Welcome to the January/February 2014 issue of our Bulletin for Pensions Managers. This issue covers developments to the end of February 2014. For details of the pension-related changes announced in the Budget on 19 March 2014, please see our recent client alert. In this issue: 1. Pensions news 3. Pensions finance 3. Pensions litigation 4. Mayer Brown events 5. Dates to note over the next 12 months Pensions news SAME SEX MARRIAGE: RULE AMENDMENTS The first same sex marriages will take place from 29 March 2014. Legislation came into force on 13 March 2014 that: • places rule amendments providing for same sex spouses outside the scope of section 67 Pensions Act 1995 (which restricts amendments to accrued rights); and • gives trustees a power to amend their rules by resolution to provide for same sex spouses. Employer consent is required where the amendment will give same sex spouses more generous benefits than are required by law. Action Schemes should decide what level of benefits they will offer same sex spouses and whether any rule amendments are required as a result. AUTOMATIC ENROLMENT: CARE SCHEMES Regulations have been laid before Parliament that relax the criteria that CARE schemes must satisfy in order to be qualifying schemes for automatic enrolment purposes. The regulations will come into force on 1 April 2014. Action Employers wishing to use a CARE scheme for automatic enrolment should check whether the criteria change will affect their decision. AUTOMATIC ENROLMENT: EXCEPTIONS TO EMPLOYER DUTIES The DWP has confirmed that an exception from the employer automatic enrolment duties will be created for jobholders who: • have registered for tax protection from a lifetime allowance charge; • are on the brink of leaving employment; • have given notice of imminent retirement; or • have recently opted out of scheme membership having been automatically joined via contractual rather than automatic enrolment. Draft regulations will be issued for consultation in due course. Action No action currently required. DC CHARGES: DEVELOPMENTS The Pensions Minister has confirmed that any cap on charges in DC default funds will not be introduced before April 2015. However, the Pensions Bill has been amended to oblige the government to require work-based DC schemes to disclose transaction costs to members. Action No action required. January/February 20142 Bu l l e tin for Pensions M a n a g e r s ABOLITION OF CONTRACTING-OUT: EMPLOYER STATUTORY OVERRIDE POWER The DWP has concluded that the statutory employer override power that will allow employers to amend their schemes to reflect the increased employer NICs cost when contracting-out is abolished will not apply to employees who are subject to the Protected Persons legislation. Action Employers with employees who are protected persons will need to consider whether they wish to make any scheme amendments in respect of such employees and, if so, how they will obtain any necessary employee and trustee consent. VAT RECOVERY: REVISED HMRC GUIDANCE HMRC has published guidance setting out its revised policy on the recovery of VAT in light of last year’s PPG decision. Unfortunately, the position that it sets out is by no means clear. For more information, please see our client alert. Action Employers may wish to take advice on the extent to which their VAT recovery may be affected by HMRC’s revised policy. HMRC: PENSION SCHEMES NEWSLETTER 60 HMRC has published issue 60 of its Pension Schemes Newsletter. Among other things, it includes information on HMRC’s policy with regard to pensions liberation and on the application processes for fixed protection 2014 and individual protection. Action No action required. HMRC: INDIVIDUAL PROTECTION GUIDANCE NOTE HMRC has updated its guidance note on the individual protection regime. Action No action required. REGULATOR: CHANGES TO SCHEME RETURNS The Regulator has updated the scheme return for DB and hybrid schemes to include new questions on, among other things, DC membership, asset-backed contribution arrangements, and incentive exercises. A guide on the new questions is available. Action Those responsible for completing the scheme return may wish to read the guide to familiarise themselves with the new information required. REGULATOR: TOOLS FOR ASSESSING DC GOVERNANCE COMPLIANCE The Regulator has published a template annual governance statement for trustees to use to confirm the extent to which their scheme complies with the requirements of the Regulator’s new code of practice and guidance on DC schemes, and to explain any areas of non-compliance. It is accompanied by an assessment template covering the 31 “quality features” that the Regulator expects DC schemes to possess. Although publication of a governance statement is voluntary, the Regulator expects schemes to “fully embrace this ‘comply or explain’ approach”, and will monitor the take-up and quality of governance statements. Action Schemes should consider whether they wish to publish an annual governance statement and, if so, how they wish to complete it. PPF: RESTRUCTURING