In this issue
DC Flexibilities - Update
DB to DC transfers - consultation on
DC Governance and Charges - new
Committees - new FCA rules
HMRC - new steps to combat
"Pot follows member" - new DWP
Pensions Regulator - scheme return
HMRC/DWP - delay in publishing
HMRC - Update - Annual Allowance
Order now in force
Reminder - certification of PPF
STOP PRESS - IBM v Dalgleish -
Remedies judgment published
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DC Flexibilities - Update
Pensions Schemes Bill Update
In our January 2015 Update we provided an update on the passage of the
Pension Schemes Bill 2014/2015 through Parliament.The Bill completed its
passage through the House of Lords on 5 February.The amendments have
been passed back to the House of Commons for consideration.
To recap briefly, the Pension Schemes Bill will, amongst other things, put in
place the statutory framework under which members may transfer DB benefits
to a DC scheme in order to take advantage of the Budget flexibilities.The
legislation will also provide the statutory basis for the Government's new
guidance service for members retiring with DC pensions.
Implementing the flexibilities - new regulations
The DWP published on 19 February three sets of amending regulations in
connection with the introduction of the new pension flexibilities from 6 April
2015.In particular, the regulations (which remain subject to legal review and
Parliamentary approval) address:
the introduction of a statutory modification power under which scheme
rules may, subject to employer consent, be modified to allow the
scheme to provide for the additional options which will be available
from 6 April 2015 (this power is separate to the overriding power
contained in the Taxation of Pensions Act 2014 - see our August 2014
Update - which, strictly speaking, allows trustees to make certain
benefit payments under the new flexibilities without amending the
rules or requiring employer consent);
revision of the current disclosure regime in view of the new flexibilities
and the introduction of new requirements regarding the
communication of members' options and the requirement to draw
members' attention to the Government's pensions guidance
service.The draft regulations can be viewed here.
FCA - requirement to draw attention to pensions guidance
The FCA announced in January, in relation to contract-based schemes, that
there should be a "second line of defence" to encourage members retiring
with DC pensions under contract-based schemes to make the right decisions.
The detail of that additional protection is still awaited but is likely to constitute
a requirement on regulated pension providers to give customers appropriate
risk warnings and draw their attention to the guidance available. This reflects
the approach being taken to impose similar disclosure duties on trust-based
schemes (see above).
> Back to Top DB to DC transfers - consultation on regulatory guidance The Pensions Regulator has launched a consultation on guidance concerning DB to DC transfers and conversions (which will be governed by the provisions of the Pension Schemes Bill - see above).The proposed guidance is intended to assist trustees in meeting their obligations, in recognition of the likely increase in transfer requests from DB to DC schemes, so that members can take advantage of the new DC flexibilities.It also includes practical guidance on the steps which must be followed in relation to transfer requests under the new statutory framework, including steps which trustees should take to check that a member has received appropriate financial advice.It is proposed that the guidance will be reviewed in 2016 in light of experience.The consultation closes on 17 March 2015. The consultation can be viewed here. > Back to Top DC Governance and Charges - new regulations In our October 2014 update, we reported on the DWP's consultation on proposals for improving the governance and regulation of defined contribution pensions (including the introduction of the charge control measures for default arrangements in auto-enrolment schemes). The consultation also included additional governance requirements for "master trusts" which extend to non-associated or industry-wide multi-employer schemes. The DWP's response to consultation and the new Occupational Pension Schemes (Charges and Governance) Regulations 2015 were published on 4 February 2015. The regulations remain subject to parliamentary approval but are due to come into force (for most purposes) on 6 April 2015. The outcome of the consultation can be viewed here. The Pensions Regulator has also published an "essential guide" on the new regulations which gives an overview of the new requirements. The guidance can be viewed here. > Back to Top Independent Governance Committees - new FCA rules published The FCA published, on 4 February 2015, its new rules for Independent Governance Commitees (IGCs), which are due to come into effect on 6 April 2015.From that date, it will be a requirement for the providers of workplace personal pension and stakeholder schemes (including those used for the purposes of auto-enrolment) to have an IGC in place.The role of the IGC is to "operate independently of the provider" and "assess and, where necessary, challenge providers on the value for money of workplace pension schemes".
