Thousands of Final Salary Pension members will lose out under the new Flat rate UK State pension which comes in April 2016.
In short anyone with a pre-1988 guaranteed minimum pension (GMP) component in their private final salary scheme pension is effected. Under previous rules in agreement for contracting out of the State pension (into a final salary pension) the UK government agreed to inflation proof the benefits off the contracting out. Now the UK Government are absorbing the benefits into the new state pension they are removing the inflation proofing that they guaranteed. This will dramatically reduce the level of pension that people will be entitled to in the future.
This new legislation will affect anyone who has paid into a Final Salary scheme during the Eighties and Nineties, and who now faces the loss of inflation proofing of a large part of their pension.
Unfortunately some of the worst hit are members of unfunded public sector pension schemes, like the Teachers Pension, which can no longer transfer to a QROPS following UK Government rule changes in April 2015. This has effectively given the UK Government free reign to do as it wishes to members’ benefits in these schemes. The average loss for a members of the Teachers Pension could be as much as £30,000.
This will also affect private-sector workers as much as those in the public sector. If this is taken into account when undertaking a QROPS transfer comparison, many more people may find that a QROPS transfer is in their interest.