Budget 2014: Govt to block public sector pension transfers to prevent 'mass exit'
The Government will ban public sector pension members from transferring out of their defined benefit scheme under proposals announced by Chancellor George Osborne today.
Experts say the move is designed to prevent large numbers of public sector workers ditching their DB scheme in favour of a defined contribution arrangement after Osborne announced a radical overhaul of the UK pensions framework.
The DC reforms, which will take effect from April next year, will allow anyone who is aged 55 or over to take their entire fund as cash.
The Budget documents say: “Having considered this carefully, the Government intends to introduce legislation to remove the option to transfer for those in public sector schemes, except in very limited circumstances.
“Whilst the Government would in principle welcome the opportunity to extend greater choice to members of private sector defined benefit pension schemes, it will not do so at the expense of significant damage to the wider economy.
“Funded defined benefit schemes play an important role in funding long-term investment in the UK economy, which the Government does not want to put at risk.
“The Government’s starting point is therefore that, whilst in principle it would like to permit transfers from private sector defined benefit schemes under the new freedoms, it will only consider doing so if the risks and issues around doing so can be shown to be manageable.”
Treasury estimates suggest if just 1 per cent of public sector pension members transferred out it would cost the Exchequer £200m.
MGM Advantage pensions technical director Andy Tully says: “Not being able to transfer is a significant restriction for members of public sector DB members. I imagine the Government will come under pressure from members and unions to provide them with greater flexibility.
“This looks like an attempt to prevent a mass exit of members into the now more flexible DC arrangements.”
Syndaxi Chartered Financial Planners managing director Robert Reid says: “Many high earners, particularly in the health service, will see this as an attack on their ability to take their benefits in a format that they have more confidence in than that provided by the Government.”
The Government is also considering a range of options to restrict transfers out of private sector DB schemes. These include:
- removing the right of all members of DB schemes to transfer to DC schemes;
- continuing to allow members of DB schemes to transfer to DC but requiring that any funds which have been transferred are ring-fenced by the receiving pension scheme and subject to the existing DC tax framework;
- placing a cap on the amount that people in DB schemes can transfer to DC schemes each year;
- continuing to allow transfers but requiring that any transfer to a DC scheme must be approved by the DB scheme trustees before it can be made;
- leaving in place the existing flexibility for members of private sector DB schemes to switch to DC schemes.