UK Public sector workers: last chance for pension transfers
Written by Carl Turner on January 12, 2015.
The pensions revolution currently underway in the UK will give the majority of pension holders increased choice and flexibility with regards to what they can do with their pensions. Legislation to be introduced this year means that retirees will no longer be forced to purchase an annuity and can take their pension as and when they choose.
However these new freedoms will not apply to public sector workers with unfunded defined benefit schemes as new legislation to be introduced in April 2015 will prohibit transfers from these pensions. If you work in the NHS, the civil service, the fire or police services or the armed forces this could affect you. I say ‘could’ as the detail of the legislation is yet to be finalised and it is possible that an ‘exceptional circumstances’ clause will still enable transfers to be made.
Unfunded defined benefit schemes are so-called ‘pay-as-you-go’ schemes in which current pension contributions directly fund pension payments rather than being invested for the future. A ban on making transfers from these schemes will mean that those benefitting from them and retiring abroad will not be able to transfer to a QROPS and enjoy the associated advantages including the avoidance of exchange rate fluctuations and inheritance tax. That said, the benefits of a public sector pension scheme, considered to be the gold standard of pensions, often outweigh those offered by a QROPS and a transfer will not be in the best interest of the majority of these pension holders.
Some of the less scrupulous financial services companies will omit to highlight this fact and will use scaremongering tactics to persuade those affected to transfer their pensions ahead of the ban. Information is key to making a decision. My mother is affected by the legislation and I have looked carefully into the pros and cons of her pension and concluded that it is not beneficial in her case to transfer. I feel reassured that we have made an informed decision.
If you work in the public sector and have an unfunded defined benefit scheme and would like to assess your options ahead of the April 2015 deadline then you should request an in-depth appraisal of your situation from a qualified financial adviser. They will assess both the critical yield and your unique circumstances to work out the advantages and disadvantages of making a transfer and can help you to make up your mind on the issue. The chances are that you it won’t be in your interest to transfer but with the facts at your fingertips you will be sure to make the decision that is right for you. If you do wish for an assessment you do need to act quickly as time is running out to receive the transfer valuations from the scheme trustees.