In a welcome development which will be of interest to all schemes providing defined benefits, it has been announced that the implementation of the revised statutory definition of “money purchase benefits” is to be delayed until July 2014.
The revised definition is to be introduced under section 29 of the Pensions Act 2011 and will ensure that any benefits in respect of which a funding deficit may arise cannot be considered “money purchase benefits”. The proposed implementation date for the regulations was originally 6 April 2014, but given the length and complexity of the proposed changes, this date was always seen as extremely tight.
In addition, the retrospective effect of many of the regulatory provisions had the potential to inflict far-reaching difficulties for occupational schemes. The statement confirms that transitional protection will be provided in respect of events occurring between 1 January 1997 and the date the regulations come into force.
In our November 2013 briefing, we examined in detail draft transitional regulations relating to the revised definition of “money purchase benefits” which had been issued for consultation by the Department for Work and Pensions (DWP).
The draft regulations were issued following the decision of the Supreme Court in Houldsworth and another v Bridge Trustees Limited and another (2011) (Bridge). Broadly, the DWP sought to negate the Supreme Court’s ruling in that case, so that the term “money purchase benefits” would in future refer only to benefits where there is no risk of a funding deficit. The intention of the regulations was to impose the amended definition with retrospective effect from 1 January 1997, with the result that some benefits previously considered to be money purchase would be re-classified as defined benefit. This raised concerns that schemes could have been compelled to re-open historic matters, with considerable disruption and cost.
On 3 April 2014, pensions minister, Steve Webb, announced in a written parliamentary statement that the implementation date is to be put back to July 2014. In addition, transitional protection will be provided in respect of events occurring between 1 January 1997 and the date the regulations come into force. The DWP had initially planned to distinguish between events that took place before and after 27 July 2011, the date of the Bridge decision.
The regulations are to be laid before Parliament “in due course”, along with the DWP’s response to the consultation, at which point we will report further.
This announcement is welcome, as it means the final form of the regulations is likely to be shorter and simpler. It appears that trustees and administrators will no longer be compelled to go down the route of re-examination and possible re-opening of past transactions, which will mean huge savings in cost and effort. However, until the regulations are available in their final form, their full extent cannot be confirmed.
A simpler course of action in 2013, when the draft regulations were published for consultation, would have been for the DWP to propose the implementation of the new definition for money purchase benefits from July 2014, instead of attempting to backdate the definition to 1997 with limited exemptions.