Government officials have reversed the decision to ban transfers from contracted-out defined-benefit to defined-contribution pension schemes following weeks of negotiations with the industry.
In August, Money Marketing revealed that legislation drafted by the Department for Work and Pensions to abolish contracting-out from April 2012 would also end transfers from contracted-out DB to DC schemes.
The consultation said: “In addition to contracting-out terms, references to transfers between contracted-out DB and contracted-out DC schemes have been removed, as this will no longer be possible post-abolition.”
At the time, Hargreaves Lansdown pensions analyst Laith Khalaf described the move as “a backward step” in light of flexible drawdown proposals due to come in from April next year.
Experts also raised concerns about the impact the change could have on some people, such as those in ill health or who are concerned their employer could become insolvent, who would potentially benefit from switching from a DB to a DC plan.
The pension industry has pushed hard for a change to the drafting of the original legislation. Following weeks of high-level negotiations, Government officials have conceded that the draft legislation does not work as was originally intended.
The Government response to the consultation on the abolition of contracting out, which was published this week, says: “We have listened to stakeholders’ views and consider that restricting transfers to the contracted-out environment beyond abolition date would be inconsistent in policy and run counter to our overall pension simplification agenda.”
Standard Life senior pensions policy manager Andrew Tully says: “The overall message is that people are going to be able to transfer, which is good. Taking away freedom of movement was not the way to go.”