The Department for Work and Pensions has set new rules enabling contracted-out pensions to transfer into schemes that have never been contracted out.

Following a brief two week consultation, the DWP is to amend the guidelines regarding contracted-out pensions in order to “protect the interests of members and ensure the sustainability” of schemes.

The DWP has outlined that although the current legislation permits transfers of active and deferred contracted-out pension rights with members’ consent to new schemes, it prevents the transfer of contracted out pensions that are in payment to new schemes that have never been contracted out.

It has been concluded that with the termination of State Earning Related Pension and contracting-out in April 2016, it is now not legislatively possible to create a new scheme with contracted out provisions in the scheme rules.

Justifying its decision, the DWP added: “It is currently impossible to transfer contracted-out pensioners into a new scheme even where it would be beneficial to them (i.e. potentially resulting in higher pension than if the current scheme’s financial difficulties would lead to their transfer into the Pensions Protection Fund).”

While the ruling is set to save pensioners in these schemes money, the DWP has not yet set a date as to when the legislation will be officially amended.

The consultation on contracted-out pensions had responses from pension consultancies, actuaries, industry bodies and unions and was broadly supported.

Criticisms of the decision included the length of the consultation period – being too short; however, the government noted that it had been requested to make these changes “as a matter of urgency, to ensure pensioners’ rights in vulnerable schemes are properly protected”. Respondents also voiced concern over the new rules not providing adequate provisions for multi-employer schemes.

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