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Government set to kill off scheme pension

A Government amendment to the Pensions Bill is set to effectively kill off the market for scheme pension by reclassifying the arrangements as defined benefits.

The amendment clarifies the Government’s definition of a money-purchase scheme. Only an annuity purchased with an insurance company or income drawdown will now be recognised as money-purchase benefits. No exemption is provided for scheme pension.

As a result, scheme pension used through both Sipp and SSAS arrangements will be classified as DB and must comply with the corresponding legislation. This includes completing a funding valuation every three years, having a deficit correction plan if the scheme is in deficit and paying the Pension Protection Fund levy.

Standard Life head of pensions policy John Lawson says: “The costs of complying with DB rules will be enormous. If the Pensions Bill goes through as it is, scheme pension will be killed off.”

Lawson says any Sipp or SSAS which uses scheme pension will need either to run the scheme as a DB scheme or buy an annuity from an insurer to secure the promised pension.

Pension providers including Axa Wealth, Rowanmoor Pensions, Hornbuckle Mitchell and James Hay have been promoting scheme pension as an alternative to income drawdown.

Axa Wealth head of pensions development Mike Morrison says: “The massive impact will be on SSASs because there are more than 40,000 which have been set up on a money-purchase basis with the promise to pay a scheme pension on retirement.”

Hornbuckle Mitchell managing director David White says: “There are potentially thousands of SSASs using scheme pension to pay benefits, as well as many individuals taking benefits this way from Sipps. The consequences could be widespread.”

Rowanmoor Pensions head of pensions technical services Robert Graves says: “The industry needs to put pressure on the Government to consider the potential impact of this amendment.”

Advisers recommending scheme pension could face complaints if the amendment stands. Lawson says: “The adviser’s ability to defend complaints depends on how well they explained the possibility that scheme pensions could be legislated against.”

Worldwide Financial Planning IFA Nick McBreen says: “This will be a nightmare for companies and advisers who have offered scheme pension.”

The Pensions Bill went through its third reading in the House of Commons on October 18. Consideration of the amendments made will take place in the House of Lords on October 31.


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There are 12 comments at the moment, we would love to hear your opinion too.

  1. Pension simplification – your having a laugh

  2. Please can someone tell me why on earth anyone would do a Pension when the government keep changing the rules, and always to the detriment of the policyholder?

  3. Perhaps the very real cause for complaint lies in the use of the words “defined benefit” when any benefit that may result is wholly incapable of being “defined” – not least due to the vagaries of future legislative change.

  4. Is it any wonder that people make alternate arrangements like buying houses?

  5. Pension Protection Fund levy…. More expense

  6. Andrew Roberts, AMPS Chairman 26th October 2011 at 12:25 pm

    Care needs to be taken here about the actual impact of any change. As the AMPS committee understand it, the legislation requiring funding valuations etc aplpies to occupational schemes (and so not SIPPs) and includes exemptions for traditional SSASs (fewer than 12 members, all members are trustees etc). Firms offering these products should take their own advice though on the implications of any change in legislation.

  7. Who was that old timer who said pensions were ‘sterile’?

  8. I’m with Cassandra on this.

    Anybody remember Gordon Brown?

  9. re Andrew Roberts, AMPS Chairman | 26 Oct 2011 12:25 pm

    won’t these exemptions only work if schemes are under an individual trust?

    if there is a master trust there will be more than 12 members.or am I getting the wrong end of the stick?

    there are surely better things the government could be doing than this!

  10. “Lawson says: “The adviser’s ability to defend complaints depends on how well they explained the possibility that scheme pensions could be legislated against.”” – John, that applies to all legislative changes not just this, just because Standard didnt offer scheme pension does not make its use invalid or imprudent. Remember that “mocking is catching”.

  11. The next compensation claim bandwagon

  12. Andrew Roberts, AMPS Chairman 27th October 2011 at 5:38 pm

    Grant (Hughes),

    I assume that you are talking about the common practice of having a SIPP product under a master trust / sub trust structure. In that instance, even though there might be 12+ members, the SIPP is not an occupational pension scheme and so not bound by the occupational pension scheme regulations.

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