Standard Life is calling on the Government not to ban all transfers from funded Defined Benefit (DB) to Defined Contribution (DC) pension schemes as it would unduly constrain the options for private sector employers to manage their affairs in the interests of their businesses and employees.
The principle concern is that the new flexibility under DC pensions from 2015 may encourage members to transfer from DB to DC where this is inappropriate. The FCA regulatory regime for advice on DB to DC transfers, however, already imposes a robust framework to ensure transfers are only recommended where this is clearly in the member’s interests. Given this, Standard Life believes making all DB to DC transfers subject to this regime would provide adequate safeguards against inappropriate outcomes.
Transfers of DB rights to DC arrangements should still be allowed after April 2015, subject to the DB scheme trustees being satisfied that a suitably qualified professional has advised the member on the transfer.
Standard Life sees two key reasons why a DB to DC transfer could be beneficial to employers:
Financial benefits: Transfers can improve both the sponsoring employer’s balance sheet and the scheme’s funding position, improving security for those members remaining in the DB environment. In fact, transfers are one of the most cost-effective ways for employers to de-risk their DB schemes. Removing the right to transfer could adversely affect the employer’s balance sheet and funding position
Regulatory safeguards: The FCA’s robust framework already provides safeguards where schemes are underfunded by allowing transfer values to be reduced to reflect the underfunding. This protects the position of remaining members and the employer’s balance sheet as well as making transfers less attractive
Jamie Jenkins, Head of Workplace Strategy, Standard Life, said: “It would be harmful to unduly constrain the options for private sector employers to manage their affairs in the interests of their businesses and staff unless there were very compelling arguments to ban a transfer.”
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