Tens of thousands of investors will keep more control over their retirement benefits after the government announced a significant shift on pensions policy this week.
The Department for Work and Pensions is reversing a ban on allowing people to transfer out of their final-salary pension schemes that had been due to come into force in 2012.
The move will affect thousands of investors who transfer their pension each year to get a better rate of income or to enable them to pass money onto heirs.
“Ministers keep saying that people responsible enough to have saved for retirement can be trusted to make their own choices about how to take their retirement income,” said Fiona Matthews, senior consultant at Towers Watson. “Restricting transfer options would have been at odds with that.”
Transferring out of a final salary pension only makes sense for a minority of people, as final-salary pensions are far more generous than other schemes. However, it can make sense for those who are single or in ill health, as they may be able to get a higher level of pension income by transferring out of a final-salary scheme and buying an “enhanced” annuity. Transferring out may also be a good move option for investors concerned about the solvency of an employer’s scheme.
From next year, investors will have more control over the use of their pension funds, too, when the government scraps the rule requiring people to buy an annuity at age 75.
Details of the policy, including tax charges for investors who choose not to buy an annuity, will be published next week.
However, insurers are lobbying for the policy to be delayed to give them time to implement the system.
Although the government has already announced interim measures allowing people to wait until 77 before buying an annuity, many insurers are still forcing investors to buy an annuity at age 75 or transfer their pension elsewhere, as their systems are unable to cope with the change.
In addition, the Treasury is conducting an informal consultation this month on allowing people access to pension savings before the age of 55. The government said in May it would consider offering this flexibility.