The Department for Work and Pensions is consulting on whether to legislate to allow schemes that were contracted-out to transfer members to schemes that were never contracted-out.

Since the introduction of the new state pension and the cessation of contracting-out, schemes that were contracted-out cannot transfer members to newly created schemes because they are only allowed to take place to other schemes that were contracted-out.

The DWP recognises that there is interest for these transfers to happen, as the amount of a transfer to a new scheme may be less that what would be paid out in benefits across a member’s lifetime in the old scheme.

The consultation noted that it could relieve some of the burden on the Pension Protection Fund if vulnerable schemes are allowed to alleviate their liabilities by transferring members to newly created schemes. The DWP acknowledged that newly created schemes could provide better than PPF benefits, but there would be other elements where the benefits would not be the same as in the old scheme, such as annual increases.

Due to this reason, and the need for urgency, the DWP said it will limit the circumstances where these types of transfers take place to where the scheme is undergoing a PPF assessment or where a regulated apportionment arrangement (RAA) has been entered into. Transfers would also only be allowed if the member consented.

The DWP said it will look at other types of transfers to schemes that have never been contracted-out, extending transfers of pensioner members to new schemes more generally, and bulk transfers without member consent.

The consultation closes on the 23 April 2017 and can be viewed here.

Share Story: