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.”