Enhanced transfer values (ETVs): what they are and the rules

An enhanced transfer value (ETV) is a transfer value that your former employer has increased above the normal cash equivalent transfer value (CETV) to encourage you to move your defined benefit (DB) pension out of the scheme. It is offered to cut the employer's cost or risk. The FCA's starting assumption still applies, and advice is legally required above £30,000.

What is an enhanced transfer value?

If you have a DB (final salary or career average) pension, you can usually ask the scheme for a cash equivalent transfer value (CETV). That is the scheme's estimate of what your future pension is worth today, worked out on the scheme's normal basis.

An enhanced transfer value is the same idea with something extra added. The employer, sometimes with the trustees, offers selected members a higher figure than the normal CETV if they agree to transfer out within a set offer period. Offers are often expressed as a percentage, for example "we will pay 115% of your normal CETV", or as a fixed amount on top.

These offers are one type of incentive exercise. The Pensions Regulator (TPR) describes an incentive exercise as one where an employer connected to a DB scheme seeks to reduce risk or cost by offering members a choice to transfer out or change their benefits. You can read its incentive exercises guidance on the TPR website.

ETVs are not ordinarily available. They are one-off exercises, usually sent by letter to a group of deferred members, with a closing date.

Why do schemes and employers offer ETVs?

A DB pension is a promise to pay you a guaranteed income for life, usually with yearly increases and often a pension for a spouse or partner after you die. The employer is ultimately responsible for making sure there is enough money to keep that promise. If investment returns disappoint, or members live longer than expected, the employer may have to pay more in.

Each member who transfers out takes that promise off the scheme's books. From the employer's point of view, paying a bit more than the normal CETV now can still cost less than carrying the risk of paying the pension for decades. An offer can also be part of wider plans, such as preparing the scheme for a buy-in or buy-out with an insurer.

None of this is a criticism of employers, and offers like this are lawful. But it helps to be clear about whose interests the offer was designed around. TPR's guidance says trustees should start from the presumption that incentive exercises are not in most members' interests, and should approach them cautiously.

An enhancement does not change what you would give up. Our illustrative case study on an enhanced transfer value offer shows how a regulated adviser might weigh an offer worth 118% of the normal CETV, and why the guaranteed income can still be worth more to the member.

The industry code on incentive exercises

Incentive exercises are covered by a voluntary industry code: the Incentive Exercises for Pensions: A Code of Good Practice. The first version was published in June 2012 by an industry working group, and a revised Version 2, dated January 2016, was produced by the Incentive Exercises Monitoring Board. Version 2 is the latest version we could find. TPR hosts a copy of the Code of Good Practice (Version 2), and its guidance says it supports the code and expects employers and their advisers to follow it.

The code says it applies to transfer exercises, which include enhanced transfer value exercises, and to exercises within the scheme, such as pension increase exchanges. It sets out seven principles. The ones that matter most to members receiving an ETV letter are below.

Cash incentives are not allowed

Principle 1 is "No Cash Incentives". Under the code, there are no circumstances in which a cash incentive can be offered to a member where it is only available if the member accepts the offer. The code defines a cash incentive broadly, as anything of value to the member that is not a pension benefit from a UK registered pension scheme. So an offer of, say, a cash payment, a holiday or vouchers for agreeing to transfer would not follow the code.

The enhancement to the transfer value itself is different. It stays inside the pension system, because it is paid into the receiving pension along with the rest of the transfer value.

Advice is provided and paid for by the employer

Principle 2 says that for transfer exercises, advice is provided. The code says impartial financial advice, from an adviser who can show independence from the party making the offer, should be readily accessible to every member the offer is made to. It also says the party making the offer, usually the employer, should pay for that advice, and that the adviser's pay must not be linked to how many members accept or involve commission.

This is also a legal requirement in many cases. Where an employer writes to two or more members setting out transfer options designed to encourage, persuade or induce them to transfer, regulation 12 of the Pension Schemes Act 2015 (Transitional Provisions and Appropriate Independent Advice) Regulations 2015 requires the employer to arrange and pay for the advice, or pay for advice the member arranges. The employer must not try to recover that cost from the member. MoneyHelper puts it simply: you must pay for advice unless your employer has offered you a financial incentive to transfer out, in which case your employer must pay.

Clear information and time to decide

The code also says communications should be fair, clear, unbiased and straightforward, and that exercises should allow enough time for members to make up their minds with no undue pressure. Reminder letters and deadlines should not push you into a quick decision. If you feel rushed, say so, and ask the scheme how long the offer will stay open.

Advice is still required over £30,000

An ETV is still a transfer of safeguarded benefits, so the normal legal rules apply. If the transfer value of your safeguarded benefits is more than £30,000, the trustees must check that you have taken appropriate independent advice before they can make the transfer. The £30,000 limit is set in regulation 5 of the 2015 regulations, and TPR's guidance on dealing with transfer requests says the adviser must be FCA-authorised with the permission for advising on pension transfers and opt-outs. See our guide to safeguarded benefits for what counts.

