Cash incentives should be offered under "no circumstances" in enhanced transfer value (ETV) exercises, an industry code of conduct warns.
The voluntary code - backed by the Department for Work and Pensions - has steered away from an outright ban on the controversial practices that offer members inducements to leave generous defined benefit (DB) schemes.
But it has set out strict rules on the use of cash offers to encourage members to accept changed terms or transfer out of their DB schemes through ETVs or pension increase exchanges.
The code said employers can no longer offer members cash payments that are dependent on their acceptance of revisions to their scheme, but will still allow for cash to encourage member engagement with any review process.
Employers must also pay for independent financial advice for members on an individual basis.
The industry working group that has been working on the code for six months was set up after pensions minister Steve Webb told the industry to "put its house in order" or face government legislation.
Webb (pictured) said the code was necessary to prevent a mis-selling scandal in the future.
He commented: "There were risks for pretty much everyone involved. For members, the risk that they make the wrong choices that lead them to lose out on substantial amounts of income in retirement.
"For consultants, employers, advisers and insurers, the risk that some of the people who accept an incentive offer may in the future feel they were misled to transfer or modify their pensions in a way that turned out to be not suited to their needs."
But the pensions minister refused to rule out further legislation, warning that he expects all employers to follow the code.
A monitoring body will be established to review the effectiveness of the code at stamping out bad practice.
Chris Hannant, policy director at AIFA, said: "The industry has rightly worked with government to address potential consumer detriment when opting out of DB pension schemes. The Code of Practice now puts advice right at the heart of the process to help create better outcomes for consumers. This is due recognition of the role professional advice can play in helping consumers.
"AIFA is pleased to have been able to play a role in ensuring advice is rightly seen as a solution to current issues in the pension transfer market. This now offers a real opportunity for advisers to work with employers and pension trustees to help their members make the right decision."
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