A number of new clauses and amendments have been suggested during the Commons debate on the Pensions Bill on 18 April 2007 (See our December 2006 Update on the Pensions Bill). The Bill has now moved to the Lords for consideration.
The proposed amendments relate to the Financial Assistance Scheme (FAS).
To amend the Pensions Act 2004 (the 2004 Act) to make provision securing that the aggregate amount payable to a qualifying member under the FAS and the member’s actual pension is at least 80% of the member’s expected pension, subject to any compensation cap.
- To commission an independent review of the FAS, in particular having regard to the following matters:
- the efficiency and cost effectiveness of its administration;
- the possibility of the FAS being administered by the Pension Protection Fund (PPF);
- whether it is adequately financed;
- any other potential sources of finance, such as unclaimed assets;
- the possibility of FAS purchasing bulk annuities.
To require the Secretary of State to publish a report no later than 1 April 2008, setting out:
- the Government's response to the Parliamentary Ombudsman’s report "Trusting in the pensions promise", the judicial review and the ECJ ruling that followed;
- estimates of the cost of extending the provisions of PPF benefits to all potential FAS members; and
- plans to pay fair compensation to those who have lost their occupational pensions.
- To extend the pension compensation provisions set out in Schedule 7 of the 2004 Act (which currently apply where the PPF assumes responsibility for an eligible scheme) to the payments made to qualifying members, that is members of qualifying pension schemes which have insufficient assets. To provide that references to the Board of PPF shall be read as references to the scheme manager.
- To extend the definition of a "qualifying pension scheme" for FAS purposes so that schemes wound up in the absence of an insolvency event are included.
- To omit subsections (6) and (7) of section 286 of the 2004 Act. These subsections provide that a member’s income or capital are to be taken into account when determining the amount of compensation payable to him.
- To provide that the FAS is administered by the Board of the PPF instead of the Secretary of State.
- To relax the requirements of the Financial Assistance Scheme Regulations 2005 that a scheme must satisfy in order to be considered a "qualifying pension scheme". To remove the conditions that must be satisfied by an employer.
- To establish a Pension Protection Lifeboat Fund (the Fund) which shall be administered by the PPF. The purpose of the Fund will be to make supplementary payments to the qualifying members of qualifying schemes under the FAS. The amount of such payments will be such as to ensure that the aggregate amount payable to a member under the FAS, from his own pension and from the Fund, is the same as the amount that would be payable to him if his scheme was accepted into the PPF.
- To establish a new body called the Pensions Unclaimed Assets Recovery Agency (the Agency). The members of the Agency will be appointed by the Secretary of State and their expenses will be covered by the Secretary of State. The functions of the Agency will be to obtain information from any person that carries on a business in the UK about such classes of unclaimed assets as the Secretary of State may prescribe by regulations. View the proposed amendments
The Government publishes the Pensions (Unclaimed Assets) Bill
The Government has published a bill proposing to establish a new body called the Unclaimed Assets Agency (the Agency). The Agency will report to the Treasury and will consist of six to twelve members, appointed by the Treasury. The Agency’s main functions will be obtaining information about unclaimed assets from banks and building societies and passing this information to the Treasury.
The Treasury will establish a scheme whereby some of the unclaimed assets will be transferred to the Agency, for further distribution among certain members of occupational pension schemes. The scheme will be administered by the Agency.
The Agency will have powers to require banks and building societies to provide the relevant information within the specified time. Any person who fails without reasonable excuse to supply such information will be subject to penalties.
View the Pensions (Unclaimed Assets) Bill (79,364 bytes)
HMRC newsletter: electronic filing mandatory
From 16 October 2007 it will be mandatory for pension schemes to file certain information with HMRC electronically and in the prescribed format. The HMRC Pensions Tax Simplification Newsletter No 27 explains the new process and provides guidance on to how to navigate around the system. HMRC has published a list of most frequently asked questions on its website.
View HMRC newsletter 27
Revised guidance for PPF valuations
The PPF has revised its valuation guidance to be used to determine the level of scheme funding and the level of scheme underfunding under the 2004 Act. The purpose of these valuations is to set the risk based pension protection levy and to determine whether the PPF should assume responsibility for a scheme. One of the changes is to bring the definition of normal pension age in line with the definition that would apply on entry into the PPF.
View Valuation Guidance
DWP publishes customer survey
DWP has published the findings of a survey conducted among the customers who contacted the International Pension Centre (IPC) in 2006. 87% of the customers were satisfied with the service overall. The survey highlighted that the helpfulness of IPC staff was the best thing about the service, while the speed was the main area for improvement. The one service element that customers considered most important was “providing accurate information”. While this was not IPC’s best performing element, it was not a problem area either.
View DWP press release
FSA to regulate personal pensions
As of 6 April 2007, the operation of personal pension schemes has been regulated by the Financial Services Authority (FSA). The change is designed to increase consumer protection. The new rules will primarily affect firms operating Self-Invested Personal Pensions (SIPPs), which have not so far been regulated by the FSA. Most other firms offering pension products are already subject to some form of FSA regulation.
It is expected that a small number of existing SIPP providers may discontinue their schemes, but new providers will be entering the market in the near future. Switching operators or setting up replacement schemes will have tax consequences for SIPP scheme members. HMRC and the Treasury will be monitoring the industry to identify any tax issues.
View HMRC newsletter 26
HMRC publishes Scheme Administrator helpsheet
HMRC has published on its website a helpsheet designed to help scheme administrators to understand their role and responsibilities. The document contains key facts and is aimed at those scheme administrators who have only limited knowledge of the pensions industry. More detailed information may be found in the Registered Pension Schemes Manual, also available from HMRC website.
View HMRC helpsheet (58,920 bytes)
NAPF calls on trustees to help with the Myners Principles research
NAPF has been asked by the Treasury to carry out research on how pension funds comply with the Myners Principles (the Principles). The Government will use the results of the research to formulate its policy and possibly to introduce new legislation to ensure compliance with the Principles. The research will include telephone interviews of trustees to obtain as wide a range of view as possible. NAPF has appealed to all trustees to help in the research.
ACA proposes a "third way" through risk sharing
The Association of Consulting Actuaries (ACA) has submitted its response to the Deregulatory Review (see our March 2007 Update)
In its submission ACA argues that fundamental changes are needed and the way forward for occupational pension schemes is to introduce a new category of shared risk schemes, to fit in between the existing categories of defined benefit and defined contribution schemes.
The benefits under such a pension would be based on the member’s average pensionable earnings during the period of scheme membership, as opposed to his pensionable earnings at retirement, as is the case in a final salary scheme.
The main attraction of a shared risk scheme for the employers would be having greater control over their pension costs than is possible in the case of defined benefit schemes. The employees would enjoy a more stable benefit than is possible with defined contribution schemes.
The new schemes would benefit from the safeguards of the PPF and would be overseen by the Pensions Regulator. According to the submission paper, only small changes to the existing pensions legislation would be required to introduce the new scheme.
View ACA submission
NAPF submission to the Deregulatory Review
In its submission to the Deregulatory Review the NAPF argues that the regulatory regime for private pensions needs to be simpler and easier to understand. The system should offer employers greater flexibility as to scheme design. Three issues have been highlighted as priorities:
- schemes should have flexibility to make adjustments to the normal pension age in line with increases in life expectancy for past and future service;
- defined benefit schemes should have greater flexibility to make adjustments to deferred pensions in respect of future leavers; and
- indexation (LPI) for future accruals should be granted on a discretionary basis only, subject to indexation of pensions in payment having a priority right to any surplus.