The consultation on the proposed legislation changes, ‘Freedom and Choice in Pensions’ for the proposed changes in April 2015 closed yesterday, 11/06/14.

As we know, the majority of this focus has been on the ‘at retirement’ market to give more choice and flexibility for those people drawing their pension benefits from Defined Contribution pension schemes.

However, Defined Benefit pension schemes are also being considered as part of this consultation. The Government is concerned about the potential impact of any new legislation on Defined Benefit pension schemes. They are concerned about the Public Sector Defined Benefit pension schemes and also the Private Sector Defined Benefit pension schemes.

Public Sector Schemes

The Government is concerned about the potential to transfer out of a Public Sector Defined Benefit pension scheme into a Defined Contribution pension scheme. This is because the majority of the Public Sector schemes operate on an unfunded basis.

Initial Government estimates suggest that the net cost of 1% of public service workers transferring out of public sector schemes each year would be £200 million. This would place an unfair burden on both the taxpayer and remaining scheme members.

Private Sector Schemes

As with public sector schemes the majority of the risk of providing the pension is with the employer. Individuals in Defined Benefit pensions do not have issues with the annuity market.

The issue for the Government with Private Sector Defined Benefit pension schemes is that a large scale transfer (or anticipated transfer) from Private Sector Defined Benefit schemes to Defined Contribution schemes could have a detrimental impact on the wider economy.

Private Sector Defined Benefit pension schemes may need to hold lower quantities of gilts. These currently account for circa 45% of the assets and Private Sector Defined Benefit pension schemes hold circa £1.1 trillion of assets.

What does this mean to you?

If you are in a Public Sector Defined Benefit pension scheme it is unlikely that you would be able to transfer out. The consultation is more open on the Private Sector Defined Benefit pension scheme right to transfer but it is possible you could lose the right to transfer out into a Defined Contribution pension scheme.

You may have considered a transfer in the past and deferred your decision. If this is the case you may wish to re-visit your options now.

This all needs to be put into context. For the majority of people, following analysis, the right thing to do is to remain in the Defined Benefit pension scheme.

If you are unsure of your own situation or your pensions legislation, please contact us to discuss.

Steve Speed