The Public Sector Transfer Club, more usually known as the Club, is a group of some 120 salary related occupational pension schemes, not all of whom are based in the public sector as the name might suggest.
Public Sector Transfer Club
What is the Public Sector Transfer Club?
What does the Club do?
The Club allows easier movement of staff mainly within the public sector. It does this by making sure that employees receive broadly equivalent credits when they transfer their pensionable service to their new scheme regardless of any increase in salary when they move to their new employment. This means that what they can expect from their final salary pension remains broadly the same, and so moving from job to job need not lead to pension worries. We only apply Club transfer terms in cases of voluntary moves of employment by individuals and not in circumstances where individuals or groups are compulsorily transferred.
How does the Club do this?
The law requires pension schemes to offer a minimum ‘transfer value payment’ equal in value to the member’s preserved benefits. This is known as a cash equivalent transfer value. The scheme that receives the cash equivalent transfer value must offer benefits of equivalent value to the service in the previous scheme. Transfers calculated on a Club basis will usually offer a higher pensionable service credit than those calculated on non-Club terms. Nevertheless, the pensionable service credit will still reflect differences in pension age or benefit design between the two schemes and there is no guarantee that the credit will be year for year.
What happens with a transfer calculated outside the Club?
Even when the benefits of the two schemes are identical, some things mean that the member will normally get less than year for year credit. The member’s preserved benefits are usually increased fully in line with inflation where the scheme is in the public sector, but this is less likely in the private sector. This makes a noticeable difference when inflation is at more than 5%. Based on what has happened in the past actuaries expect pay to rise. As we normally base benefits on salary at retirement, a cash equivalent transfer value is less than the value of the pension benefits which the person would have expected to receive if they had remained an active scheme member. However, the scheme that receives the transfer value payment normally allows for future expected salary increases when calculating a pensionable service credit. Of course staff usually get a pay rise when they change jobs. This is often the main reason for the move. The differences are most noticeable with younger employees who have the longest to go until they retire, and who will therefore get more pay rises over the years.
Why is the Club better?
A Club transfer value is worked out using the same method as that described above. The difference is the way the receiving scheme work out the pension credit. Instead of allowing for future pay rises, the same type of factors are used to work out the cash equivalent transfer value. In addition, the Club requires the member’s new scheme to use the salary as it was in the previous scheme. Because of this, if the benefits of the two schemes are identical and if all the member’s service in the previous scheme was covered for spouse’s and civil partner’s pension benefits, the member will receive year for year service credit. If the two schemes have major differences, such as a different pension age or accrual rate, then the service credit will be adjusted to ensure that the member receives benefits of equal value to those he had in his previous scheme.
How does Club membership affect the running costs of the pension scheme?
Salary related pension schemes enjoy profits when members transfer out, whether this is on Club terms or not. During a Club transfer-in, the receiving scheme incurs a loss because of the higher pension credit that is given. These losses are made good in the way that the Club works on a ‘give and take’ basis. As long as the members joining a scheme on a Club basis roughly match the numbers who leave, it will have no effect on the scheme’s finances. If this balance were lost, (for example due to staff reorganisation) then any large-scale transfer of staff would normally be dealt with on different (bulk) transfer terms, which would take place outside the Club rules. The overall effect of Club membership is generally considered a benefit as it helps make job mobility and recruitment easier.
Who can join the Club?
Despite being called the Public Sector Transfer Club private sector schemes can participate if they are:
- Salary related occupational schemes;
- Have full HM Revenue & Customs approval;
- The scheme’s trustees or managers agree to comply with the Club arrangements;
- The scheme is contracted out of the State Second Pension – formerly SERPS (a requirement since 1997).
We have produced a leaflet that you can view and download - Public Sector Transfer Club Leaflet
How can we apply?
If you are a scheme trustee or manager and you are interested in becoming part of the Public Sector Transfer Club take a look at Joining the Public Sector Transfer Club. Alternatively, for further information you can contact email@example.com