An exemption from advice for people nearing retirement with small defined benefit pensions who wish to transfer to a defined contribution pension pot to take advantage of pension freedoms has been extended, the government announced today (27 January).
Speaking in Parliament Liberal Democrat peer and Treasury minister Lord Newby said advice will only be required where the transfer value associated with a defined benefit pension exceeds £30,000.
Previously the exemption for such transfers would only have applied where the member holds £30,000 in overall pension wealth, meaning a saver can now move substantially more savings to defined contribution savings from multiple pots.
Stephen Green, a senior consultant at Towers Watson, said: “The fact that advice is not required for small pensions does not mean that this is a decision to be taken lightly - especially where people have little else besides their state pension to fall back on.
“But if someone’s other final salary pensions will provide them with a good income in any case, their desire to swap a small pension for a pot of capital that they can access as they like may have overridden any financial advice not to do so.”
Today saw the Pension Schemes Bill reach the report stage in the House of Lords. It will then have its third reading in the second chamber and, if approved, finally become law.
The bill provides for three definitions, or categories, of scheme to ensure there is a clear ‘shared risk’ category and encourage more innovation.
Lord Newby also confirmed that the FCA’s second line of defence, announced yesterday, will be extended to include trust-based pensions.
Stephen Lowe, director at retirement specialist Just Retirement, said: “Many retirees have a combination of trust-based occupational and personal pensions so the rules needed to straddle both regimes in order to ensure clarity and consistency.”
