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The abolition of contracting out on a defined contribution (DC) basis may lead to unintended consequences. Indeed, following the Department for Work and Pensions’ consultation on the subject, Ray Chinn, LV= head of pensions, says: “We are pleased that the government has confirmed the abolition date of 6 April 2012 for contracting out on a defined contribution basis, and we support the draft legislation in the main. But we are concerned that a consequence of this legislation would stop most transfers from defined benefit (DB) schemes to DC schemes.”

He adds: “We strongly believe that legislation should be drafted so that transfers from DB to DC schemes should still be permitted.”

While in many cases it is sensible for people to remain within a DB scheme, there are still a number of circumstances where a transfer is the right thing to do, and the right to such transfers should therefore not be prohibited, for example:

• if someone is suffering from ill-health and they will receive a higher income in retirement from an enhanced annuity than would be provided by their current scheme
• if their current scheme rules do not match their personal circumstances – for example, they are single but the scheme rules require benefits to be provided for spouse/civil partners in all cases
• they wish to go into an unsecured pension to either seek higher returns on their pension investments and/ or have greater flexibility over the way in which they structure their retirement
• they have concerns about the ongoing viability of their current scheme and want the peace of mind of securing their pension income elsewhere. This is especially true if the pension income they would receive is in excess of the yearly income protected under the Pension Protection Fund.  

www.dwp.gov.uk

www.LV.com