The Contracting-out (Transfer and Transfer Payment) (Amendment) Regulations 2017 – Sackers’ response to DWP consultation
The DWP is consulting on draft regulations to introduce changes to enable transfers, in limited circumstances, of pensioner members with GMP or section 9(2B) rights, with their consent, to schemes that have never been contracted-out.
The draft regulations under consultation – The Contracting-out (Transfer and Transfer Payment) (Amendment) Regulations 2017 – are designed to limit the circumstances where these types of transfers take place to where the scheme is undergoing a PPF assessment or where a regulated apportionment arrangement (“RAA”) has been entered into.
In this response
- General comments
- Specific comments on the proposed changes (Questions 1 and 2 of the consultation)
- Comments on how the proposed changes might impact multi-employer schemes (Question 3 of the consultation)
We welcome the proposals to change the contracting-out legislation to allow contracted-out benefits in payment to be transferred to new schemes set up to facilitate restructuring where schemes will otherwise enter the PPF.
As the consultation recognises, however, this is an issue for schemes generally, and not just schemes where benefits are being restructured. We would therefore support further changes to the legislation at the first opportunity to facilitate transfers of contracted-out benefits in payment for all schemes. Broadly, we believe this could be achieved by allowing a scheme with contracted-out benefits to transfer these to a receiving scheme that is a trust based scheme providing pensions, lump sums and ancillary benefits to its beneficiaries, and either:
- the terms of which include the same (or substantially similar) provisions for providing GMPs and reference test benefits as the transferring scheme; or
- if there are differences in the terms for providing relevant benefits, these are explained to members.
The draft changes would in our view appear to achieve the intention set out in the consultation.
However, in terms of the proposed wording for new regulations 6A and 11A, we think it would be helpful to clarify the following:
- in (2)(b) (of both new regulations) to refer to members acknowledging receipt of a “description” of the benefits to be awarded rather than a “statement”, to avoid any suggestion that in these circumstances schemes would need to identify for members in detail the rights being transferred and what will be provided. A general description of the benefits will in our view provide the necessary information to members, and we would expect that this is all that is anticipated by the proposed changes to the legislation;
- for (2)(c) (of both new regulations) to only require members to accept that benefits in the receiving scheme may be in a different form if that is in fact the case, but not otherwise. This is because the receiving scheme’s rules could in fact replicate the requirements for providing GMPs and reference test benefits, and if the transfer is not being made out of a PPF assessment period (but rather just where an RAA has been entered into), there need be no change in the benefits. Asking for an acceptance from members that benefits may be different when in fact they are the same would be unnecessarily confusing for members.
Comments on how the proposed changes might impact multi-employer schemes (Question 3 of the consultation)
We can see that the proposed changes should also be capable of operating effectively for segregated sections of multi-employer schemes.
It seems to us that it would also be helpful if the changes could be applied to parts of non-segregated multi-employer schemes where the employers are not associated (if it was in fact possible to identify the part of the scheme that was attributable to a particular employer), but we do not believe this would be possible under the current legislation.