Government Warns On Pension Transfers

: Published on Tuesday, 05 July 2011

The Pensions Minister, Steve Webb, has been in the headlines of late, warning about pension transfers.

Transfer incentives. Some employers with final salary pension schemes are offering the scheme members special deals to transfer out of the scheme. These include temporary enhancements to transfer values and/or direct cash payments to transfer. HMRC’s view is that any incentive payment received by the member is to be treated as earnings, subject to both income tax and national insurance contributions.
Pension increase exchanges. This is a more subtle deal. The employer offers a higher pension and/or a cash payment in exchange for the member giving up their rights to future pension increases.
Giving Up Pension For More Tax Free Cash Not a pension transfer issue per se but frequently a way for schemes to save a lot of money.

These offers are by no means an exercise in employer largesse. What the employer is trying to do is reduce their pension liabilities at an acceptable cost to the business. If you are offered such a deal, you should never accept it without seeking expert independent advice. There may be occasions where the deal makes sense, but often the package seems to rely on the scheme member’s lack of detailed pension knowledge.

Enhanced transfer offers are frequently made available for a short period only. In pensions, as elsewhere, ‘buy now while stocks last’ merits a cautious approach.

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