The Government has this week confirmed that the increased flexibility – as announced in the Budget 2014 – will now be extended to include those with a defined benefit scheme.
This is of particularly benefit for those within the public sector – a sector completely in defined benefit – for example; teachers, police and civil servants. This sector looked certain to have restrictions imposed on it to prevent the transfer of funds into popular alternatives, such as the Qualifying Recognised Overseas Pension Scheme (QROPS) for those now living abroad.
Initially the Budget announcements caused panic, plunging stock prices for large annuity providers, and general uncertainty in the broadest sense of the word. Pensions were to receive an overhaul not witnessed in 100 years, with the previous requirement to purchase an annuity upon retirement being completely abolished and taking most of the headlines.
The legislation changes looked set to be good news for many, but not so good for the annuity companies or those in a defined benefit scheme. Now, it is just the annuity companies left reeling as, after consultation, the Government has reneged on its initial intention to place restriction on defined benefit schemes, and has allowed tem the same level of flexibility as everything else as of April 2015.
Advice will now be restricted to those authorised by the FCA only, a move which looks set to increase transparency and trust in the industry, the Government stating that due to the complexities involved in transferring a defined benefit scheme into a defined contribution scheme, only those with the qualifications necessary to competently do so, should take control of this type of transaction.
QROPS Lives On
There were those who feared and predicted that international schemes such as QROPS could be set to finish in light of the restrictive nature of the initial proposals for the defined benefit market, and the increased flexibility now offered at home for the rest, however these predictions it would seem have now been laid to rest.
QROPS providers took a prominent role in the consultation process, with all of them unsurprisingly urging the Government to backtrack on their initial idea of restricting flexibility on defined benefit schemes, something which they got. It is understood that up to 40% of annual QROPS transfers are from defined benefit schemes, and a loss of this magnitude would have hit the industry hard.
QROPS were previously marketed on the fact that they offered flexibility upon retirement, a benefit which has now more or less been matched by the UK, however they also offer huge tax benefits for those living abroad, as well as ease of access, and the option for a more hands-on approach to investment.