The government may decide to halt the transferring of pensions between defined contribution schemes and final-salary schemes.

The government may decide to halt the transferring of pensions between defined contribution schemes and final-salary schemes. The Department of Work and Pensions (DWP) recently issued a consultation document containing this proposal. Bringing to a close the process of taking defined contributions schemes from the second state pension was the focus of the plan and is considered to be a separate issue but experts believe that the effect on the transfer of pensions could prove to be extremely disadvantageous for people. Laith Khalaf of Hargreaves Lansdown believes that this proposed measure is an unnecessary blockade that infringes on people’s right to do what they wish with their pension fund.

Risky Business

Transferring pensions into a defined contribution scheme would be an unwise procedure for most people who are entitled to money in a final-salary pension scheme. This is because they would be placing all their money in a personal pension fund which is a risky business compared to their existing plan which offers them a definite pension and the backing of their employer. Mr. Khalaf explained that his firm advised anyone who asked their opinion not to follow through with it because they would be losing useful benefits.

  • That being said, there are four occasions where it may be the best option available:
  • Ÿ  In the event that a company in serious financial trouble was about to go bankrupt which would ruin the company’s pension scheme
  • Ÿ  If someone does not enjoy good health and could receive a better pension from an ill-health annuity
  • Ÿ  Single people might receive a higher amount from a single-life annuity
  • Ÿ  The possibility that their death benefits would be greater with a personal pension

The DWP consultation finishes its work on 19 October 2010 with this new rule on course for a 2012 start. A spokesperson for the DWP stated that they were happy to hear from the pension industry and would be delighted to respond after the consultation has concluded.

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