In answering this question, the term ‘alternative investments’ is assumed to refer to investments that the individual chooses themselves, either that are unconventional in that they carry more risk, or are not typical of investments offered by personal pension schemes.
The Pension Schemes Bill 2019-20 has no provisions that restrict how members transferring from defined benefits pensions should invest their pension rights.
Clause 124 of the Pension Schemes Bill contains provisions to amend the statutory right to transfer and thereby restricts the types of pension arrangements under which a member can compel trustees to approve a transfer request. Members can still use their statutory right to transfer to an authorised Master Trust or an FCA authorised pension arrangement.
In accordance with the principles of freedom and choice, members with defined benefit pension rights have the right to transfer to a defined contribution scheme to self-invest. These self-invested personal pension schemes can offer the member a range of investment funds, including alternative investments.
Members with a cash equivalent greater than £30,000 must seek financial advice before they transfer or convert their pension rights into flexible benefits, that can be used for alternative investments. FCA rules for pension transfer advisers require that the form of investment the member is considering on transfer is considered as part of their recommendation to the member to transfer or not. However, the member retains the right to follow or ignore the advice they receive. Where trustees’ have concerns with the alternative investments in a members’ choice of destination, they should make the member aware as part of their overall requirement to carry out due diligence in the member’s interest.