The Contracting-out (Transfer and Transfer Payment) (Amendment) Regulations 2017

The Government has issued its response to the consultation that will allow pensioner members of contracted out defined benefit schemes to be transferred to new pension schemes that have never been contracted out.

The DWP had identified that for some pension schemes facing financial difficulties a solution that both protects the interests of members and ensures the sustainability of the scheme is to transfer members’ rights, with their consent, to a new scheme. Whilst the current legislative regime permits transfers of active and deferred contracted-out pensions rights, with members’ consent, to new schemes, it prevents the transfer of contracted-out pensions that are in payment to new schemes that have never had contracted-out provisions. The current legislation was implemented to protect contracted-out pensioners from being transferred into new schemes which may not protect their contracted-out rights. However, with the ending of State Earning Related Pension (SERP) and ‘contracting-out’ in April 2016, it is no longer legislatively possible to create a new scheme with contracted-out provisions in the scheme rules. That means it is currently impossible to transfer contracted-out pensioners into a new scheme even where it would be beneficial to them (i.e. potentially resulting in higher pension than if the scheme’s financial difficulties would lead to their transfer into the PPF). Pensions received may therefore be lower as a result.

As a consequence and after consultation, The Contracting-out (Transfer and Transfer Payment) (Amendment) Regulations 2017 which were laid on 26th April 2017 and will come into force on 3rd July 2017 enable schemes that were contracted-out to make transfers in respect of pensioner members into occupational pension schemes which have not previously been contracted-out.

The new regulations cover transfers of liability for, and transfer payments in respect of, guaranteed minimum pensions and in relation to transfers of liability for, and transfer payments in respect of, section 9(2B) rights.

The new regulations provide that such a transfer can be made from an occupational pension scheme where either the scheme is going through a Pension Protection Fund assessment period or where a regulated apportionment arrangement has been entered into in relation to the scheme. The transfer can only be made where the pensioner member consents in writing. In addition the member must acknowledge in writing receipt of a statement showing the benefits to be awarded in respect of the transfer. The member must also acknowledge in writing the member’s acceptance that the benefits to be provided by the receiving scheme may be in a different form and of a different amount to those which would have been payable by the transferring scheme; and that the receiving scheme is not required by statute to provide for survivor’s benefits in relation to the transfer.