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.”