On 6 April 2011, the five year transitional regulations that continue to apply the pre-A day (6 April 2006) HMRC limits to the benefits payable to members of occupational pension schemes come to an end.
The potential effects of these limits ceasing to apply include:
- The cap on post-1989 joiners' pensionable earnings ceasing to apply (on past and future service).
- Long-serving employees becoming entitled to a pension of more than two thirds of final pensionable salary.
- Retained benefits in other schemes not being taken into account in calculating pensions.
- Trustees being obliged to make unauthorised payments, exposing the scheme and members to adverse tax treatment.
- Trustees not being allowed to recover lifetime allowance charges from members' benefits.
Schemes that currently rely on the regulations to limit benefits should consider changing their rules by 5 April 2011 if they wish to continue to limit benefits. Schemes not making a change risk members enjoying a windfall benefit increase and scheme liabilities increasing.