVs should be above the MFR [Aries Members login here for further explanation]; indeed, the Chairman of the Pensions Board at the Institute of Actuaries has expressed the view (letter to scheme actuaries, 30 September 2002) that cash equivalents equal to the MFR have "become close to untenable".

On the other hand, at the moment many schemes are underfunded on the MFR basis, so payment even of an MFR transfer value could be unfair as it could involve removal of more than the transferring member’s fair share of the fund, thus weakening the scheme’s funding position and reducing the level of security for the remaining members.

The dilemma is compounded by the present Transfer Values Regulations (SI 1996/1847 Reg 8(4)), which permit CETVs to be reduced only in line with the percentage of the statutory priority order liabilities satisfied as shown in the latest MFR valuation, ie without regard to the ability of the scheme to pay in full CETVs for all members. The DWP is presently consulting on draft amendments to the Regs which are intended, from perhaps June 2003, to confer more flexibility (see article elsewhere on this site ).

Opra’s new guidance will give trustees a breathing space pending laying of the new amending Regs. Conditions apply, though: Opra will expect trustees first of all to

• obtain and consider the advice of the scheme actuary;
• consider obtaining legal advice;
• consider the position of the scheme in the light of the professional advice they have obtained; and
• consider whether there is a course of action open to them which might make it possible for them to pay a CETV calculated in accordance with the Transfer Values Regulations without adversely affecting the position of remaining members - for example, by obtaining an additional payment to the scheme by the employer.

If trustees do decide to delay the issue of a statement of entitlement, the member should be advised of the reasons for this decision and notified of the steps the trustees propose to take so that a statement of entitlement can be issued as soon as reasonably practicable. Opra’s expectation is that trustees will take all necessary steps to allow them to resume issuing statements of entitlement at the earliest opportunity.