And, if you are a trustee or a pensions professional, you definitely have to play around before making your mind up whether a pensions transfer can go ahead.
Transfer legislation is changing from 6 April 2018 as highlighted in the three points below, and there are also further changes on the horizon.
1. Bulk transfers of formerly contracted-out rights
This is a hangover from the abolition of contracting out. After a fair amount of pressure from the pensions industry, the DWP intends to bring into force regulations that will allow, without member consent, bulk transfers of benefits that include contracted-out rights to schemes that have never been contracted-out. Safeguards will be put in place, which will broadly require the contracted-out element of the benefits to be provided on the same basis in the new scheme as they were in the old scheme. The regulations should assist those employers wishing to implement a bulk transfer of benefits to a newly established scheme. The DWP consultation closed on 17 January 2018 and we are currently awaiting the response to that consultation.
2. Bulk transfers from DC to DC without consent
The DWP recognised a need to simplify legislation for bulk transfers of pure DC benefits. Some of the current requirements are burdensome and can be seen as unnecessary barriers to consolidation (such as the actuarial certification requirement, which often has scheme actuaries scratching their heads in bewilderment).
However, there will be new requirements placed on trustees before a bulk transfer can go ahead, including that advice should be taken from a suitably-qualified, independent investment adviser if a receiving scheme is not an authorised master trust. The DWP’s consultation closed at the end of November 2017 but we are still awaiting the response.
3. Safeguarded-flexible Benefits
Legislation is coming into force requiring trustees of schemes with “safeguarded-flexible benefits” to issue risk warnings to members before carrying out transactions such as a transfer or conversion of benefits, or the payment of an uncrystallised funds pension lump sum. Broadly, a safeguarded-flexible benefit has the characteristics of a money purchase benefit but with an underlying guarantee relating to the rate of pension.
In addition to risk warnings, if the transfer value for safeguarded-flexible benefits is £30,000 or more then the member must take appropriate independent advice. The valuation of safeguarded-flexible benefits for the purposes of assessing whether the appropriate independent advice is required is also changing. This brings with it a new disclosure requirement where a member enquired about a transfer after 30 September 2017 and was informed that the value of his pension was above £30,000, but his transfer subsequently falls below £30,000 under the new valuation method.
Try to look as if you don’t care less, but if you want to see some more, read on…
We will see further changes to transfer legislation in the near future. As part of its commitment to curb pension scams the government intends to amend the statutory transfer requirement and it is likely that we will see the need for a genuine employment link with the new arrangement where the transfer is to an occupational pension plan.
The Financial Guidance and Claims Bill currently going through parliament also tinkers with transfers. The House of Lords and the House of Commons appear to be doing the hokey-cokey putting draft legislation in and out to tighten up requirements for guidance or financial advice where members wish to transfer or access flexible benefits. Parliament will find that there comes a time for making its mind up. The Bill currently contains a requirement that trustees should ask such members with flexible benefits whether they have received guidance or advice and recommend that they do so if they have not. In essence this is inserting an extra step which will slow down the process (“Are you really, really sure that you want to go ahead?”). In the meantime, let’s remember that the Association of British Insurers amongst others, has been calling for the transfer process to be speeded up…
And after all that, I could manage a glass of Bucks Fizz!