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UK Pensions speedbrief: DB to DC transfers and conversions: Regulatory Guidance

  • United Kingdom
  • Pensions - Speedbriefs


The Pensions Regulator has responded to its consultation on its defined benefit (DB) to defined contribution (DC) transfers and conversions guidance. The response and publication of the final guidance coincides with the coming into effect of the major reforms to the rules for accessing DC pension savings from 6 April 2015.

The guidance is intended to assist trustees of DB schemes to manage transfer requests and the impact on their scheme under the new pensions landscape.


In July 2014, the Government confirmed that following the introduction of the new DC pension flexibilities transfers from private sector DB schemes and funded public sector DB schemes to DC schemes will continue to be allowed (excluding pensions in payment) subject to two safeguards:

• the introduction of a new requirement (subject to an exemption) for individuals to take independent financial advice from an adviser who is independent of the DB scheme and authorised by the Financial Conduct Authority (FCA), before a transfer can be effected; and

• new guidance (to be issued by the Pensions Regulator) on the use by trustees of their existing powers to delay transfer payments and take account of scheme funding levels when deciding on transfer values.

The requirement for an individual to take independent financial advice before a request to transfer to a DC scheme can be processed was included in the Pension Schemes Act 2015 and the Pensions Regulator published draft guidance for consultation in February 2015.

Guidance: an overview

The guidance is aimed primarily at addressing statutory transfers of DB benefits but it also applies to transfers made under a scheme’s rules (and partial transfers where the scheme rules permit this) as well as conversions of DB benefits into DC benefits within the same scheme.

The guidance complements existing guidance and explains a number of changes to the legal requirements regarding transfers that were introduced by the Pension Schemes Act 2015, including the requirement that members take appropriate independent financial advice before a transfer to a DC scheme can be completed.

The requirement to take appropriate independent advice

In respect of a request received on or after 6 April 2015, a transfer or conversion of “safeguarded benefits” to acquire “flexible benefits” is subject to the requirement that the member must obtain appropriate independent advice, except where the cash equivalent transfer value (before any reduction) of the member’s safeguarded benefits in the scheme is £30,000 or less. The requirement applies equally to transfers from a “safeguarded” to a “flexible” section within the same scheme.

Flexible benefits include: money purchase benefits; cash balance benefits; and a third type of benefits, which are described as benefits other than money purchase or cash balance benefits, calculated by reference to an amount available for the provision of benefits to or in respect of the member. Benefits which do not fall into these three types are safeguarded benefits. It is suggested that where there is doubt about the status of benefits and how to treat them, trustees should treat this third type of benefits as safeguarded benefits unless there is good reason to treat them differently.

Members will be expected to meet the cost of the advice, except where the transfer is employer-instigated. Employers are required to pay where they, or the trustees or other third party on their behalf, write to two or more members and set out the option to transfer in terms that “encourage, persuade or induce a request to transfer” (as opposed to routine communications explaining to members their options).

Changes to statutory transfer right

The new benefit definitions are also relevant to the changes to a member’s statutory transfer right. The statutory right to transfer now applies separately in relation to a member’s different benefit categories rather than all of the benefits under the scheme. Benefits are split into three categories: money purchase benefits; other flexible benefits (i.e. cash balance or third type benefits); and non flexible benefits (i.e. safeguarded benefits). Members with more than one category of benefit in a scheme will therefore have a statutory right to transfer all of their benefits or all of their benefits in relation to one or more of these three categories.

Role of the trustee

Trustees should ensure they have processes in place to implement transfer requests in a timely manner and should maintain accurate and complete records. In addition to the usual statutory process, where a member is transferring safeguarded benefits the trustees should check that the appropriate advice has been obtained by verifying that the advisor’s written confirmation meets the legislative requirements. The advisor is required to provide confirmation in writing to the member, which includes the following information:

• that the advice is specific to the proposed transaction;
• that the advisor has the required authorisations to give the advice on the transfer or conversion of safeguarded benefits;
• the reference number of the firm in which the adviser works; and
• the name of the member and scheme.

Trustees should retain a copy of the advisor’s written confirmation. In addition, before the transfer is made they must check on the Financial Services Register that the advisor is appropriately authorised. The guidance is prescriptive about the checks that should be made on the Financial Services Register and trustees should work with their administrators to ensure that these checks are carried out before any transfer is made. A record of who conducted the checks, when and evidence showing that the advisor was on the register and had the necessary permissions should be kept and retained for at least 6 years.

The guidance is clear that it is not the trustees’ role to second-guess the member’s decision making and states specifically that they should not request a copy of the advice.

Where the £30,000 exemption applies, although there is no requirement to take independent financial advice, the member must be reminded about the information on transfers available from the Pensions Regulator, The Pensions Advisory Service and the FCA that can assist them. Trustees must also recommend that the member takes advice before deciding whether to transfer.

Pre-retirement material should be reviewed and updated to explain the new pensions flexibilities. Trustees are also encouraged to ensure members receive clear information about the risk of pension scams, but the Regulator confirms once more that it cannot waive trustees’ obligations to carry out a transfer within the statutory deadline.

As well as carrying out the necessary checks to ensure that a member has received appropriate independent advice where a transfer request is submitted, trustees should also continue to be alert to the risk of pensions scams when considering transfer requests.

FCA Rules

Alongside the Regulator’s guidance, the FCA is also consulting on changes to its rules to ensure that individuals who give advice on the transfer or conversion of safeguarded rights have the relevant authorisations.

Transfers and scheme funding

Trustees should monitor and understand the impact of transfers on scheme funding and investments and take a proportionate and integrated approach to the management of scheme funding risks, being mindful that scheme funding and the setting of transfer value assumptions are related and, as such, decisions on each should not be taken in isolation. Actuarial advice should be taken in this regard.


The substantial flexibility now available to individuals with DC pension savings may encourage some members of private and funded public sector DB schemes to request to transfer their benefits to DC arrangements or convert them into DC benefits under their existing scheme. Trustees and sponsors should be prepared for an increase in the number of transfer requests and should consider the potential impact on the scheme’s funding position and investment strategy.

The guidance complements the existing guidance relevant to transfer-related issues. The Pensions Regulator has indicated that it will review its guidance on transfers in 2016 in light of experience, with a view to consolidating the materials. This should assist trustees and administrators going forward. In the meantime, it will be interesting to see how members choose to access their savings now the DC flexibilities are available and whether there will be significant appetite on the part of DB members to take transfers in order to access the new options.

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