UK - Compliance with the European Union's seemingly "benign" portability directive could incur costs in excess of £200m if pension funds are compelled to accept transfers in.
Dave Roberts, senior consultant at Watson Wyatt, said the consultation paper issued by the Department of Work and Pensions revealed that the directive may not be the benign legislation pension funds had anticipated.
“Currently occupational pension schemes are under no obligation to accept transfers in and many choose not to, either because they don’t wish to take on increased liabilities or because of residual equalisation issues. Schemes will baulk at proposals that remove their freedom of choice,” he argued.
“The consultation paper issue by the DWP has a partial regulatory impact assessment on it, quoting figures in the order of £200m, but that doesn’t include any costs incurred if the scheme were required to accept any transfers in.”
Roberts said that, with the benefit of hindsight, costs have often turned out to be higher than estimates.
“If they start off at £200m, and that doesn’t include compulsory transfers, that is quite a lot of money for something which wasn’t expected to affect us very much,” he warned.
Because the DWP is the lead government department in EU negotiations, Roberts said there would still be opportunity to influence the emerging legislation.
“I suspect there will be fairly strong representations against this but, from the tone of the paper, the DWP is in a listening mode,” he said.
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