You may have seen headlines similar to this over the last few months followed by statements to take action now before it’s too late!!
This thread really is to try and explain a bit around why these statements are being made as well as outlining the potentially problematic proposals to the UK pension system and to give a rounded view of the situation and potential implications.
Market Linked (Defined Contribution) Pensions
Changes were first announced back in March of this year as part of the UK budget, (thread from PIO at the time - Massive shake up for UK Pensions) which in the main seemed to be very positive changes most notably allowing people the ability to access up to 100% of their pension pots at retirement for those with Market Linked (Defined Contribution) Pensions.
Government Final Salary (Defined Benefit) Pensions
The concerns for those that have Government Final Salary (Defined Benefit) Pensions i.e NHS, Police and Teachers’ Pensions etc is that the proposals went on to say that these pensions would no longer be able to be transferred to Market Linked Pensions.
The reason behind this is that the government are fearful that a large number of Final Salary Pension members would move their Pensions to Market Linked Pensions so that they also could access up to 100% and this would expose the Exchequer to significantly higher costs on a current year basis.
For people who have Final Salary Pensions living and planning on retiring in the UK then this isn’t such an issue as generally it is unwise to transfer from a Final Salary Pension to a Market Linked Pension (although some individuals circumstances may justify a transfer).
However for people who have made the move to Australia or are contemplating a move to Australia the proposal to ban Public Sector Final Salary Pensions being transferred to Market Linked (Defined Contribution) Pensions may mean that they are unable to move their Pension to Australia.
Private Sector Final Salary (Defined Benefit) Pensions
The question is whether it is possible to extend the kind of freedoms given to Market Linked Pension members to members of private sector defined benefit pension schemes. In principle, the government would like to find a way to do so.
However, in practice this decision is finely balanced and the government intends to proceed with caution.
Specifically, the government is concerned that a large scale transfer (or anticipated transfer) of members of private sector defined benefit schemes to defined contribution schemes could have a detrimental impact on the wider economy.
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 – for instance, if doing so were to make it materially harder or more expensive for UK companies to finance long-term investment.
A consultation began on March 19 2014 through to June 11 2014 as changes will have implications for a wide range of parties with an interest in pensions, including employers, consumer groups, the pensions industry, providers of existing retirement income products and individuals themselves.
The government was therefore keen to hear from all stakeholders as part of the consultation process. The government was also keen to engage with interested parties on how best to achieve its policy aims through legislation and intends to publish the draft legislation for a short technical consultation prior to introduction of the legislation that will enact these changes.
A decision is expected to be announced before July 22 2014.
Within the proposals with regards to Government Final Salary Schemes being banned from transfers to Market Linked Schemes it did state that they would be allowed under ‘very limited circumstances’.
Therefore it is not clear at this time whether as of April 2015 transfers to Australia will continue to be allowed for Government Final Salary Pensions however it is possible these Pensions may continue to be allowed to be transferred to Australia under the ‘very limited circumstances’ exception.
Should you act now?
Whilst having retirement funds (Superannuation/Pensions) in Australia could offer some attractive benefits and therefore a Pension Transfer may be beneficial equally a Pension Transfer could also be detrimental particularly if transferring from a Final Salary Pension.
To act purely on the news so far is certainly in my opinion not the right approach and many companies are jumping on this with misleading headlines.
Certainly if you are considering a transfer anyway then continue to investigate/take advice accordingly.
If you are still unsure but do not wish to be in a position whereby you do not have the option to transfer at a later date then it could be prudent to wait until the finer details are fully understood.
However even if a ban is due to come into effect (which would be from April 2015) then it would still be advisable to thoroughly investigate (recommended by taking professional advice) the implications of both scenarios (leave or transfer) so that a full understanding of how your retirement might look can be ascertained.
Quite a lot of the companies involved with this type of marketing offer “Free Advice”, think carefully about these offers as generally the advice is in relation to how a transfer to Australia works and is not personal advice taking into account all of your personal details and goals and objectives instead it is mainly a generic report generally with a heavy bias towards transferring as this is where they will be remunerated.
Please also see this post relating to UK Pension Transfers: UK Pension Transfer Information Thread
I will keep members abreast of updates as they come through.