The Rules set out requirements for the operation and composition of IGCs and the obligations of providers in respect of their IGCs. The FCA intends to conduct a review of the effectiveness of IGCs in 2017. The FCA's announcement and the new rules can be viewed here. > Back to Top HMRC - new steps to combat pensions liberation HMRC is continuing to look at new ways to combat the threat of pensions liberation. As noted in previous Updates, from September 2014 scheme administrators have had to declare their "fit and proper person" status when they register a pension scheme (HMRC guidance indicates how HMRC will apply this test). The main objective of the new requirements was to make it more difficult to establish and run vehicles for the purposes of pension scams and liberation. To coincide with the pension changes taking effect in April 2015, HMRC proposes to build upon the existing controls, by requiring scheme administrators to provide HMRC with additional information and declarations online both when a scheme is registered and when it changes its structure or the range or number of members. It is not yet clear what these new requirements will be but the relevant HMRC newsletter can be viewed here. > Back to Top "Pot follows member" - new DWP policy paper To address concerns that regular job-changes among automatically enrolled members would lead to an increasing number of "stranded pots", the Government introduced legislation in the Pensions Act 2014 to provide a statutory framework for the automatic transfer of pension pots so that they follow members as they move from one employment to the next.The DWP has published a policy paper setting out, in more detail, its proposals for the new system. The DWP notes in its introduction to the paper that the automatic transfer system to the current employer's pension scheme will be facilitated by the scheme (not the employer). It will apply to eligible pots in the money purchase default arrangement of a pension scheme where the pot is below a threshold value. Members will also be provided with information about the transfer and will be able to opt-out of the automatic transfer mechanism where they wish to keep their pot in their existing scheme. The DWP intends to introduce the new system from October 2016 but it will be implemented on a phased basis to enable testing before the system is fully rolled out. The DWP's preferred model for the system is what it calls a "federated model". This will involve a network of registers (as opposed to one central register) which store and match information about small pension pots. The DWP notes that its work is continuing and it expects to provide a further update later in 2015. The DWP's policy paper can be viewed here. > Back to Top
Pensions Regulator - scheme return data The Pensions Regulator has recently released a summary of its latest scheme return data.In its summary, it notes that the number of active members in DC arrangements has surpassed those in DB arrangements for the first time. The Regulator attributes this to the impact which automatic enrolment has had on the number of new pension scheme joiners.It was also noted that there has been an increasing move away from "micro DC schemes" to larger DC schemes, which the Regulator notes is likely to have a positive impact on the value for money received by members. A summary of the scheme return data can be viewed on the Regulator's website here. > Back to Top HMRC/DWP - delay in publishing contracting-out regulations In HMRC's latest Countdown Bulletin, an update is provided on the still-awaited DWP regulations on the abolition of DB contracting out. The DWP's consultation on the two relevant sets of regulations concluded in May 2014 but the outcome of the consultation and any changes to the draft regulations have not yet been released. The update notes that the DWP remains on track to publish the updated regulations addressing the employer statutory power of amendment in the Spring. These regulations will govern the mechanics of the statutory power and will also outline how the power will work in the context of multi-employer schemes. The power is intended to allow employers to make changes to their schemes unilaterally, to offset the costs of increased National Insurance Contributions as the result of the abolition of DB contracting out. However, the second set of regulations, which will govern previously contracted out schemes once DB contracting out is abolished, will not be published until after the General Election. This second set of regulations will set out the rules which schemes that were contracted-out will need to follow after DB contracting-out is abolished in 2016. The regulations also aim to ensure that any member's rights which are derived from previously contracted-out employment are preserved. The Countdown Bulletin can be viewed here. > Back to Top HMRC - Update - Annual Allowance Order now in force In our December 2014 Update, we included a "Stop Press" item which noted the publication of the draft Finance Act 2004 (Registered Pension Schemes and Annual Allowance Charge) (Amendment) Order 2015. The Order addresses the issues in relation to Annual Allowance charges arising on block transfers between pension schemes. The Order is now in force, having come into effect on 28 January 2015. > Back to Top
Reminder - certification of PPF contingent assets The deadline for certifying PPF contingent assets, including guarantees, is approaching on 31 March 2015. We recommend that schemes recertify any existing contingent assets (or certify any new contingent assets) in good time before the deadline. In particular, the PPF's requirements for certification of guarantees this year have changed from those in previous years. Trustees must now certify a fixed cash sum called the "Realisable Recovery" which is, broadly, an amount that the Trustees are reasonably satisfied each certified guarantor could meet if called upon to do so. The PPF has prepared a useful summary document regarding how it tests guarantor strength, and what it expects of Trustees. The guidance can be found here. > Back to Top STOP PRESS - IBM v Dalgleish - Remedies judgment published Following the High Court's important judgment in April 2014 in the case of IBM United Kingdom Holdings Limited v Dalgleish, in which the High Court found that IBM had breached its implied duty of good faith in respect of certain changes which had, purportedly, been made to its UK DB pension plans, we have been waiting for the High Court to rule on the remedies which the Court will award against IBM in that case. The decision on remedies was published on 20 February. The complexity of the case is reflected in the fact that the Court has had to rule on 30 separate issues which are relevant to the remedies awarded. We are considering the outcome of the remedies hearing but, in the meantime, understand that IBM is likely to appeal. > Back to Top Baker & McKenzie International is a Swiss Verein with member law firms around the world. In accordance with the common terminology used in professional service organizations, reference to a "partner" means a person who is a partner, or equivalent, in such a law firm. Similarly, reference to an "office" means an office of any such law firm. Before you send an e-mail to Baker & McKenzie, please be aware that your communications with us through this message will not create a lawyer-client relationship with us. Do not send us any information that you or anyone else considers to be confidential or secret unless we have first agreed to be your lawyers in that matter. Any information you send us before we agree to be your lawyers cannot be protected from disclosure.
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