Pension transfer changes

Pension Pot

Changes are afoot for pension plans as the Department for Work and Pensions (DWP) are looking into bringing radical changes to certain pension schemes, namely to abolish transfer from final salary pension schemes.

From 2012 the DWP plans to put an end to transfers from final salary pension plans into defined pension contributions, including personal pensions, stakeholder pensions and self invested personal pensions (SIPPS). The majority of people involved in these schemes probably won’t take issue with the changes as staying with the final salary pension comes with guaranteed benefits from your employer. However, there may still be some scenarios where such final salary pension holders would still utilise the transfer, and under the 2012 changes this could become a problem.

In fact, transferring out of a final salary pension scheme may actually become more of a popular option. There are flexible drawdown arrangements that allow people to withdraw funds from their defined contribution pension at their own leisure, whenever they want, and not restricted to take it as a regular income, although qualifying for this level of flexibility requires a certain amount of pension income. If the DWP does indeed enforce its new plans then final salary holders will no longer be able to complete transfers and enjoy the freedom to draw funds as they desire.

It is thought that the DWP is planning these changes to pension transfers as they are also planning to do away with contracting into all defined contributions pensions, again, from 2012. The process of contracting out involves giving up a state pension and taking in payments to a private pension instead. Contracting can also occur in final salary schemes, almost all final salary schemes actually have a portion of funds that have been contracted out. Currently, final salary schemes with contracted funds can be transferred into a defined contribution scheme as long as it is able to take in contracted funds itself.

So, if the DWPs plans come to fruition there will no longer be any defined contribution pensions available to accept transfers come 2012, and pension options will be limited even more than they already are.

With that in mind one should be aware that there are other pension options available, especially if you are a British expat. If you are interested in alternative pensions consult our pensions and retirement pages or our dedicated QROPS section.