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Pension firms set for long transfer battle with DWP

The pension industry is bracing itself for a lengthy battle with the Government after it confirmed that the decision to ban transfers from defined-benefit to defined-contribution schemes was intentional.

The Department for Work and Pensions revealed plans to end transfers from contracted-out DB to DC schemes in a July consultation paper outlining draft legislation for the abolition of contracting out.

The decision prompted stinging criticism, with concerns over the constraint that the measure placed on member choice and the possibility that some emp-loyees, such as those suffering health problems or employed by a firm facing insolvency, could ultimately lose out.

The outcome was dismissed by many as an unintended consequence of the drafting of the legislation. However, following the end of the consultation period last week, it emerged that the DWP is refusing to back down over the decision.

DWP officials are understood to have concerns over the impact that a transfer from a final-salary to a defined-contribution scheme could have on spouses’ benefits, with the risk that the transferring person could opt for a single-life pension.

Standard Life senior pensions policy manager Andrew Tully says: “The DWP seems to see justifiable reasons for the ban continuing. I do not think that we are going to get any quick resolution. I would prefer to see the DWP target improvements in education rather than a blanket ban.”

Hargreaves Lansdown head of pensions research Tom McPhail says: “There will be occasions when transfers are certainly in members’ interests and potentially in a scheme’s best interests as well. There is no benefit to curtailing these transfers.”

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Comments

There are 5 comments at the moment, we would love to hear your opinion too.

  1. So you have a client who wishes to consider retiring due to ill health, and wants to know that his/her spouse will have adequate pension in their retirement.

    Does this mean that the spouse will only get a 66/50% spouses pensions when under USP they could have 100%.

    Oh dear so much for individual choice.

  2. Since when is the DWP authorised to give financial advice?

  3. Okay, so the DWP is concerned about the possibility of people who’ve transferred the value of their DB’s to a money purchase arrangement opting for an SL pension only. Is this really reasonable grounds for a blanket ban on all such transfers? Would it not make more sense and be considerably less draconian simply to stipulate that the pension purchased at retirement with a money purchase fund must have attached to it the same widow’s pension as the ceding scheme?

    And what of death before retirement? A money purchase arrangement would typically secure as a first charge any widow’s GMP and refund the balance of the fund as a tax free lump sum.

    Then we have the increasingly common risk of the ceding scheme winding up without being sufficiently solvent to secure fully all its members’ accrued entitlements. What if the scheme goes into wind-up just before an ex-member, possibly in ill-health, wants and/or needs to start drawing his pension? He might be prevented from doing so for years. And there’s also the consideration that from a money purchase arrangement, if in ill-health, he’d quite possibly be able to obtain an enhanced/underwritten annuity.

    This seems to be a very inadequately thought through item of legislation.

  4. Pension Transfer Guide 12th November 2010 at 6:15 pm

    It’s really a helpful article….
    And : Sometimes an individual wants to transfer the pension pot he or she has built up in one pension or several pensions into another one. This is known as a pension transfer. As the rules regarding pension transfers are so complex and a pension transfer may not be a good idea financially, those considering a transfer should always get professional financial advice before arranging a pension transfer.
    …………………………………………
    http://www.pensionfinder.org.uk/guides/pension-transfer-guide/

  5. pension transfers 12th November 2010 at 6:17 pm

    It’s good….
    And If you are a member of a defined contribution company scheme or a personal pension, when you come to retire you will exchange the pension pot you’ve built up over the years for an annuity. The amount of regular pension you get in retirement will depend upon the size of your pension pot and the annuity rate you get for your chosen annuity.
    …………………………………..
    http://www.pensionfinder.org.uk/news/annuity-rates-and-how-they-affect-your-retirement-income/

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