UK - Forcing small schemes to buy annuities could be the death knell for them, Independent Trustee Services warns.
Changes in the Finance Act, which take effect in April 2006, will force schemes with less than 50 members to secure pensions in payments with an insurance company rather than fund them through assets on a pay-as-you-go basis.
A tax charge will be imposed on payments by schemes that do not comply.
ITS principal consultant Wayne Phelan said: “The consequences could be marked as these schemes will need to pay significant annuity costs for members who retire and this could reduce the funding available for other members.
“Any small scheme remaining open may now face closure. The cost of buying out benefits is likely to be more than the MFR levels held in smaller schemes.”
PIFC head of technical services Mike Dowding said the changes would also limit choice as they would prevent income drawdown or temporary annuities being chosen.
But he claimed the Treasury had vowed to review the requirement once the department for work and pensions has published full details of its scheme-specific funding and Pension Protection Fund provisions.
ASB Law head of pensions John Hamilton said: “In view of the protection measures contained in the Pensions Bill, it is difficult to see why such a requirement should be incorporated as a condition for tax relief.”
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