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Stewart Ritchie – Pensions Development Director Scottish Equitable

Those who have thrown their hats in the air after the Chancellor’s MFR announcement should perhaps read the small print before they break open the champagne.

The government’s decision to abolish MFR has a major sting in the tail. In order to make sure that defined benefit scheme members do not have their security reduced, the government will legislate so that “employers will stand behind the defined benefit promise and members will receive the benefits accrued to date”. Even under MFR employers did not have to do this – as long as the scheme was 100 per cent funded on MFR they could walk away with no further financial liability. In cases currently winding up this has frequently resulted in people not yet retired receiving only about 60% or 70% of the defined benefit they thought they were guaranteed. If such a scheme were to wind up with the new legislation in place this would mean the employer having to pay in to the scheme roughly half as much again of the money held in the scheme for people not yet retired.

The practical implication of this is likely to be acceleration of the move from defined benefit to money purchase, especially among small and medium sized employers, as they seek to limit their liability before the new legislation takes effect.

The issue about transfer values out of defined benefit schemes remains open. All the government is saying is that “consideration will need to be given to cash equivalent transfer values as these are currently linked to MFR”.


Tony Wickenden – Partner Technical Connection

BUDGET 2001 ARTICLEThis Budget was certainly one with few surprises. As such I am going to take a more oblique view of what some of the changes might mean and what action might be profitable for UK taxpayers in a few selected areas. Namely: The children&#39s tax credit Inheritance tax Capital gains tax Life assurance […]

Survey sees Solas still in the dark

Nearly three-quarters of single, older women are unaware of the range of financial products available to them, according to research by RJ Temple. It found that 73 per cent of unmarried or widowed older women were in the dark or sceptical of products to boost their incomes, such as equity release. The IFA commissioned the […]

Can you pass the stakeholder test?

With just weeks to go before the official launch of stakeholder on April 6, Informed Choice managing director Nick Bamford says unless IFAs can correctly answer the 20 questions posed here,they are unfit to advise on stakeholder. Bamford says: “In my view no one should be providing advice on the highly complex subject of stakeholder […]

L&G cuts WP payouts by 10%

Legal & General is the latest life office to cut its with-profits reversionary bonuses and maturity payouts. Reversionary bonuses on its life and endowment policies drop to 2 per cent on the sum assured from 2.25 per cent and to 3.5 per cent on existing bonuses from 4.25 per cent in 1999. The maturity payout […]

Graphic Content – August

Given the release of employment data from the US on 5 August, we wanted to focus on employment data in this month’s Graphic Content. The Graphic Content below shows us that young and middle-aged workers were hit the hardest by the Great Recession and have never caught up. Since the job market started to recover […]


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