In this issue
Taxation of Penisons Act 2014
Pension Schemes Bill 2014/2015
The Code of Practice for Incentive
Exercises and bulk small pot/trivial
PPF publishes final 2015/2016 levy
determination and final form
Annual Allowance Order regulations
Countdown to abolition of DB
Contracting Out: Fourth HMRC
NEST transfer and contribution
Consultation on draft Automatic
The Financial Reporting Council
confirms changes to content of
Statutory Money Purchase
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Taxation of Pensions Act 2014
The Taxation of Pensions Bill received Royal Assent on 17 December
2014. We have previously reported on the contents of what is now the
Taxation of Pensions Act 2014, which includes provisions providing more
favourable tax treatment where individuals pass on their unused DC pension
when they die, in our October and November 2014 updates.
Following receipt of Royal Assent, the Government has consulted in relation
to three sets of draft regulations relating to the Taxation of Pensions Act 2014.
These are the:
Registered Pension Schemes (Provision of Information) Regulations -
New information and reporting requirements relating to flexibly
accessed benefits, the payment of death benefits under new benefit
crystallisation event 5C(b) and receipt of payments by a beneficiary
from a drawdown fund;
Overseas Pension Schemes (Miscellaneous) Regulations - Overseas
schemes are no longer required to designate 70% of UK tax relieved
funds to provide an income; and
Registered Pension Schemes (Transfer of Sum and
Assets)(Amendment) Regulations - provisions seeking to remove any
scope for a member to take unintended advantage of the new
flexibilities by transferring an annuity issued before 6 April 2015 (to
which the new flexibilities are not intended to apply) to one issued on
or after 6 April 2015.
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Pension Schemes Bill 2014/2015
The Pension Schemes Bill 2014/2015, along with what is now the Taxation of
Pensions Act 2014, is one of the two key pieces of legislation which will
implement the Budget 2014 changes. The Bill completed its House of Lords
committee stage in early January 2015 and will now move on to the detailed
report stage with the expectation that it will receive Royal Assent in
In our November update, we referred to new provisions in the Pension
Schemes Bill dealing with the guidance guarantee (which is to be provided by
The Pensions Advisory Service and Citizens Advice) and amendments in
relation to the receipt of independent financial advice. The Government has
now published an update in relation to progress in setting up the new
pensions guidance service. It has announced that the new service will be
called "Pension wise", has released the new logo for the service, set out
further details of the service and invited those in the target group to register
interest in testing the pilot service.
The Government has also announced that it intends to introduce a statutory instrument which will amend the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 by adding a new regulated activity concerning the provision of independent advice on pension transfers. > Back to Top The Code of Practice for Incentive Exercises and bulk small pot/trivial commutation exercises The 2014 Budget increased the maximum limit of a small lump sum commutation, from £2,000 to £10,000, and the size of total pension savings that can be taken as a lump sum, from £18,000 to £30,000. These changes were expected to lead to an increase in bulk small pot/lump sum commutation exercises. It had been thought that such trivial commutation exercises may not fall under the Code of Practice for Incentive Exercises, on the basis that trivial commutation is usually ordinarily available to members under the rules of a scheme, and so would fall outside the definition of an incentive exercise. However, the Incentives Exercises Monitoring Board has now issued a note which takes the view that whilst "business as usual" activity would not fall under the Code of Practice, one off bulk exercises initiated by the employer or trustees would fall under the Code. This may mean that such bulk exercises will require employers to pay for IFA guidance or advice for members. The Q&A on small/trivial pension commutation can be viewed by clicking here. > Back to Top PPF publishes final 2015/2016 levy determination and final form documentation The PPF has now published its policy statement for the 2015/2016 levy year. At the same time it published its final determination for the 2015/2106 levy year, together with associated appendices, guidance and sample documentation. The PPF has not significantly changed the approach which it outlined in the consultation, which we reported on in our October Update. The key points to note include the following: The move to Experian and the PPF specific model as the basis for insolvency risk measurement has taken place; Rather than restrict recognition of Asset Backed Contributions (ABCs) to property, the PPF will focus on ensuring that the valuation of the ABC is on an appropriate basis and the valuer recognises a duty of care to the PPF; The concept of "realisable recovery" will be introduced as the basis of certification for contingent assets. This means that, in respect of a guarantee, trustees will need to certify, or recertify, on the basis of a fixed amount which they are confident that the guarantor could pay if called upon. Schemes which identify themselves as "last man standing" schemes on Exchange will need to confirm to the Pensions Regulator that they have received appropriate legal advice (i.e.
