Summary and implications

On 6 April 2011 the transitional protection put in place on A-Day (6 April 2006) for schemes in existence on that date will fall away. The main effects of the transitional rules are to:

  • Retain a notional earnings cap for contributions and benefits;
  • Retain general rules limiting benefits to former HMRC approval levels;  
  • Impose a general rule that any provision in the scheme rules requiring an unauthorised payment to be made becomes discretionary.  

Many schemes will already have adopted appropriate amendments allowing these provisions to continue indefinitely and, in most cases, building in flexibility to modify or disapply the former HMRC requirements in future. If schemes have not, it is possible that after 5 April 2011 the liabilities of the scheme may be increased as former HMRC limits will no longer apply. Also, trustees may be required by scheme rules to make unauthorised payments with adverse tax consequences for the member and the scheme.  

This could affect most pensions schemes (both DB and DC) including those with active members, those closed to future accrual, schemes in wind up and life-cover only schemes.  

If your scheme has not made any post A-day amendments then it is crucial that they are put in place before 6 April 2011. Please speak to your usual Nabarro contact urgently if you think your scheme may need to take action.