The Treasury says the measures are needed in light of the increased attractiveness of transferring to a DC arrangement resulting from the liberalisation of the drawing of benefits announced in the Budget. It is also consulting on a ban on transfers from private sector DB schemes as well.
A consultation launched alongside the Budget says people transferring their rights from unfunded public service defined benefit schemes to defined contribution schemes, to take advantage of the new tax rules, would expose the Exchequer to significantly higher up front costs.
Transfers from public sector DB schemes to non-public sector DB schemes will not be affected.
The Treasury says the government would like to extend the same flexibility to private sector DB members that is currently available to DC members, but is concerned about doing so because of the wider effects on the UK economy. The government is therefore consulting on whether to ban transfers of private sector DB to DC altogether, or allowing them but requiring funds to be ring-fenced within existing rules, or placing a cap on the amount that can be transferred from DB to DC in any one year.
The consultation says: “Whilst the government would in principle welcome the opportunity to extend greater choice to members of private sector defined benefit pension schemes, it will not do so at the expense of significant damage to the wider economy. Funded defined benefit schemes play an important role in funding long-term investment in the UK economy, which the government does not want to put at risk. The government’s starting point is therefore that, whilst in principle it would like to permit transfers from private sector defined benefit schemes under the new freedoms, it will only consider doing so if the risks and issues around doing so can be shown to be manageable.”