Many ETV offers will be well above £30,000, especially once the enhancement is added. In practice, that means the adviser the employer appoints, or one you choose, will carry out full regulated advice before you can go ahead.

The FCA starting assumption still applies

An enhancement does not change the regulator's view. When a firm gives advice on giving up safeguarded benefits, the FCA rules say it should start by assuming that a transfer will not be suitable (COBS 19.1.6G). The FCA's consumer page on defined benefit pension transfers says the FCA and TPR believe it is in most people's best interests to keep their DB pension. MoneyHelper makes the same point, adding that this is so even if your employer has offered you an incentive to move.

The adviser must still look at your whole situation. Under the FCA rules, they carry out an appropriate pension transfer analysis and give you a transfer value comparator, which compares the transfer value with an estimate of what it would cost to replace your DB income on the open market. A higher transfer value narrows that gap, but it rarely changes the bigger questions: how much secure income you need, how you would feel about investment risk, and who depends on you.

Because the employer is paying for the advice, it is worth confirming who the adviser works for and that the advice is about your circumstances, not about the exercise as a whole.

Is an ETV offer a scam warning sign?

Not in itself. The Occupational and Personal Pension Schemes (Conditions for Transfers) Regulations 2021 treat being offered an incentive to transfer as a red flag that can stop a transfer. But the definition of incentive in those regulations specifically excludes an incentive offered by the trustees of the transferring scheme or by the sponsoring employer. So a genuine ETV from your own scheme is not a red flag.

An offer from anyone else is a different matter. If a company you don't know contacts you out of the blue offering cash, a "bonus" or early access to your pension if you transfer, treat it as a warning sign. The FCA's ScamSmart site explains how to check, and our guide to pension scams sets out the common signs.

Questions to ask the scheme

If you have received an ETV letter, these questions can help you understand the offer. Ask them in writing and keep the replies.

1. What is my normal CETV, and how much extra is the enhancement, in pounds and as a percentage?
2. What is the guarantee date, and when does the offer close?
3. If I do nothing, what happens? Does my pension stay exactly as it is?
4. Is the enhancement paid into the receiving pension as part of the transfer value?
5. Is there a reduction in the normal CETV because of the scheme's funding level?
6. Has the employer appointed an adviser? Who are they, and who pays them?
7. Can I use a different FCA-authorised adviser, and will the employer pay for that advice?
8. Does the scheme offer any other options, such as a partial transfer, or taking tax-free cash from the scheme at retirement?
9. Is the scheme planning a buy-in or buy-out, and would that change anything for members who stay?

Questions to ask the adviser

1. Is your firm on the FCA Register with the permission to advise on pension transfers?
2. Is the advice checked by a qualified pension transfer specialist?
3. Who is paying for your advice, and does your fee depend on whether I transfer?
4. Can you show me the transfer value comparator, and explain what it means for me?
5. How would my retirement income compare if I stay, including spouse's benefits and yearly increases?
6. What would I be giving up, and what investment risk would I be taking on?
7. If you advise me not to transfer, what happens next with the offer?

Questions like these help you understand the advice. They are not a way to decide for yourself whether to transfer.

Frequently asked questions

What is an enhanced transfer value?

It is a transfer value that an employer has increased above the normal CETV to encourage DB members to transfer out. It is a type of incentive exercise. The enhancement makes the transfer value bigger, but it does not change the guaranteed income and other benefits you would be giving up.

Are cash incentives to transfer allowed?

Under the industry Code of Good Practice on incentive exercises, a cash incentive that is only available if you accept the offer should never be offered. The code is voluntary, but TPR supports it and expects employers and their advisers to follow it.

Who pays for advice on an ETV offer?

Where an employer writes to members to encourage them to transfer, the law usually requires the employer to arrange and pay for the advice, or pay for advice you arrange. The employer must not recover the cost from you. Check the offer letter, and ask the scheme if it isn't clear.

Do I have to accept an enhanced transfer value offer?

No. You can ignore it or turn it down. Check the letter, but declining usually means your DB pension simply carries on as before. The FCA and TPR believe it is in most people's best interests to keep their DB pension.

Do I still need advice if the ETV is over £30,000?

Yes. If the transfer value of your safeguarded benefits is more than £30,000, the law requires you to take advice from an FCA-authorised adviser with the pension transfer permission before the scheme can transfer. The enhancement does not change this.

For free, impartial guidance, you can contact MoneyHelper. If you also have defined contribution pensions and are 50 or over, you can book a free Pension Wise appointment. Our defined benefit pension guide explains the wider picture.

If you'd like to understand how DB transfers and the advice process work before you reply to an ETV letter, you can book a free, no-advice chat. It is general information, not advice.