UK - The Department for Work and Pensions' proposal to abolish transfers of contracted out rights from DB schemes could see the end of the enhanced transfer value market, industry experts say.
Atkin & Co director Marian Elliot said the DWP’s consultation on the abolition of contracting out, which proposed ceasing transfers from DB schemes to occupational defined contribution plans or personal pensions after April 2012, could “spell an end to the whole industry that sprung up around ETV exercises”.
Elliot said this is because any contracted out DB benefits will be prevented from transferring out of these schemes into a DC scheme or personal pension plan.
She said: “Unless the transferring scheme is contracted in, members’ benefits will not be able to be transferred to a DC scheme from 2012, so the number of schemes which can embark on an ETV exercise will be vastly reduced if the legislation is implemented in line with the consultation document.”
Elliot said: “I wouldn’t be surprised if we now see a flurry of ETV activity in the short term. You could argue that employers who were going to go down the ETV route will already have done so, but I’m sure there are quite a few who have thought about it and are weighing up their options.
“This consultation may push such employers to take action, because it appears this option is not going to be open to them for much longer.”
Barnett Waddingham partner Nick Griggs said: “If the DWP’s proposal means you can’t transfer out of a DB scheme, then the ETV market is going to die.
“This is an unintended consequence of the legislation and they hadn’t thought through the implications of the fact members are not going to be able to transfer benefits at all.”
He said people take normal transfers for other reasons, such as to consolidate their benefits in one place.
He added that employers would need to consider other options if the ETV market dies, although they remain popular as they are low cost relative to the alternatives.
This week's top stories were the DWP giving the green light to CDC and TPR granting extensions for 11 master trust authorisation applications.
Susan Martin says building strong foundations for business are the only way forward as the pensions industry is radically shaken up
The Pensions Regulator (TPR) has granted Now Pensions a six-week extension for its master trust authorisation application after the 31 March deadline, PP can reveal.
The Pensions Regulator (TPR) has granted 11 master trusts extensions to apply for authorisation, as it confirms it has received 22 applications ahead of the 31 March deadline.