Small Final Salary Pension Transfers Extension

Small Final Salary Pension Transfers Extension.

The Government has today announced an extension to smaller final salary/defined benefit pension transfers to flexible pensions.

Final Salary Transfer Rules

The basic rules are that any person who has a defined benefit, final salary or career average salary pension scheme can only transfer this to a private pension where:

1. Financial Advice must be given (it cannot be done without advice)
2. Financial Adviser must have a special, higher level pension qualification
3. Financial Adviser must have a 'special permission' from the regulator, the Financial Conduct Authority (FCA) to conduct pension transfers
4. A Full actuarial " Transfer Value Analysis"  report with critical yield calculations must be produced by the financial adviser
5. The Financial Adviser must keep records indefinitely.
6. The Financial Adviser must report the numbers and scale of such pension transfers every 6 months to the FCA and every year to professional indemnity insurers.

Small Pension Schemes Exemption

Last year the government announced as part of its new pension flexibility rules, that people with combined pension pot transfer values of less than £30,000 including the cash equivalent transfer value (CETV) of a defined benefit/final salary pension could transfer to a flexible pension without advice.  To be clear, this means all pension values combined not each individual pension scheme.

New Small Pension Exemption 27/01/2015

Treasury minister Lord Newby confirms that from now on, no financial advice is required where the cash equivalent transfer value of a defined benefit pension is £30,000 or below.  Put simply, if you had 3 defined benefit pensions each worth £25,000, total £75,000, you can now transfer without the need for financial advice, whereas before, they would have a combined value exceeding £30,000 so advice would be required.

Comment

Making pension administration simpler, is a good thing, but this government seems 'hell bent' on the point of being reckless in encouraging as many people as possible to move to flexible pensions, drawdown funds and therefore pay taxes early rather than taking regular pension income over the years.  The need for advice is paramount as retirement decisions affect the rest of our lives, they are too important to get wrong.  What is needed is a simpler advice process without the liability and complexity that is currently required.