from a legal adviser appointed under Section 47 of the Pensions Act 1995) which supports this position by 29 May 2015. The 2015/16 Levy Policy Statement can be viewed by clicking here. Further commentary on potential issues arising from refinancing can be viewed by clicking here. > Back to Top Annual Allowance Order regulations published As referred to in our December 2014 Update, the draft Finance Act 2004 (Registered Pension Schemes and Annual Allowance Order) (Amendment) Order was published on 12 December 2014 along with draft guidance. The draft regulations include a range of changes which seek to ensure that the annual allowance legislation works as intended. Of particular interest are the changes in relation to annual allowance charges arising on block transfers between pension schemes which have resulted in many pension scheme mergers being put on hold. In relation to such block transfers, there had been a concern that, where the amount of benefits relating to a transfer were more than the amount of benefits that could have been funded by the transfer payment, the ‘excess’ amount of benefits would have to be included for annual allowance purposes. The Order seeks to make an exception to this requirement where: accrued benefits are transferred from one registered pension scheme to another as part of a ‘block transfer’; the value of the benefits given up in the transferring scheme is equal (or virtually equal) to the value of the benefits granted in the receiving scheme in connection with the block transfer, but due to underfunding in the transferring scheme, the sums and assets transferred does not support the value of the accrued benefits being transferred. Once the Order has come into force, which is expected shortly, it will have retrospective effect from 6 April 2011. > Back to Top Pensions liberation The Pensions Ombudsman has given his determination in a complaint against a "pension liberation" vehicle (Mr X) and an update on three further determinations connected with "pension liberation" or "pension scams” (Mrs Kenyon, Mrs Jerrard and Mr Stobie) . In relation to “Mr X", the Ombudsman held that Mr X had a right to a statutory transfer from the "pension liberation" vehicle to which he had previously transferred from a public sector scheme (although in practice the Ombudsman felt it was likely that Mr X would find that some or all of his money will have disappeared).
In the other three determinations, where the members were complaining that they should have been provided with transfer payments to an alleged "pension liberation" vehicle, it was determined that if the transferors had held a statutory right (which they did not have in each of the cases) that they were determined to enforce, even in the face of severe warnings, then, after the providers had made such enquiries as thought necessary to establish whether the right existed, the providers could not have further resisted payment. Overall, whilst the Ombudsman acknowledged that trustees “find themselves in a highly unenviable position” when dealing with requests from members to schemes which may be questionable, the cases can be seen as providing some protection for trustees if they make a transfer to an arrangement which turns out to be a scam, if they have followed the regulatory guidance, obtained as much evidence as they can and made a reasoned decision about whether there is a right to transfer or not. The determination and update can be viewed by clicking here. > Back to Top Countdown to abolition of DB Contracting Out: Fourth HMRC Bulletin Published HMRC has published its fourth Countdown Bulletin in relation to the abolition of DB contracting-out in April 2016. The bulletin emphasises the benefits of using HMRC's scheme reconciliation service and highlights the potential consequences for schemes of not reconciling their records by April 2016. In particular the point is made that, whilst schemes have until April 2016 to request assistance from the reconciliation service and queries will be dealt with until December 2018, schemes should use the reconciliation service as early as possible. The Countdown Bulletin can be accessed by clicking here. > Back to Top NEST transfer and contribution restrictions removed The DWP has confirmed that contribution and transfer restrictions under the National Employment Savings Trust (NEST) will be removed with effect from 1 April 2017. This follows on from the recent consultation. The DWP has also separately confirmed that the earnings trigger for auto-enrolment will remain at £10,000 for 2015/2016. > Back to Top Consultation on draft Automatic Enrolment Regulations Following a consultation on technical changes to auto-enrolment in early 2013, measures were included in the Pensions Act 2014, which were intended to further simplify automatic enrolment and reduce burdens on employers.
These measures will: Introduce an alternative quality requirement for defined benefits (DB) schemes; Simplify the information requirements on employers; and Create exceptions to employer duties in certain circumstances. The Government has now consulted on the draft Occupational and Personal Pension Schemes (Automatic Enrolment) (Amendment) Regulations 2015 which set out the detail of the measures. Click to view the draft Regulations and consultation. > Back to Top The Financial Reporting Council confirms changes to content of Statutory Money Purchase Illustrations The Financial Reporting Council has introduced some further changes to the Actuarial Standard Technical Memorandum 1 (Statutory Money Purchase Illustrations) to reflect legislative changes. The changes cover same-sex marriage (specifying the age difference assumed in same-sex marriages), automatic enrolment (dealing with phased increases to minimum contributions) and guaranteed annuity terms (reflecting where guaranteed annuity terms have been assumed in the statutory illustration). Click to view the Technical Memorandum and the Statement setting out the rationale for the changes. > 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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