More people approaching retirement with small defined benefit pensions will be allowed to exchange them for a defined contribution pension pot without having to take authorised financial advice, following an announcement yesterday.
Speaking for the Government in the House of Lords yesterday afternoon, Lord Newby indicated that advice will only be required where the transfer value associated with a defined benefit pension exceeds £30,000.
Originally, there was only going to be an exemption where the individual's total pension wealth from all sources came to £30,000 or less.
Stephen Green, a senior consultant at Towers Watson, commented:
"How big someone's annual pension has to be before it is valued at £30,000 depends on how the scheme calculates transfer values, on the individual's age, and on precisely what benefits are being given up. For many people approaching retirement at 65, a transfer value of £30,000 may currently correspond to a pension of £1,500 a year or a little less; if bond yields rise, bigger annual pensions will fit within this limit.
"Advice can cost the thick end of £1,000, so there was always going to be an exemption for smaller pensions. Basing this on the value of the individual pension rather than the individual's total savings will make the rules a lot easier for trustees to police. It also means that schemes won't need to prepare transfer value quotations for members who are only interested in transferring a different pension.
"The fact that advice isn't required for small pensions does not mean that this is a decision to be taken lightly – especially where people have little else besides their State Pension to fall back on. But if someone's other final salary pensions will provide them with a good income in any case, their desire to swap a small pension for a pot of capital that they can access as they like may have overridden any financial advice not to do so."