Cash out of DB Pension?

Pat38493

Ok that is the legislation, but what I am really wondering is whether there is a good reason why stakeholder pensions are singled out as being obliged to accept all transfers, whilst all other types of pension can refuse to accept transfers at their own decision, or is this a historical anomaly that might be fixed or overridden by subsequent laws at some point.

Sarahspangles

Pat38493 said:

Ok that is the legislation, but what I am really wondering is whether there is a good reason why stakeholder pensions are singled out as being obliged to accept all transfers, whilst all other types of pension can refuse to accept transfers at their own decision, or is this a historical anomaly that might be fixed or overridden by subsequent laws at some point.

At the point stakeholder pensions were brought in, not enough people were saving for their old age and where they did many accumulated multiple small deferred pensions due to changing jobs. The fragmentation and perceived risks put people off joining.

A ‘one size fits all’ approach was to define a stakeholder pension within some fixed parameters, and make it mandatory for even quite small employers to provide access to one. A range of compliant schemes were set up for them to choose from. The aim was for stakeholders to be simple, transparent and portable in the hope employees would use them to accumulate something more like the ‘private pensions’ some white-collar employees had alongside the basic state pension.

For employees to be able to use a stakeholder to aggregate older pensions, there had to be prescription about the schemes accepting transfers in.

Aretnap

Pat38493 said:

Ok that is the legislation, but what I am really wondering is whether there is a good reason why stakeholder pensions are singled out as being obliged to accept all transfers, whilst all other types of pension can refuse to accept transfers at their own decision, or is this a historical anomaly that might be fixed or overridden by subsequent laws at some point.

As Sarahspangles says the requirement was introduced to address some specific inefficiencies which existed in the DC pension market at the time. Probably when the legislation was written nobody was even thinking about DB pensions. At that time a DC pension had to be converted into an annuity in most circumstances, the option of "cashing in" a DB pension and getting a wodge of cash instead didn't really exist and so transferring out of a DB pension was far less (superficially) attractive and a very niche thing to do.

I doubt whether the stakeholder "loophole" will be overridden by new laws. Stakeholder pensions are a mostly obsolete product so there is no real need to review the legislation around them. And contrary to what some people think there is no grand conspiracy to make DB transfers impossible. The dearth of other providers willing to accept them against advice is driven by individual companies making commercial decisions that the reputational and legal risk under existing regulations is more trouble than it's worth, rather than by new regulations.

A more pertinent question is why a few companies like Aviva are continuing to offer outdated and obsolete products like stakeholder pensions, and how long they'll continue to offer them for. They can't be bringing in much business, so it would seem to make sense to close them to new customers at some point as part of a tidying up exercise, as most companies that used to provide stakeholders have already done. They might do it more quickly if lots of people started using them as a way of carrying out obviously unsuitable DB pension transfers. Even if their legal liability is zero, I doubt they'll want newspapers full of pictures of sad-faced pensioners saying "Aviva accepted my pension transfer and now I'm living in poverty after I blew it all on a Lamborghini/lost it in a stock market crash."

Kelso44

To describe it as an ‘untested theory’ looks more like someone struggling to avoid admitting they’ve been wrong all along, since it’s been the legal position for years. Just because nobody on this forum has reported doing so doesn’t make any difference to the legal position. Not everyone considering a transfer uses this forum – and those who were already aware of the stakeholder option wouldn’t need to be posting here about it. Those who didn’t know were more than likely deterred by the oft-repeated comment that it would cost thousands to get advice and that ‘there is no known provider accepting transfers against advice'. The former comment is right; the latter is plain wrong.

dunstonh

To describe it as an ‘untested theory’ looks more like someone struggling to avoid admitting they’ve been wrong all along, since it’s been the legal position for years.

It was an untested theory as there are potential blockers that could be thrown up and as no-one had posted a success story, it remained unconfirmed by anyone.    The issue discussed was never about the stakeholder pension itself as that position was clear but whether you could still buy one and do the transfer if you didn't already have one.

For example, one of the three stakeholder pensions still available will only retail via their salesforce.  Their salesforce has no DB transfer permissions.  So, they will not set up a stakeholder pension.      Whether you could lie to them and put a small amount in and then do the transfer is a different matter (its unknown whether they accept transactions without their intermediaries after a plan is set up) 

The other two retail via intermediaries or using their in-house team (who could be intermediaries).   The intermediary distribution will automatically block it.   So, that just left the in-house team but nobody knew their exact set up.   It was thought that they may have operated in an in-house intermediary team, which would allow them to block it) but we now know that one of them does not.

Just because nobody on this forum has reported doing so doesn’t make any difference to the legal position. Not everyone considering a transfer uses this forum – and those who were already aware of the stakeholder option wouldn’t need to be posting here about it.

For several years, posters finding themselves blocked were told to try a stakeholder pension, and not one came back and confirmed it was successful for them.      Those that spent weeks or months posting on this site moaning they were blocked from transferring would have been expected to follow up with a response.   Either to confirm it worked for them or gloat.  

Those who didn’t know were more than likely deterred by the oft-repeated comment that it would cost thousands to get advice and that ‘there is no known provider accepting transfers against advice'. The former comment is right; the latter is plain wrong.

At the time of posting, the information was correct.   There were no known providers accepting transfers against advice.   We now know of one provider in the marketplace accepting it.