Defined Benefit  

DWP targets bulk pension transfers

DWP targets bulk pension transfers

The government will consider making changes to legislation to allow bulk transfers without member consent from final salary schemes to other type of plans.

If this change was already in place, some 25,000 members of the British Steel Pension Scheme (BSPS), which were automatically moved to the Pension Protection Fund (PPF) because they didn't make a choice about the future of their pensions, could have been enrolled in the new scheme being created, BSPS II.

According to Stefan Zaitschenko, a former Tata steelworker who helps run a Facebook group for members of the old scheme, this is a particular important change in the law, because the majority of these steelworkers would be better off in the new plan.

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He said: "It would have been beneficial to us if these changes were in place at the time."

This is due to the fact that an individual yet to reach retirement will see cuts of typically between 10 per cent and 20 per cent in the pensions lifeboat.

Around 130,000 steelworkers had to choose by 22 December it they wanted to move their defined benefit (DB) pension pots to the new plan or stay in the current fund, which would be moved to the pensions lifeboat.

Just under 97,000 members completed and returned option forms, of which 86 per cent chose to switch to BSPS II.

A total of 14 per cent of these opted for the PPF and the remaining members didn't make any decision.

The current legislation doesn't allow bulk transfers without member consent between defined benefit to defined contribution (DC) schemes, so BSPS trustees had no choice but to move the steelworkers that didn't make a decision to the PPF.

The Department for Work & Pensions (DWP) published on Monday (26 February) its consultation response to the draft legislation on contracted-out bulk transfers without member consent, where it addresses this issue.

The DWP stated a couple of respondents to the new rules suggested that "the definition of salary-related pension scheme needed to be deleted or amended," so that the receiving scheme could be of other type, as long as "the necessary protections were afforded to transferred rights".

The DWP considered that these suggestions are "out of the scope of this consultation", and that it doesn't agree with this suggestion.

However, the DWP stated: "In light of the points raised by certain respondents, the government will be taking all comments away and will consider what further changes might be required to legislation as soon as we are in a position to do so."

The goal of this consultation was to guarantee that contracted-out savers didn't lose their rights after changes in the state pension.

Between 1978 and 1997, employers sponsoring defined benefit schemes could contract their employees out of the additional state pension, as long as the scheme paid a comparable guaranteed minimum pension (GMP).

The benefit of contracting out was that both employer and worker had a reduction in their National Insurance contribution.