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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 as part of reforms announced by Chancellor George Osborne in the Budget.

It will also consider whether to ban all DB to DC transfers.

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 set out plans for a radical overhaul of the UK pensions framework.

The DC reforms, which will take effect from April 2015, will allow anyone who is aged 55 or over to take their entire fund as cash.

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 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 they have more confidence in than that provided by the Government.”

The Government is also considering five options to restrict transfers out of private sector DB schemes.

The first option would remove the right of all members of DB schemes to transfer to DC schemes.

The second proposal would continue to allow members of DB schemes to transfer to DC but require any funds which have been transferred to be ring-fenced by the receiving pension scheme and subject to the existing DC tax framework.

Thirdly, policymakers are considering placing a cap on the amount that people in DB schemes can transfer to DC schemes each year.

The fourth alternative would allow transfers to continue but any transfer to a DC scheme would need to be approved by the DB scheme trustees.

Finally, the Treasury says it could leave the existing flexibility for members of private sector DB schemes to switch to DC schemes.

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