A new legislation has been proposed by the UK government to enable pension scheme operators to easily transfer members’ rights to new schemes without their consent
The Contracting-out (Transfer and Transfer Payment) (Amendment) Regulations 2018 seeks to amend rules involving the transfer of pension rights and is slated to be put into effect from April 2018.
The Department for Work and Pensions (DWP) recently opened consultation for the new law.
Transfer Possible Only If Rights Not Adversely Impacted
According to DWP, the amendments being proposed will allow rights related to salary-related occupational pensions be transferred to new schemes without getting member consent in selected circumstances.
The department has said that the conditions for such transfer will be that the members’ rights are not affected adversely in any manner and that the same protections are available under the new scheme as well, for example when revaluation and indexation remains available to the members in a new scheme similar to what was available under the earlier contracted-out scheme.
The term ‘contracted-out’ pension scheme refers to a previous practice followed by pension schemes which has since been superseded. Under it, Pension scheme operators could opt to waive members’ entitlement to additional State pension if additional contributions are made to their occupational pension arrangement. In return for this, they would see a reduction in the National Insurance contributions required of them .
However the DWP has said that the closure of contracting-out has created issues for some pension scheme operators with respect to shifting members’ rights to other schemes, in cases such as mergers & acquisitions.
Law Will Help Smoother Daily Functioning Of Pension Funds
In its consultation the DWP said that the ability to transfer with members’ consent was not restricted to “transfers between schemes which were previously contracted out.” This, the department said, may cause issues for employers who may be attempting to restructure group pension provisions.
According to Alastair Meeks a pensions expert with law firm Pinsent Masons, the existing rule had affected a large number of transfers. He said that the proposed changes will be “broadly welcomed” by pensions professionals who are eager “for the smoother running of routine transactions.”
