Pensions news

AMENDING CONTRACTED-OUT RIGHTS AND BULK TRANSFERS

Regulations which came into force on 6 April 2013 introduce new requirements which must be satisfied when amending accrued post-1997 contracted-out rights. They also clarify that the existing requirement for actuarial confirmation applies only so far as an amendment will affect contracted-out rights building up in future.

The regulations also allow bulk transfers without consent to schemes which have ceased to contract out, and to certain European pension schemes.

For more information, please see our client alert.

Action

When amending a scheme which holds post-1997 contracted-out rights, ensure that the new requirements are met.

Action

Consider whether any scheme mergers which have been put on hold because the receiving scheme had ceased to contract out should now go ahead.

INTERIM RESPONSE TO GMP EQUALISATION CONSULTATION

The DWP has published an interim response to its 2012 consultation on GMP equalisation. The interim response confirms that the DWP plans to go ahead with legislation requiring GMPs to be equalised, but will not do so immediately.

The DWP is also considering how to make equalisation easier for schemes, including the possibility of issuing statutory guidance on GMP conversion.

A full consultation response will be published at a later date.

Action

No action currently required.

BUDGET 2013

The Budget 2013 contained the following new pensions-related announcements:

  • The single tier state pension (and the consequential abolition of DB contracting-out) will be introduced in 2016 – a year earlier than originally proposed.
  • The Pensions Regulator will be given a new statutory objective to "support scheme funding arrangements that are compatible with sustainable growth for the sponsoring employer and fully consistent with the 2004 funding legislation".
  • The Government also recently consulted on a new growth duty for non-economic regulators and, depending on the results of that consultation, is "attracted" to applying that duty to the Regulator.
  • The Government will not pursue its proposal of introducing asset and liability smoothing for scheme valuations.

The Budget also confirmed a number of measures announced in the 2012 Autumn Statement.

Action

Contracted-out schemes should note that the abolition of contracting-out has been brought forward to 2016.

FINANCE BILL 2013

The pensions-related content of the Bill includes provisions to:

  • restrict the terms of the employee’s income tax exemption on employer pension contributions so that it only applies where the contributions are made to the employee’s own pension arrangements rather than arrangements for the benefit of the employee’s family member;
  • reduce the lifetime allowance to £1.25m and the annual allowance (“AA”) to £40,000 from 6 April 2014;
  • increase the capped drawdown limit to 120% of an equivalent annuity with effect from 26 March 2013;
  • allow bridging pensions to be paid to the later of age 65 and the member’s state pension age; and
  • set out the fixed protection regime which will apply to the 2014 reduction in the lifetime allowance.  

Action  

Check whether employer contributions made in respect of any employees will now fall outside the income tax exemption.  

Action  

Note that the reduced AA will affect pension input periods beginning on or after 7 April 2013.  

Action  

Consider reviewing schemes for particular features which could cause members to breach the reduced AA.  

Action  

Where arrangements have been made, contractually or by rule amendment, to cap accrual to prevent the AA being exceeded, review the terms of those arrangements. Consider whether such arrangements should be extended to other members and what communications should be made about them.  

Action  

Ensure that the new capped drawdown limit is applied.  

PUBLIC TAKEOVERS: TRUSTEES TO RECEIVE INFORMATION

The Takeover Panel has confirmed that the Takeover Code will be amended to require information on public takeovers to be provided to the trustees of the target’s DB pension scheme(s). The amendments take effect from 20 May 2013.  

For more information, please see our client alert.  

Action  

Companies planning public takeovers will need to ensure that they comply with the new requirements.  

Action  

Trustees of schemes with a listed sponsoring employer should be aware of their new rights under the Code if the employer becomes the subject of a takeover.  

PENSIONS LIBERATION  

The Pensions Regulator has published an e-learning tool for trustees and administrators on pensions liberation fraud.  

In addition, HMRC has added a section to its online Pension Schemes guidance dealing with pensions liberation. The guidance is designed for members considering a transfer.  

Action  

Consider using the e-learning tool to learn more about pensions liberation.  

Action  

Consider telling members who request a transfer about the HMRC guidance.  

AUTOMATIC TRANSFER OF SMALL DC POTS  

The DWP has published a command paper with further details of its proposed system for the automatic transfer of small DC pension pots. The command paper is not a consultation, but the DWP plans to consult in due course on draft regulations implementing the regime. The legal framework for the system will be created by the Pensions Bill 2013.  

Action  

No action currently required. 

AUTOMATIC ENROLMENT

The DWP has issued a consultation on proposed technical changes to the automatic enrolment legislation. The changes are intended to make automatic enrolment easier to administer. The consultation closed on 7 May 2013.

In addition, the Pensions Regulator has published updated versions of its detailed automatic enrolment guidance 3 (Assessing the workforce), 3a (Postponement) and 4 (Pension schemes).

Action

No action required.

RED TAPE CHALLENGE RESULTS ANNOUNCED

The DWP has announced the actions that it plans to take in relation to private pensions following the Red Tape Challenge. Among other things, the DWP intends to continue:

  • examining whether indexation for future accruals should be discretionary; and
  • considering how to improve the employer debt regime for charities and other multi-employer schemes.

Action

No action required.

REGULATOR INVESTIGATION INTO POSSIBLE FSDS

Guinness Peat Group plc, an international investment holding company, has announced that the Pensions Regulator is investigating whether financial support directions should be issued in respect of two of its UK pension schemes.

Action

No action required.

Pensions finance

UK CHALLENGES FINANCIAL TRANSACTION TAX

The Government has launched a legal challenge at the Court of Justice of the European Union to the financial transaction tax that 11 EU states are proposing to introduce.

Action

No action required.

EU PENSION FUNDING REFORM: PRELIMINARY RESULTS OF IMPACT STUDY

The preliminary results of a 2012 impact study on proposed new European rules on scheme funding have been published. The results show that, for the benchmark scenario, the aggregate funding shortfall in UK schemes would increase by around £150 billion. Other scenarios also considered in the study would result, in the main, in a lower funding shortfall.

In light of the preliminary results, the Pensions Minister, Steve Webb MP, has urged the EC to abandon its plans to impose the proposed new funding requirements.

Action

No action required.

Pensions litigation

WHEELS COMMON INVESTMENT FUND TRUSTEES LTD AND OTHERS V HMRC [2013]

The Court of Justice of the European Union (CJEU) has released its decision in the "Wheels" case. The CJEU held that investment management services supplied to DB schemes (and associated common investment funds) are not exempt from VAT (unlike investment management services provided to collective investment funds which are exempt from VAT).

The CJEU’s decision expressly relates only to DB schemes, and it is possible (but not certain) that the CJEU would take a different approach in relation to DC schemes.

For more information, please see our client alert.

Action

No action required.