The Government has set out plans to simplify the current valuation process for members with Guaranteed Annuity Rate pensions.

The Department for Work and Pensions has announced it will amend the Pension Schemes Act 2015 (Transitional Provisions and Appropriate Independent Advice) Regulations 2015.

The changes mean that for the purposes of the advice requirement, providers should “treat the value of safeguarded benefits, including those with a GAR, as equal to the actual transfer payment to which the member would have a statutory right in respect of those benefits”.

This may, however, be subject to limited exceptions in certain cases, such as where a transfer payment from an occupational pension scheme is reduced to reflect scheme underfunding, officials stated.

The changes were outlined after a Call for Evidence on the Valuation of Pensions with a Guaranteed Annuity Rate was carried out. Firms such as Hargreaves Lansdown, Scottish Widows, Aegon and Royal London took part in the consultation, along with The Pensions Advisory Service.

Since the introduction of pension freedoms in April 2015, scheme members with safeguarded pension benefits worth over £30,000 under a scheme, including benefits with a GAR, have been required to take independent financial advice.

They must do so before transferring their pension savings to another provider to obtain flexible benefits, converting their benefits into flexible benefits within their scheme, or accessing their pension savings flexibly.

The current calculation method for valuing safeguarded benefits to determine whether they exceed the £30,000 threshold had been causing ‘difficulties’ for providers and members in its application to pension benefits, which contain a GAR, triggering the Government to review the position.

The DWP has this week outlined the intended changes, following this assessment.

A DWP report stated: “The amended valuation approach will apply to both personal and occupational pension schemes, in respect of all types of safeguarded benefits.

“However, the government has noted the concerns of some respondents that members are often not fully aware of the potential value of GARs attached to their pension benefits.

“The government agrees that it is crucial that steps are made to ensure that members understand and appreciate the benefits conferred by a GAR before they make a decision to surrender these benefits.”

The Government was told by some respondents that the existing situation, whereby members often receive one value to determine whether they are required to seek independent financial advice, which takes into the account the value of the GAR, and a separate, lower, transfer value, was confusing for members.

Respondents to the consultation “universally felt that a more straightforward valuation methodology would be easier for providers to administer and communicate, therefore reducing member confusion”.

But views differed on exactly how the valuation process should be altered, the report said.