1. Money purchase schemes

A recent case in the Supreme Court, Houldsworth and another v Bridge Trustees Ltd and another 2011, held that the current definition of a money purchase scheme under section 181 of the Pension Schemes Act 1993 (PSA) does not require the scheme's assets to be equal to its liabilities. This means that it is possible for a money purchase scheme to have a deficit which will not be protected by the scheme funding legislation or the PPF. The DWP has used the Act to amend section 181 of the PSA to ensure that the definition of a money purchase scheme does require equilibrium between the schemes assets and liabilities. The amendment applies retrospectively from 1 January 1997. The DWP will be consulting on the new definition to ensure that it has achieved the desired result, and has included a power in the Act to amend it if necessary.

  1. Surplus

Where scheme rules permit payment of surplus to an employer while the scheme is ongoing, section 251 of the Pensions Act 2004 requires the trustees of the scheme to pass a resolution to retain that power. The original deadline for this was 6 April 2011, but the Act has extended it to 6 April 2016. The employer and trustees of the scheme wishing to retain such a power will need to take the necessary steps before 6 April 2016. Stephenson Harwood can draft the relevant documentation to allow for the preservation of the power.

  1. State pension

The increase in the state pension age from 65 to 66 has been brought forward to 2020. Women's state pension age will reach age 65 by 2018.

This will affect bridging pensions and could have an impact on scheme funding levels. Schemes should check to see whether the bridging pension is expressly linked to the state pension age. Stephenson Harwood can assist in carrying out this check.

  1. Auto-enrolment

The Act has introduced the following amendments relating to auto-enrolment:

  • A jobholder will be eligible for auto-enrolment only if he earns at least £7,475 a year with the employer.
  • An employer may defer enrolling a jobholder for up to three months from the date the employer first becomes obliged to auto-enrol jobholders; the jobholder starts employment with the employer; or the jobholder first becomes eligible.
  • A cap has been placed on administrative charges levied on active and deferred members.
  1. RPI/CPI

In light of the Government's move towards the Consumer Prices Index (CPI) as the measure of inflation, there was a concern that where scheme rules contained express provisions that the Retail Prices Index (RPI) applied for revaluation or indexation purposes, there may in addition have to be an underpin in the event that CPI ever exceeded RPI.

For schemes with rules that apply RPI increases for revaluation or indexation purposes, the Act has adjusted the legislation to remove this concern.

  1. Pension Protection Fund

The pensions lifeboat known as the PPF, required pension schemes to undergo an assessment period lasting a minimum of 12 months, before the PPF could assume responsibility for the scheme.

The PPF assessment period will no longer have to last 12 months, so the PPF will be able to assume responsibility for pension schemes more quickly.

Further adjustments have been made to the actuarial valuation process which the PPF is required to follow. Stephenson Harwood can provide further details on this, on request.

  1. Pensions Regulator

The Pensions Regulator's power to issue contribution notices and financial support directions, broadly against those that are associated or connected with a defined benefit scheme, include a power for the Regulator to "look back" at historic activity in relation to the employers and the scheme. The "look back" period for a contribution notice is 6 years and for a financial support direction is 2 years. Previously these "look back" periods ended on the date that the Regulator made an actual determination that it was going to exercise its powers to issue a contribution notice or financial support direction in relation to a scheme. The Pensions Act 2011 extends the "look back" period so that it now ends on the date that the Regulator issues a warning notice to the parties explaining why it considers a contribution notice or financial support direction should be issued.