Following a recent consultation* the UK Government has created measures to make the pension framework more flexible to the benefit of individual policy holders. This article specifically highlights the rule changes that affect defined benefit schemes. Also available are articles on the general UK pension rules for 2015 and the new UK pension rules for defined contribution (money purchase) schemes. The new rules and amendments are as follows;
Existing pensioners will not be able to transfer out of their existing pension
This remains in line with rules for existing annuity (income for life) policy holders thereby maintaining fairness in the new pension system.
Pension transfers will continue to be allowed with the exception of unfunded public sector final salary schemes.
The government has deemed the potential risk on financial markets of mass transfers, as highlighted by a recent article questioning whether there would be a ban on defined benefit pension transfers, would be limited. It believes giving people the option of increased flexibility is only right and fair.
New guidance to trustees to allow them to maintain the stability of a scheme are likely to be enacted
Based on the current funding level trustees will have the opportunity to offer transfer values that reflect this. As a result transfer values may be lower than expected. For those no longer contributing to such a scheme it is important to weigh up the pros and cons of a final salary pension transfer before making any decisions.
Trivial commutation and small pot will continue
As per defined contribution pension rules those with total pensions worth up to £30,000 or 3 pensions worth less than £10,000 each can access the full amount from 55 subject to paying their marginal tax rate.
Those in public service schemes for firefighters, police and the armed forces will not have the minimum pension age raised
The above schemes have their normal retirement age based on the specific nature of these occupations (currently 60). Raising the minimum age to 57 from 2028 was rejected for these schemes.
Public sector schemes linked to the state pension age and those in the private sector will have the same rules as defined contribution scheme
Minimum retirement age will be set at normal retirement age less 10 years. That is currently 55 raising to 57 in 2028.
A statutory requirement will be put in place to ensure transfers are handled by professional independent financial advisors
This is to ensure people are fully aware of not only the benefits but also the potential drawbacks of moving from the scheme. After all, once a transfer from a defined benefited scheme has been enacted it is unlikely to be reversed.
*Source: HM Treasury – Freedom and choice in pensions: government response to the consultation