Defined Benefit  

Sixth of pension schemes put transfers on hold

Sixth of pension schemes put transfers on hold

About a sixth of defined benefit (DB) pension schemes have put a temporary hold on pension transfers while they decide how to equalise contracting out benefits.

According to law firm Herbert Smith Freehills - which polled an undisclosed number of trustees, sponsors and advisers – 17 per cent of respondents said their schemes (or those they advise) have decided to temporarily suspend transfers while they consider their approach.

FTAdviser reported earlier this month that some administrators have been telling their DB clients to suspend transfers due to the implications of the recent Lloyds court case, which will see final salary scheme members who contracted out receive millions of pounds in back payments.

In a decision which could have widespread implications for hundreds of thousands of pensioners, Justice Morgan had ruled trustees must equalise benefits between women and men who have guaranteed minimum pensions (GMPs) because of contracted out benefits.

Samantha Brown, pensions partner at Herbert Smith Freehills, said many trustees were raising concerns about how to deal with transfer payments that are in the pipeline and whether they should be suspending them or applying adjustments to them.

She said: "There are a number of approaches that trustees can take. However, given the strict statutory deadlines for processing transfers it is important that trustees take advice quickly and that any suspensions on transfers are kept as short as possible.

"Trustees also need to think carefully about what they are saying to transferring members and about the terms of any discharge that they require transferring members to give."

The Pensions Regulator (TPR) has said that it is up to trustees to decide if any action is needed for their scheme to provide equal pensions following the recent judgment.

A spokesperson had said: "Where trustees have concerns about the possible impact on transfers out of the scheme, they should consider taking legal advice. Trustees should be clear to relevant members requesting a transfer or a transfer value where their entitlement may be impacted by GMP equalisation."

A spokesperson at the Department for Work and Pensions (DWP) said the government will be publishing "guidance on the appropriate methodology" for schemes to be able to equalise benefits.

The matter involves DB members with pensions accrued between 1978 and 1997, when employers sponsoring DB pension schemes could contract their employees out of the additional state pension, as long as the scheme paid a comparable GMP.

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

The rules for calculating GMPs broadly reflected those for calculating additional state pension benefits. And like state pensions, GMPs were set to different retirement ages for men and women; for men it was age 65 and for women age 60.

The matter had already been taken to the European Court of Justice in 1990, when it was ruled - in the Barber ruling - that occupational schemes are considered a form of deferred pay, and differences in benefits for men and women were unlawful.