MEMBERS of private sector defined benefit schemes will be able to transfer to a defined contribution arrangement according to a written Ministerial Statement published ahead of the Budget consultation response.
The rule excludes pensions in payment and will be subject to two important safeguards, Professional Pensions reported.
Those looking to complete a transfer from DB to DC can only do so if they take regulated financial advice from someone who is independent from the scheme. In most cases the cost of this will be met by the individual.
The FCA has published a thematic review on enhanced transfer values out of defined benefit schemes, summarising examples of good and bad advisory practice.
Responses to the consultation also flagged up concerns about the stability of DB schemes should many members look to transfer out.
In response, the Treasury will issue new guidance to trustees on how to use their existing powers to delay transfers from schemes if the scheme is at risk, and to reduce transfer values to reflect scheme funding levels.
However, the Treasury said it was not expecting a widescale move to transfer out.
Discussions with stakeholders during the consultation showed the majority of estimates were between 10% and 20% but with a number expecting transfers to be below 10%.
Barnett Waddingham partner Simon Taylor welcomed the increased flexibilities being offered to DB members.
“It is welcome news that the government has decided not to ban transfers from private sector DB pension schemes to DC schemes,” he said. “This leaves useful options open to members looking to take advantage of new flexibilities in DC schemes, and for employers looking to manage their DB liabilities. Adding the requirement that members receive regulated advice is also a welcome and necessary measure which will arm members with the correct knowledge in order to make the most suitable decision for themselves.”
However, there were concerns that the move could place an extra burden on trustees according to financial adviser Intelligent Pensions.
“Allowing transfers to continue unaltered would put additional strains on trustees of DB schemes. At present there are a number of cases with the Pensions Ombudsman regarding pension liberation: in some cases trustees are facing complaints that they blocked transfers, but in others the complaint is that they allowed them! We would not want to see trustees facing similar problems where members were transferring solely to take advantage of the new flexibility.”
What can you do to ensure your employees know the company policy and stick to it? Hear from other CFOs and experts in our free-to-view video
The UK’s imminent exit from the EU that may now put the audit committee to the ultimate test
Governance concerns have been raised at courier firm Hermes, over allegations about it paying less than the minimum wage
HMRC has launched a series of consultations on proposals to clamp down on the black economy, which include new sanctions for companies