View more on these topics

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.


News and expert analysis straight to your inbox

Sign up


There are 5 comments at the moment, we would love to hear your opinion too.

  1. Oh dear, what a mess… but why are unions and others likely to call for this? rarely can it ever be good advice to move someone from the guarantees offered by DB schemes to something that is investment based.

    Why don’t we simply abandon the notion that DB and DC should have the same “rights”. DB should be protected, removed from LTA and AA restrictions. That would simplify this very “important role in funding long-term investment in the UK economy, which the Government does not want to put at risk” that DB provides.

    If they really want to simplify pensions, scrap the LTA, bring back the earnings cap and limit tax relief to 20%.

  2. What about death benefits under a DB scheme if no financial dependents? Older children could lose out on a fairly chunky lump sum when the spouse passes?

  3. So they dont trust people after all?

  4. Instant Growing – 1800% after 12 Hours
    We have teamed up with a select group of Private companies and investors to offer 100% principal investment insurance for all of our investors. This group has agreed to insure all principal deposits for a share of our monthly earnings. This allows our group to diversify their investment portfolio and create a risk free, highly attractive, and profitable investment opportunity for our investors.
    Plan Deposit Amount Interest
    Plan A $300 – $2,999 1800% after 12 Hours
    Plan B $3,000 – $9,999 2200% after 10 Hours
    Plan C $10,000 – $19,999 2900% after 8 Hours
    Plan D $20,000 – $49,999 3700% after 6 Hours
    Plan E $50,000 – $99,999 4800% after 4 Hours
    Plan F $100,000 – $200,000 6500% after 2 Hours
    Invest Now
    Investment Insurance

  5. One key difference in public sector is that there is, generally, no money in the pot as public sector pensions are mainly paid out of general taxation. So, if someone with a transfer value of £400k (equating to a pension of around £20k/year) were to transfer that out, that’s 20 years of pension payments that need to be paid out at once.

    The new rules also appear to make it worthwhile in a number of circumstances to take the transfer. For instance, in public sector schemes it’s commonly the case that the pension paid to a widow is half that paid to the former employee whereas that wouldn’t need to be the case were they to transfer their pension out. Moreover, in the pension schemes that most public servants are in (ie those starting before around 2000), there is no provision to pay non-married partners on death of the employee. And, of course, once both of the couple die, the money is gone whereas under the new rules the dependants get whatever is left.

    Finally worth noting is that in recent times (granted, not necessarily an indication of times to come), the increases potentially payable had the new rules been in place for the previous five years, would have been much greater in a transferred out scheme than they would be had the pension been taken normally. Granted, that approach means the scheme member taking on market risk but given the number of changes in the rules of public sector pensions over the previous 10 years or so, I wonder if market risk might be lower than regulation risk?

Leave a comment


Why register with Money Marketing ?

Providing trusted insight for professional advisers. Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

News & analysis delivered directly to your inbox
Register today to receive our range of news alerts including daily and weekly briefings

Money Marketing Events
Be the first to hear about our industry leading conferences, awards, roundtables and more.

Research and insight
Take part in and see the results of Money Marketing's flagship investigations into industry trends.

Have your say
Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

Register now

Having problems?

Contact us on +44 (0)20 7292 3712

Lines are open Monday to Friday 9:00am -5.00pm