AND INSOLVENCY APPROACH The PPF has published an overview of how and why it enters into restructuring/rescue agreements, and summarising the principles that it applies in such cases. Action No action required. PPF & CBI: JOINT GUIDE ON PPF LEVY REDUCTION The PPF and the CBI have published a joint guide on how schemes can reduce their individual PPF levy. Action No action required, but schemes wishing to reduce their levy may find the guide useful.mayer brown 3 PENSION RIGHTS ON TUPE TRANSFERS: GUIDANCE The government has updated its guidance on TUPE to reflect changes in the law since 2009. There is new content on the treatment of pension rights on TUPE transfers, in particular the interaction of TUPE with the automatic enrolment requirements. Action No action required, but employers involved in TUPE transfers may find the revised guidance useful. GUARANTEED MINIMUM PENSIONS INCREASE ORDER 2014 This order will come into force on 6 April 2014 and provides for an increase of 2.7%. Action Schemes should ensure that the correct increase is applied to GMPs. THEMATIC REVIEW OF ANNUITIES MARKET The FCA’s thematic review of the annuities market has concluded that the market is not working well for consumers. The FCA will now undertake a study into retirement income to assess competition and gain an understanding of why consumers do not shop around. Interim findings will be published by the summer with the final report being published within 12 months. The government is considering options for improving the market in light of the review, including the possibility of a one year “cooling-off ” period following an annuity purchase. Action No action required. TRIENNIAL REVIEW OF PENSION BODIES The DWP has published its triennial review of the Regulator, the PPF, the Pensions Ombudsman and TPAS. The review concludes that all four bodies are fit for purpose, but states that a more comprehensive review of the pensions regulatory structure is likely to take place during the next Parliament. Action No action required. PENSIONS LIBERATION: INDUSTRY GROUP An industry group, chaired by Margaret Snowdon, has been set up to combat pensions liberation. It will develop a code of practice to ensure that transfer requests are subject to tighter checks. Action No action required. Pensions finance ASSET-BACKED CONTRIBUTION ARRANGEMENTS: ACCOUNTING AND PPF TREATMENT The FRC has warned companies not to structure asset-backed contribution (ABC) arrangements in a way that transforms the company’s obligation to make future payments to the pension scheme into an equity instrument in the company’s accounts. The FRC is not targeting all ABC arrangements, merely those where companies have reclassified pension liabilities as equity instruments. Action Employers that have entered into ABC arrangements may wish to take advice on the accounting treatment of the arrangement in light of the FRC’s concerns. In addition, the PPF has published new FAQs on the treatment of ABC arrangements for PPF levy purposes. Action No action required. Pensions litigation FORDE & MCHUGH V HMRC: NICS STATUS OF PRE-A DAY PAYMENTS TO FURBS The Supreme Court has held that pre-A Day payments into a funded unapproved retirement benefits scheme (FURBS) were not earnings for NICs purposes, overturning a previous Court of Appeal decision to the contrary.4 Bu l l e tin for Pensions M a n a g e r s INNOSPEC V WALKER: BENEFITS FOR CIVIL PARTNERS The Employment Appeal Tribunal has held that the statutory provision that allows schemes to restrict equal pension benefits for civil partners to post-5 December 2005 service is compatible with EU law, overturning a December 2012 Employment Tribunal decision to the contrary. OMBUDSMAN DETERMINATION – BRADBURY: EMPLOYER DUTIES WHEN CHANGING BENEFITS The Ombudsman has held that an employer’s conduct in seeking to impose a pensionable pay cap via a contractual agreement with employees did not amount to a breach of the employer’s implied duties of trust and confidence and of good faith. According to press reports, both the Ombudsman’s determination and the 2012 High Court decision that related to other grounds of challenge to the employer’s actions will be appealed. OMBUDSMAN DETERMINATION – MCCOY: DEATH BENEFITS AND TRUSTEE DISCHARGES The Ombudsman has held that it was reasonable for trustees to require the recipient of a discretionary death benefit to sign a trustee discharge before paying over the benefit. DEPUTY OMBUDSMAN DETERMINATION – NORMAN: DEADLINE FOR WINDING-UP COMPLETION The Deputy Ombudsman has held that the failure of a scheme’s trustees and administrator to complete the scheme’s winding up seven years after it started amounted to maladministration. The Deputy Ombudsman has reported the failure to the Regulator. OMBUDSMAN: UPDATE ON PENSIONS LIBERATION COMPLAINTS The Ombudsman has published an update on the pensions liberation complaints that it is currently handling. The majority relate to blocked transfers, and the Ombudsman expects to issue determinations in relation to the initial cases that it received in April or May.