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New laws proposed by UK government on bulk transfers of pension rights

Draft legislation that will make it easier for pension scheme operators to transfer members' rights to new schemes without their consent has been set out by the UK government.22 Dec 2017

The Department for Work and Pensions (DWP) opened a consultation on the proposed new Contracting-out (Transfer and Transfer Payment) (Amendment) Regulations 2018 (16-page / 263KB PDF) on Thursday.

It is the DWP's intention that the new rules would take effect from 6 April 2018.

"These amendments will enable any salary-related occupational pensions right (active, deferred and pensioner) to be transferred to newly established schemes (that have never been contracted out) without member consent under specified conditions," the DWP said.

"These conditions will be that the rights of the member are not adversely affected by the transfer and that the same protections must be provided by the new scheme, for example revaluation and indexation that would have been afforded to members if the transfer were to a formerly contracted-out scheme," it said.

A 'contracted-out' pension scheme is a term that relates to a past practice of pension schemes that has now been superseded. Pension scheme operators could choose to waive members' entitlement to an additional State pension if they make additional contributions to their occupational pension arrangement. In return, they would benefit from a lowering of the National Insurance contributions they would have to make.

The end of contracting-out has, however, created disadvantages for some pension scheme operators in respect of transferring members' rights to other schemes, including in the context of mergers and acquisitions, the DWP said.

"The ability to transfer without the consent of the member has been limited to transfers between schemes which were previously contracted out," the DWP said in its consultation. "This is because since 6 April 2016 it has not been possible to establish a new contracted-out scheme or section to receive transfers of contracted-out rights without member consent. This may cause issues for employers involved in the restructuring of group pension provisions."

Alastair Meeks, pensions expert at Pinsent Masons, the law firm behind Out-Law.com, said: "The DWP is belatedly correcting a glitch in the legislation that has thrown a spoke in the wheel of a surprisingly large number of transfers. The changes proposed will be broadly welcomed by pensions professionals eager to allow for the smoother running of routine transactions."