UK: Budget 2014: A New Pensions Landscape

Last Updated: 22 April 2014
Article by Jennifer Bell

Summary and implications

The unexpected announcement in the Budget allowing members full freedom over their DC pension pots from April 2015 will have consequences for the pensions industry as a whole and for the wider economy. 

The Government is consulting on the detail of the changes and we may not know the results of that until much later in the year. In the meantime we have been looking at the published proposals and considering what they may mean to the various parties.

The proposals at a glance

The key proposal is for everyone to have full access to their DC pension pots from age 55. 

Schemes will be required to provide "guidance" to members approaching retirement.

Most transfers out from public sector schemes will be banned. They will still be allowed where there is a bulk transfer under Fair Deal, it is to another public sector scheme under the Transfer Club arrangements or in exceptional circumstances (yet to be specified).

There is also likely to be some form of restriction on transfers from private sector DB schemes to DC arrangements to prevent a sudden outflow of funds.

DC members: more choice but danger areas

On the face of it the Budget is good news for DC members, giving them more choice over their retirement income. There is the obvious risk that the benefit will be taken in one go and spent quickly, leaving the member with only the state pension for income. Even those taking a more prudent approach might underestimate their longevity. Steve Webb's view seems to be that it doesn't matter, the state pension will be sufficient.

Taking the benefit as a lump sum may have consequences for means-tested benefits and services, including care costs. Some members may still want the certainty of an annuity but, with fewer being taken out, the risk for the insurer will increase and so therefore will the cost.

The key to the success of the new regime for members will be the quality of the guidance, the suitability of any new products which are developed and, to a certain extent, the behaviour of the member.

DC trustees: a new era of compulsion

The current pensions tax regime sets out which benefits are authorised but does not require trustees to pay any particular benefit to anyone at any specified time – this is left to individual scheme design. The Budget proposal may change this, with a suggestion that members will be able to compel trustees to pay out their pension savings on request (this is already the case for most transfer payments). It is not clear whether the intention is that members should have totally unrestricted access, so that they could call for access to any part of their funds at any time – meaning pension schemes effectively operating as instant access savings accounts – or just a one-off opportunity to access the whole benefit. Instant access to partial benefits would create administrative and record-keeping challenges for schemes.

The proposal also raises questions about lifestyling funds. The majority of DC schemes offer a lifestyling fund (and it is required for default funds in automatic enrolment schemes). Very broadly, the aim is to reduce risk in the period up to retirement and to stabilise the fund in preparation for the purchase of an annuity on a specified date. With the proposed flexibility it will be much less important to decrease risk for all members in the later stages of their investment cycle as the majority will not now be looking to purchase a one-off annuity. It may not therefore be in the best interests of the majority of members to invest in a lifestyling fund. This raises issues about fund selection by both trustees and members. It will be a challenge for trustees to select funds to match members' intentions on retirement (as these will not be known in advance by the trustees) and it will be much harder for members to make sensible fund selections. Further thinking may be required in this area, particularly on what guidance or advice could be provided to members at different stages of pension saving.

DB schemes: change of investment strategy

Allowing full flexibility in DC schemes could have a serious impact on the funding of DB schemes as well as on the investment market and wider economy. Many DB schemes invest heavily in long-term gilts and corporate bonds as they are planning to be paying benefits for the lifetimes of their beneficiaries. If this falls away and schemes pay out the majority of assets as lump sum transfers at or before retirement then the investment strategy of schemes will have to change – potentially removing £billions of investment from the long term investment market.

The government is consulting on restricting the rights of members in the private sector to transfer from DB to DC schemes. Proposals range from an almost complete ban to retaining the current transfer rights. If no major ban is introduced then schemes will have to review their investment strategies and consider whether it is appropriate to move away from looking to fund long term pension liabilities and move towards facilitating increased cash flow to fund transfer payments at or before retirement.

Schemes could also be affected by changes in the annuities market. Many DB schemes buy out pensions with annuities (either in bulk or individually) and trustees could find that this becomes even more expensive. 

Trustees could find a post-Budget rush of members wanting to transfer out to a DC scheme before any new restrictions are imposed. These transfer requests should be processed in line with the current cash equivalent legislation.

Employers: risk management and workforce planning

Any restrictions on DB transfers could mean the end of enhanced transfer exercises by employers. These have been used to reduce future scheme risks by encouraging members to transfer out to DC pension arrangements. Conversely, if transfers are allowed to continue from DB to DC, employers could find that members effectively de-risk the scheme themselves by choosing to take (unenhanced) transfers in order to benefit from the new DC flexibilities. 

Employers could well find situations where an employee has taken his or her benefits in lump sum form at 55, has spent that, and then wants to work on longer to rebuild a pension. We are not aware of any proposal to require an employee to actually retire from work before drawing on their DC pension pot. Individuals have been allowed to draw a pension while still in the relevant employment since April 2006 but not all schemes allow it (and many only with employer consent). If members are to be allowed to draw their pension pots as of right then the concept of moving on from work into a pension may fall away, with no "natural" time for someone to retire. This could make succession planning much more complex and uncertain for employers.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.