DWP to ban DB-DC transfers
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The Government is to stop the majority of people from transferring out of final-salary pensions into defined-contribution schemes from April 2012.
The Department for Work and Pensions revealed its plans to put an end to transfers in a consultation setting out the draft legislation for the abolition of contracting out.
Some pre-1997 benefits, called excess benefits, will be exempt from the change as well as non-contracted out defined benefit schemes.
The consultation says: “In addition to contracting-out terms, references to transfers between contracted-out defined-benefit and contracted-out DC schemes have been removed, as this will no longer be possible post-abolition.”
But the industry has hit out at the move. Standard Life senior pensions policy manager Andy Tully believes the Government has ruled out transfers simply because defined-benefit schemes will continue to allow contracting out after 2012 while DC schemes will not.
He says: “This is a retrograde step that takes away consumer freedom and choice. The Government has been too simplistic. It needs to stand back and consider how this affects individuals because, for some people, such as those with significant benefits who believe their employer may go into liquidation, transferring can be the right thing to do.
“If the Government is comfortable allowing people to transfer from DB to DC before 2012, it must be able to find a way to write the legislation so people can transfer after 2012 if it suits their circumstances.”
Hargreaves Lansdown pensions analyst Laith Khalaf says: “Restricting choice would be a backward step, particularly given the new flexible drawdown arrangements that DC schemes will enjoy from April.”
A DWP spokesman says: “If the final salary scheme is a contracted out scheme, an individual would not be able to transfer to a personal pension. If not contracted out you could transfer your final salary scheme to a personal pension.”
Please click here to view a PDF of the consultation paper
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Readers' comments (26)
Anonymous | 12 Aug 2010 12:49 pm
very clever. Few people know that a transfer from GMP to protected-rights can increase the residual state pension . Maybe this is trying to save money not protect people !
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Ian | 12 Aug 2010 12:51 pm
Get a correct protection scheme in place then. They will have to allow early retirement.
The reaon people were transferring out was because they could not retire early and were nervous of employers failing.
Bad time to bring this in with a recession and companies failing??
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Sean Reynolds | 12 Aug 2010 12:52 pm
I wish they would do it now. My worst nightmare is an old school chum who just popped up, worked for the same company 36 years and their DB scheme is only 48% funded. How easy to tell him he has no choice but to risk it.?
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Graham Reeve | 12 Aug 2010 12:52 pm
How will this effect pension sharing orders on DB schemes that won't accept the divorced spouse as a member? As most seem to be female surely it will fall foul of sex discrimination legislation. Yet another case for the European courts!!
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Michael Fallas | 12 Aug 2010 12:58 pm
Many will benefit but the few that will lose out are not served well by this. It is aggressive legislation when more specific legislation is needed based on what is best for the consumer.
As the article says freedom and choice have been removed and given the Queens speech said " My Government’s legislative programme will be based upon the principles of freedom, fairness and responsibility", one would have to question if this legislation fits that promise.
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Julian Stevens | 12 Aug 2010 1:08 pm
This surely raises the question of whether or not somebody prevented from transferring out preserved defined benefits to a DC scheme shortly before the DB scheme is wound up insolvent could then sue the government for having enacted legislation the direct result of which will have been to materially disadvantage them.
In May 2012 they might well have been offered a full TV but then subsequently be offered a much reduced one ~ and they might have to wait a long time, possibly years, before the scheme was prepared to release it. How is that supposed to be a step forward? Is the NAPF making any representations to the government?
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Bill Wells | 12 Aug 2010 1:10 pm
So, someone leaves a firm with accrued benefits under the terms of a DB scheme. The former employee is locked into a DB scheme, regardless of his own wishes and circumstances, and the employer goes to the wall.
Outrageous that such legislation could even be contemplated let alone be forced through !
But we already know that we are being ruled by people in parliament, civil servants, and a tens-of-thousands of quangocrats, who don't have a clue except when it comes to lining their own pockets.
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Anonymous | 12 Aug 2010 1:15 pm
Do we have ANY joined-up government WHATSOEVER. Bloody DWP clowns.
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John Blackmore | 12 Aug 2010 1:18 pm
Very strange. Wasn't it a dogmatic Tory - Nigel Lawson - who set in motion the destruction of DB by encouraging transfers ?
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Anonymous | 12 Aug 2010 1:42 pm
So someone at death's door who wants to provide a spouse's pension in excess of the scheme rules
Or a scheme that hasn't adopted post A Day tax free cash rules and provides a pitiful commutation factor
Or someone who's employer is approaching insolvency but they have a preserved pension in excess of £31k
The end of DB opt outs is a good idea, is it?
And the employer will need to carry the burden of investment
Win Win. Well done DWP
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