19th March 2014
Defined benefit scheme members are to be denied the freedom offered to those in defined contribution pensions and will face higher barriers to transferring to DC arrangements.
The DC reforms, which will take effect from April next year, will allow anyone who is aged 55 or over to access their entire fund as cash. However public sector and private sector defined benefit schemes may see their options curtailed.
The Budget papers say: “Having considered this carefully, the Government intends to introduce legislation to remove the option to transfer for those in public sector schemes, except in very limited circumstances.
“Whilst the Government would in principle welcome the opportunity to extend greater choice to members of private sector defined benefit pension schemes, it will not do so at the expense of significant damage to the wider economy.
“Funded defined benefit schemes play an important role in funding long-term investment in the UK economy, which the Government does not want to put at risk”.
The Government is also considering a range of options to restrict transfers out of private sector DB schemes. These include removing the right of all members of DB schemes to transfer to DC schemes, continuing to allow members of DB schemes to transfer to DC but requiring that any funds which have been transferred are ring-fenced by the receiving pension scheme and subject to the existing DC tax framework, placing a cap on the amount that people in DB schemes can transfer to DC schemes each year, continuing to allow transfers but requiring that any transfer to a DC scheme must be approved by the DB scheme trustees before it can be made or leaving in place the existing flexibility for members of private sector DB schemes to switch to DC scheme.