Moving from defined benefit to defined contribution pension schemes post-5 April 2015

Tue 03 Mar 2015

In the run up to 6 April 2015, focus has been on defined contribution members and the new options available to them

In the run up to 6 April 2015, the main focus has been on defined contribution (DC) pension members and the new options available to them. There has however been a growing awareness that there are a (possibly large) number of defined benefit (DB) pension members who will be looking to transfer their rights in order to take advantage of these new options. This article does not look at the merits of such a transfer as these are open to debate and could be the subject of a (possibly very long) piece in their own right.

People Walking London

Beware of scammers and opportunists

Finally (and sadly), we are all too aware of the opportunities that the 6 April 2015 changes will present for pensions scammers and administrators will need to be particularly on their guard. It is unfortunate that this comes at a time when recent Ombudsman’s decisions have thrown the “established wisdom” into doubt. We can only hope that the promised legislative “relief column” arrives with us sooner rather than later.

Recent press items have suggested that there is an avalanche of transfer activity about to impact on DB pension schemes. Whether or not this turns out to be the case remains to be seen, but administrators would be well advised to carry out an assessment of their client base (including DC schemes who do not intend to offer the new flexibilities) in order to estimate the likely volume of transfer activity post-5 April 2015.

Time to ‘marshal the troops’ and discuss with clients

This will enable them to "marshal the troops” and, if necessary, have a timely conversation with clients concerning the likely impact on transfer-related SLAs. Where, from 6 April 2015, a DB member wishes to transfer their rights to acquire DC benefits elsewhere, the transferring trustees will have to check that the member has received “appropriate independent advice” before making the transfer.

Administrators will not only need to be aware of this requirement, but also decide with their clients how best to perform/record this check. Regulation making powers contained in the Pension Schemes Bill may, however, lay down a prescribed route for all to follow.

Appropriate independent advice

Some DB schemes may offer their members the opportunity to convert their DB pension rights to DC within the scheme. The requirement (mentioned above) to check that members have received “appropriate independent advice” will also apply such in-scheme conversions and this may be one of the circumstances (yet to be confirmed) where the employer will be obliged to pay for that advice. In addition, such an exercise would be subject to the industry code of practice for incentive exercises.

 

It is unfortunate that this comes at a time when recent Ombudsman’s decisions have thrown the “established wisdom” into doubt.