Stephen Timms, Minister for Pensions Reform, has announced the Government will shortly be issuing draft legislation on the calculation of pension transfer values.
When a person decides to move their rights from one pension scheme to another, a cash value is put on he rights, and that sum is passed to the new scheme.
These individual transfer payments are called “cash equivalent transfer values” and can only take place if the new scheme is willing to accept the transfer. They can also be used in relation to the sharing of pensions after a divorce.
Responsibility for establishing the framework actuaries must work in when advising scheme trustees on how to calculate transfer values, is currently delegated through regulations to the Actuarial Profession.
But following a consultation on proposed changes to the Profession’s guidance note on the calculation of transfer values (GN11), differing views led to the Government stepping in and discussing the results with the profession.
As a result the Government has decided the best way forward is to legislate, and put the principles underpinning the calculation of transfer values into regulations. The Department for Work and Pensions (DWP) says the draft legislation and a consultation period will be issued shortly.
In a letter to Michael Pomery, president of the Institute of Actuaries, Timms says following the results of the consultation on GN11, the Government has re-considered the current arrangements of delegating responsibility to the Profession.
He writes: “These arrangements have, by and large, stood the test of time. However we now consider the time is right for the principles to be set out in legislation. This will be consistent with the approach we have taken in other areas, for example scheme funding, where legislation sets out the underlying framework but is complemented by an actuarial guidance note.”
But Timms adds the detail of calculating transfer values should continue to be covered by the GN11, followed by a standard, adopted or issued, by the Board of Actuarial Standards (BAS) when it is established in the near future.
As a result Pomery replied the current version of GN11 will be put onto a “care and maintenance” level, which although it may require minor amendments for clarification, would not change the basic principles.
He also welcomed the proposed legislation, writing: “Setting the basis for transfer values in legislation will be a major step forward in achieving clarity in an area where there has been much public interest.”
But Pomery also pointed out, given the importance of the decision for members, trustees and sponsors of pension schemes, the Profession hoped the draft regulations will be issued as soon as possible to allow a smooth handover of responsibility, at an appropriate point, to the BAS.
In a written statement, Timms also expressed his gratitude to the Actuarial Profession for working with the Government on the issue, adding “the Profession is very helpfully contributing the technical assistance we need from them and I look forward to working together on the introduction of these new regulations.”
If you have any comments you would like to add to this story or would like to speak to its author about a similar subject, telephone Nyree Stewart on 020 7968 4558 or email [email protected]IFAonline
Has been cold-calling consumers
New shares admitted to London Stock Exchange
Slow and steady growth
Missed funding target by £240,000
Denies any wrongdoing