The Department for Work and Pensions has said that employers will not have to pay out large cash sums to allow members to buy the equivalent level of benefits with a private insurer. Instead, the method of calculation will be based on the expected cost to the scheme of providing the pension.
James Purnell, the minister for pensions reform, said: "After an extensive consultation it has become clear that the great majority favour this way of calculating pensions transfer values. This will mean that the success or sustainability of the pension scheme is not put in jeopardy by any transfers that do take place."
This decision is an attempt to avoid remaining members in schemes having less to gain once other members have transferred.
Patrick Bloomfield, partner and actuary at Hymans Robertson LLP who led the pension specialist’s response to the DWP consultation, said: "It is fair to say that defined benefit pensions have one foot in the grave at the moment, but this decision will help them. The clear winners from today’s decision are companies who sponsor defined benefit pension schemes, however, unions and employees may be disappointed that the amount of money they will be offered will remain insufficient to produce the same level of pension if an employee transferred to a stakeholder pension scheme."