British Airways’ pension schemes have introduced a new additional voluntary contribution transfer option allowing members to take advantage of the greater retirement flexibility available after April.
Experts have raised concerns about the administration cost for schemes introducing drawdown and other options as well as the impact on retirement security for members.
In a newsletter from the New Airways Pension Scheme updating members on the changes, the scheme said: “The full range of options will be available in the external market and we have agreed to introduce a new scheme option from April 2015 allowing members to transfer their AVC funds independently of their main scheme benefits.” The same message appeared in the Airways Pension Scheme newsletter.
Rosalind Connor, partner at law firm Taylor Wessing, said many schemes with AVC options may prefer to offer their members flexibility by giving them the option to transfer out and take an option from the open market.
“Pension schemes, particularly defined benefit ones, aren’t set up [for] and don’t want to be providing the flexibilities themselves through their own schemes,” she said. “The legislation is very much set up acknowledging that trust-based schemes may not want to do this themselves.”
Allowing members to transfer out allows them to take full advantage of the pension reforms without the scheme changing its administration processes to accommodate options such as in-house drawdown.
The scheme said: “Schemes are not obliged to adopt the changes… which only potentially apply in relation to the scheme’s AVC funds… and also to the British Airways Money Purchase Section, which closed in October 2012 and has a few remaining deferred members.”
Legal ambiguity
Trustees have a statutory override power, allowing them to offer the new flexibilities without amending the scheme rules, but Connor said trustees may be hesitant to use it as it is not clear what indemnity protections those that use it would have.
“I don’t think the law as it presently stands makes trustees vulnerable to a legal complaint, but that may change,” she said. “I can see why trustees don’t want to provide it within the scheme,” she added.
Lesley Browning, partner at law firm Norton Rose Fulbright, said the option sounded like a partial transfer rule, which has become increasingly popular as a potential middle way for DB schemes not wanting savers to transfer out in droves.
“I think it’s probably one and the same thing,” she said. “A number of our clients have partial transfer rules. They’ve been used sparingly and not particularly advertised.”
Browning added that scheme members were increasingly considering segmentation of their pension pots to make the most of the reforms. “They’ve maybe just never had the demand from members and they want to give [them] the flexibility,” she said.
