The March Budget 2014 saw the UK Government putting up for consultation the possible restriction, or banning, of pension transfers from private and public sector final salary schemes.
The government proposes to restrict public sector pension members from transferring out of their final salary schemes to access the new flexibility of defined contribution arrangements, except in ‘very limited circumstances’.
In addition, the government will consult on a range of options to restrict transfers out of private sector defined benefit schemes. One option under consideration is a complete ban.
So, if reports in the press are to be believed, lots of people are now rushing to transfer their pensions and give up the guarantees on offer. Why is this?
Well, the answer lies in the comments from the Chancellor:
The Chancellor said “We will legislate to remove all remaining tax restrictions on how pensioners have access to their pension pots. Pensioners will have complete freedom to draw down as much or as little of their pension pot as they want, anytime they want. No caps. No drawdown limits. Let me be clear. No one will have to buy an annuity."
While there may be some logical reasons for some people to transfer, the fact is that there is a high possibility that anyone that transfers from a final salary scheme will be all the poorer in retirement.
So, an expat looking to transfer a final salary scheme to take advantages of the flexibility on offer, without checking to position on the other side ( retirement ), could be up for a fall. To not check what benefits are being given up by using professionally qualified pension transfer specialists is as rash a decision as Remus took when jumping over the wall in Rome without looking first. That was a fatal mistake and the effect on retirement income could be fatal too.
So, I would encourage anyone with final salary benefits to take a look over the wall and ask their pension trustees for a transfer out statement. Then I would recommend this is discussed with a pension transfer specialist, while the window is still open to do so. If the fall looks fatal, having had the analysis undertaken by a specialist, then don’t jump!
The safety net for final salary schemes is called the Pension Protection Fund, and this net is whisked away upon transfer to a private arrangement.
So, before you take a leap of faith without a safety net, make sure you have a good idea what is on the other side. Gravity dictates that there is no going back and the same is true for pension transfers from final salary schemes.