Govt rethinks GARs advice threshold amid industry confusion


Fewer savers with guaranteed annuity rates will be required to take advice before ditching the valuable benefits following a Government rethink on pension freedoms rules.

However, policymakers have moved to strengthen the warnings people receive when transferring away from a scheme containing GARs in a bid to bolster consumer protection.

Under rules introduced to protect consumers ahead of the launch of the pension freedoms in April last year, anyone with safeguarded benefits – namely defined benefits and GARs – valued at more than £30,000 has been required to take regulated advice before transferring.

But there has been widespread confusion among providers and consumers about how these benefits should be valued.

In particular, members have been receiving one value for the purposes of seeking independent advice and another, lower value when looking to actually transfer their pot.

In response, the Government will change the rules so the GAR threshold is “equal to the actual transfer payment to which the member would have a statutory right in respect of those benefits”.

The move “will mean that some members with GAR benefits who were previously required to take independent financial advice before transferring their benefits will no longer have to do so”, the Government admits

To mitigate this, the Department for Work and Pensions will strengthen the warnings system in place for members with GARs who want to transfer and risk losing their guarantees.

Both occupational and personal pension schemes will be required to send members with GAR pension benefits projections of the annual income they would potentially be entitled to if they exercised their guarantee.

The DWP has also proposed forcing ceding schemes to send personalised risk warnings to members considering transferring or surrendering their GAR.

The Government proposes introducing these changes in summer 2016.

Elsewhere, the Government has ditched proposals that would have required occupational schemes to provide risk warnings on transfers. Firms had argued this was not necessary given a similar obligation does not exist for FCA-regulated schemes.

In addition, policymakers have scrapped plans to force trust-based schemes to provide risk warnings within seven days of a member indicating they want to give up their safeguarded benefits.