Pensions Update May 2014 In this issue Pensions Act 2014 introduces legislative changes Consultation on DB contracting-out regulations Portability Directive comes into force Master trust quality assessment Report into failure to comply with auto-enrolment requirements Regulator consults on its regulatory procedures Case highlights importance of correctly executing deeds Pension scheme deficits - Mitigating Risks and Creating Value Through Innovative Solutions This newsletter is for information purposes only. Its contents do not constitute legal advice and should not be regarded as a substitute for detailed advice in individual cases. If you wish to discuss any of these issues further, please contact your usual Baker & McKenzie lawyer. Jeanette Holland email@example.com Robert West firstname.lastname@example.org Chantal Thompson email@example.com Arron Slocombe firstname.lastname@example.org Related Documents Update Apr 14.pdf - 72.8kb Pensions Act 2014 introduces legislative changes The Pensions Bill received Royal Assent on 14 May 2014, to become the Pensions Act 2014. The Act introduces legislation in relation to several areas including: State pension changes – the single-tier pension will be introduced for those who reach the state pension age on or after 6 April 2016. The state pension age will rise from 66 to 67 between 2026 and 2028 (eight years earlier than originally planned). Automatic transfers - introduces the framework to enable the Government’s ‘pot follows member’ proposals. Short service refunds – refunds of employee contributions from an occupational pension scheme will only be permitted if an employee leaves within 30 days of joining the scheme. The date from when the change applies is to be confirmed. Incentive exercises – a power is introduced to prohibit offering incentives to transfer pension rights. Automatic enrolment – revisions to address technical issues in relation to auto-enrolment. PPF compensation cap – measures to restructure PPF compensation so that a higher cap applies to those with long service. Pensions Regulator objective - the new Regulator objective ‘to minimise any adverse impact on the sustainable growth of an employer’. Further information on the Act can be found here. > Back to Top Consultation on DB contracting-out regulations Contracting-out on a salary related/defined benefit ("DB") basis will be abolished from April 2016. The Government previously announced that employers would be given a "statutory override power" that would enable them to adjust their scheme to offset the additional National Insurance contributions arising from the abolition of DB contacting-out. The DWP has issued draft regulations for consultation that set out how the statutory override power would operate. In particular, it sets out how the calculation is carried out that determines the reduction in the benefits of the scheme. For example, it states that the assumptions in the scheme’s Statement of Funding Principles should be used, but that any margin for prudence can be removed and replaced with a best estimate instead.
A copy of the consultation can be viewed here.
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Portability Directive comes into force
The EU Portability Directive, which is intended to protect the pension rights of
workers moving between Member States came into force on 21 May.
Further information on the Directive can be found in last month’s Update,
which can be viewed here.
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Master trust quality assessment
An employer can participate in a master trust, with other employers, rather
than establish its own pension scheme. A framework for the assessment of
defined contribution ("DC") occupational master trusts has been issued. The
framework was produced by the Institute of Chartered Accountants in England
and Wales (ICAEW), and was developed in association with the Pensions
The framework is intended to support trustees of master trusts and advisers
who are engaged to provide independent assurance reports on master trusts’
governance and administration. While the assessment is voluntary, the
Regulator expects schemes to obtain the independent assurance, and it will
publish a list of schemes meeting the requirements for employers and
advisers to use when selecting a scheme.
Further information on the framework can be found here.
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Report into failure to comply with auto-enrolment
The Pensions Regulator (the "Regulator") has issued a report setting out the
failings of Dunelm Soft Furnishings Ltd ("Dunelm") in complying with its autoenrolment
duties. Dunelm failed to enrol employees within the legal
timeframes, and failed to pay across significant pensions contributions. The
problems arose from defects in the payroll system, key members of staff
leaving Dunelm, and data quality issues.
The Regulator's investigation of Dunelm arose from its failure to complete
registration with the Regulator, despite being contacted by the Regulator and
given several opportunities. The report demonstrates that the Regulator
will intervene where it suspects an employer has failed to comply with
Interestingly, despite Dunelm's failures, while notices were issued by the
Regulator requiring payment of unpaid contributions, no penalty or fine was
A copy of the Regulator's report can be viewed here.
> Back to Top Regulator consults on its regulatory procedures Certain decisions are made by the executive arm of the Pensions Regulator rather than the Determinations Panel. Examples include some types of trustee appointment and issuing clearance statements and improve notices. The Regulator has issued a consultation on how such powers are exercised by its staff. The aim is to provide clarity and transparency, so that there is more effective and efficient interaction between Regulator and other parties. The consultation period runs until 27 June 2014. A copy of the consultation document can be viewed here. > Back to Top Case highlights importance of correctly executing deeds In a recent High Court case (Briggs and others v Gleeds) the judge found that 30 deeds between 1991 and 2008 had not been correctly executed. The scheme’s principal employer was a partnership, and the failure in execution was that the partners’ signatures were not witnessed. The consequences of this failure were significant, as it meant that deeds, including changes relating to sex equalisation, the introduction of money purchase sections and the termination of defined benefit accrual, were not effective. The case (Briggs and others v Gleeds) highlights the importance of ensuring that the legal requirements for the execution of deeds are strictly followed. A copy of the case can be viewed here. > Back to Top Pension scheme deficits - Mitigating Risks and Creating Value Through Innovative Solutions We recently hosted a seminar entitled "Mitigating Risks and Creating Value Through Innovative Solutions". This seminar looked at scheme funding risks and explored a number of market solutions and innovations which can be used to mitigate such risks against the backdrop of the current regulatory landscape. The presentations included our recent experience in implementing longevity swaps, buy-outs and asset-backed funding arrangements. The topics covered were: • Pension risk landscape • Buy-outs and insured solutions • Distressed businesses • Longevity risk
• Asset-backed funding If this is of interest to you, the materials can be accessed here. > 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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