But is it right to block teachers and doctors from new freedoms?
It is not common for a minister to publish a written statement in the early morning, hours before his department is due to release a consultation response, but that is what George Osborne did this week.
Curiouser still, the chancellor of the exchequer included an extract from the government’s response to the “Freedom and choice in pensions” consultation, choosing to focus on a defined benefit issue. Given that the paper laid out radical plans for an overhaul of the DC system, it may have seemed a strange choice to give such prominence to a decision not to ban transfers from DB to DC schemes.
There had been some concern that a sudden exodus of members from DB schemes could cause problems for scheme that would need to stump up the cash and potential panic in the bond markets.
However, banning transfers in the same moment as heralding in a revolution in flexible pensions seemed more than a little contradictory.
85% of respondents – including the Confederation of British Industry, Association of British Insurers and National Association of Pension Funds – agreed.
The market agrees with the view that DB to DC freedoms are unlikely to be exercised
Hence the government has decided not to ban transfers apart from unfunded public sector schemes such as the NHS or Teachers’ schemes and from pensions already in payment. It was decided the feared exodus is more likely to be a trickle, and a new hurdles to clear before a transfer is accepted means those with an interest in the bond markets can rest easy.
Shajahan Alam, senior solutions manager in the AXA IM UK LDI team, confirmed the lack of reaction. “There was little movement to long dated real and nominal interest rates upon the announcement, which may indicate that the market agrees with the view that DB to DC freedoms are unlikely to be exercised.”
Even if members do exercise their right to transfer, this is only likely to be at the point of retirement, the government thinks, as building up a pot through a DB scheme is more efficient, and so there is unlikely to be a rush to exit.
The government pledged to help trustees realise their existing powers to delay and block transfers where they are not in the best interests of members or the scheme. Schemes will also be required to ensure members get regulated advice before transferring pots of £30,000 and over.
They should be brave enough to allow individuals to make their own financial decisions
“Making it [advice] compulsory is a step too far”, commented John Broome Saunders, actuarial director at Broadstone, “if the government really believes in flexibility and choice, they should be brave enough to allow individuals to make their own financial decisions”.
Saunders thinks transfers will become more popular once the public begins to understand the flexibility the new DC pensions allow. Sponsors of DB schemes will no doubt be keen to push that agenda as corporates continue you to struggle with legacy pension liabilities.
There are also plans for further consultation on creating a mechanism for members to extract their savings direct from DB pots, rather than having to go through DC schemes. Removing that block could make transferring even more appealing.
Do you trust the government not to make unilateral decisions on public sector pensions in the future?
The decision to exclude unfunded public sector schemes to protect taxpayers seemed like a no-brainer but Jamie Smith-Thompson, managing director of Portal Financial, suggests the ban could merely be a way for future governments to cut benefits and trim costs. “Do you trust the government not to make unilateral decisions on public sector pensions in the future?” she asked rhetorically.
Some members from those schemes will find the restrictions unfair, but far more taxpayers will take the opposite view.