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Transfers of Money Purchase Pension Rights: Regulatory Amendments

Regulations amending the Occupational Pension Schemes (Preservation of Benefit) Regulations 1991 have recently been introduced. The regulations will come into force on April 6 2018.

Pension scheme trustees who wish to transfer a member's pension benefits to another pension scheme, without obtaining consent from pension scheme members, may do so where the requirements set out in Regulation 12 of the Preservation Regulations are met. This is of course a slightly simplistic view, as in any bulk transfer scenario, there will be a number of factors which trustees have to take into consideration - it is not simply a matter of meeting the regulatory requirements.

The requirements of Regulation 12 have never sat particularly well with the transfer of money purchase benefits, not least because of the requirement to obtain an actuarial certificate in respect of a scheme which doesn't ordinarily have any need for a scheme actuary. It has been reported that this requirement has perhaps presented an obstacle to transfers taking place.

The amendments to Regulation 12 introduce new requirements enabling pension schemes to make provision for the bulk transfer of relevant money purchase rights to another occupational pension scheme. Readers should note that Regulation 12(1B) does not introduce a statutory power to make such a transfer. Instead it enables schemes to provide for such transfers. It is likely that amendments to a scheme trust deed and rules will be needed, but this is something which trustees will need to check.

Reference to relevant money purchase rights, within the regulations, means rights to money purchase benefits where the assets held in relation to those benefits do not include any guarantee, or promise, in relation to the amount of benefit to be provided, or the amount available for the provision of benefit.

The requirements set out in the regulations are as follows; it should be noted that there is no requirement to meet all three conditions, but only one.

1. The first is that the receiving scheme is authorised under the Pension Schemes Act 2017. In other words, where the receiving scheme is an authorised master trust, then a bulk transfer without consent may be made.

2. The next possible condition is that:

  • The transferring scheme employer and the receiving scheme employer are undertaking;
  • The transferring scheme employer is an undertaking in relation to the receiving scheme employer;
  • The member whose right it is to be transferred is the current or former employer of an undertaking, which is a group undertaking, in relation to the transferring scheme employer or receiving scheme employer. Group undertaking is defined by reference to Section 116(5) of the Companies Act 2005. Group undertaking means a parent undertaking of subsidiary undertaking of that particular undertaking. It can also mean a subsidiary of any parent undertaking of that undertaking.

Broadly speaking, where the transfers are taking place between pension schemes operated by group companies then a bulk transfer without consent may be made.

3. The final route by which a bulk transfer of relevant money purchase rights can take place is where trustees of the transferring scheme obtain and consider written advice in relation to the transfer. The written advice must be from a person who they reasonably believe to be qualified to give that advice by reason of that person's ability, and practical experience and knowledge of pension scheme management. Additionally, the appropriate adviser must be independent of the receiving scheme.

A further point to note is that amended regulations also ensure that any member protected by the charging cap should continue to be so protected within the receiving scheme.

Trustees should welcome the flexibility introduced by the regulations, particularly given that the existing requirements in the preservation regulations did not work particularly well when transferring money purchase benefits. However, trustees will be aware their duties do not stop with ensuring compliance with the regulations. Transferring money purchase benefits will need careful consideration, both in terms of trust law and in terms of the due diligence which scheme trustees should undertake.

Given that trustees will need to be satisfied that agreeing to the bulk transfer is in members' best interests, in practice trustees will not agree to make a transfer without obtaining professional advice even if one of the first two requirements were met.

When consulting on the draft amending regulations, the DWP recognised that trustees would have fiduciary duties to act in the best interests of members when deciding whether or not to go ahead with a without consent bulk transfer. The consultation specifically recognised that two elements to consider whether a bulk transfer is in members interests are: whether the receiving scheme is a well-run scheme in which members rights to benefits can reasonably be judged to be secure; and whether member outcomes will be of a similar or better standard than those in the receiving scheme. Guidance is anticipated no later than the end of April 2018.

In the Government's response to the consultation on regulations, the DWP quotes from data published by the pensions regulator. According to this data, there are currently 2,180 Defined Contribution Occupational Pension schemes with 12 or more members. More than 80% of these schemes have fewer than 1,000 members. The DWP's perception is that these schemes may represent poor value and the Pensions Regulator's DC Scheme research has found that 55% to 75% of these schemes report having weak governance. Other studies have shown that smaller schemes pay more in charges, are less able to negotiate with service providers and may be less able to invest in certain asset classes. It seems therefore that one of the policy intentions behind the DWP draft regulations is to enable consolidation of DC Benefit to take place more effectively.


This information is for educational purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given. © Shoosmiths LLP 2022.


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