Pension transfer rule change isn't expected this year
Defined benefit transfer rule changes 'won't happen this year' although they are very much needed, advisers have predicted.
In a poll carried out by FTAdviser Talking Point, advisers believed there would be a change to pension transfer rules to remove some of the onerous restrictions around pulling cash out of defined benefit schemes but most believed the government would be 'too busy' to alter the requirements this year.
As prime minister Theresa May outlining her Hard Brexit and a total separation of the UK from the European single market, 47 per cent of advisers polled thought the government would be "too busy" in 2017 to concentrate on any pension rule changes.
Some 32 per cent were hopeful this would happen as it is much needed, while 18 per cent thought it would happen some time in 2018.
When asked whether the government would unwind some of the excessively complicated regulation around defined benefit pension transfer advice, Steve Cameron, pensions director for Aegon, commented: "I certainly hope so. Long overdue."
Pensions advisers and industry professionals have lambasted the imposition of overly complicated rules on defined benefit transfers following the introduction of the so-called Pensions Freedom and Choice regime.
This is largely because DB schemes carry safeguarded benefits, which the government has defined in legislation as “pension benefits which are not money purchase or cash balance benefits.
According to the government: "In practice, safeguarded benefits are any benefits which include some form of guarantee or promise during the accumulation phase about the rate of secure pension income that the member (or their survivors) will receive, or will have an option to receive."
| What are safeguarded benefits? |
1. Under an occupational pension scheme, a promised level of income calculated by reference to the member’s pensionable service in the employment of the pension scheme’s sponsoring employer (for instance, under a final salary scheme). 2. A promised level of income (or guaranteed minimum level of income) calculated by reference to the contributions or premiums paid by or in respect of the member (for instance, under some older personal pension policies). 3. A promised minimum rate at which the member will have the option to convert their accumulated pot or fund into an income at a future point, usually on the member reaching a particular age (generally known as a guaranteed annuity rate, or guaranteed annuity option). |
Source: Department for Work and Pensions, January 2016
The legislation to protect such schemes means transfers from DB schemes with safeguarded benefits worth £30,000 and above have become exceptionally difficult for advisers, providers, trustees and scheme managers to handle.
Advisers cannot advise on a transfer of more than £30,000 unless they have a specific qualification that allows this, while the FCA's transfer valuation analysis methodology has been called into question for being outdated.
In September last year, FTAdviser's Guide to Pension Transfers Post-Freedoms (which qualifies for 60 minutes' worth of CPD) outlined some of the issues affecting the pensions industry over the issue of defined benefit transfers.
Later that year, the regulator faced increasing pressure to lighten up its stance on DB transfers, while in November, the government pledged a review into cold-calling to tighten up on DB transfer fraudsters.
simoney.kyriakou@ft.com
