Jamie Smith-Thompson – managing director of Portal Financial
In a Ministerial Statement issued today the Government announced that it will prevent public sector workers from transferring their unfunded final salary pension to a private pension, in order to protect the Exchequer and taxpayers, leaving millions of people trapped in a scheme that may be inappropriate for their circumstances in the future.
The last Budget introduced unprecedented flexibility over pension funds, and was widely welcomed. Those with unfunded state-backed final salary schemes are now being excluded from these new freedoms, and will never have control of their fund. Although many final salary pensions provide a generous index-linked retirement income, there are those who choose to transfer the cash value to a private pension prior to retirement in order to take advantage of benefits such as 25% tax-free cash, flexibility on withdrawals and the option to leave the money to named beneficiaries.
Public sector workers affected by this change may well be asking the obvious question – why are the Government doing this now? Certainly it brings greater control back within the Treasury, but it isn’t as if there was a great glut of people already transferring public sector pensions away before this point in time. Yes, it suited some people very well, but the majority were quite happy where they were.
Do the Treasury believe that this year’s budget would see more people taking up this option if they did nothing to stop it? Maybe. Or is it a case of the Treasury closing the exit door on these schemes before they start to reduce the benefits they provide in real terms as part of a long term plan to make them affordable to maintain. Only time will tell.
The restrictions being put in place are, of course, fine as long as the benefits on offer suit you, and as long as you trust successive Governments to make good on their promise to deliver them. So that’s the key question for those affected to ask – do you trust the Government not to make unilateral decisions on public sector pensions in the future?
If you think you may be better off transferring out, or if you can’t quite bring yourself to trust the Government to do the right thing by you, then getting advice on your options early is crucial. It’s likely that an awful lot of your colleagues will be thinking the same thing…
Jamie Smith-Thompson, managing director of pensions specialist Portal Financial, comments: “We expect to see many people now choosing to transfer while they still have that option, and our experience is to act now, because it can take a while to transfer funds into a private pension and any outstanding applications that are not completed by the deadline will remain as they are.”
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