1. Contracting-out Abolition
Regulations are expected to come into force this Autumn giving employers the power to amend pension plan rules (without trustee consent) to reduce future benefit accrual and/or increase member contributions to offset the employer’s NI increase when DB contracting-out is abolished in April 2016. Trustees will have a duty to provide information to employers and have a vested interest in ensuring that processes for amendments, communications and administration are followed correctly – they should be up to speed on this issue and ready to enter into dialogue with employers.
The PPF has consulted on the rules to apply for the levy years 2015/16 – 2017/18. We await the consultation response for the full picture but we now have a clearer idea of the PPF’s intentions, and further details of the new insolvency risk model to be used from 31 October 2014. Many DB employers will find that their risk score is different under the new model – in some cases it may be significantly worse. Trustees should access and check the information held on the online portal concerning their sponsoring employers and other levy data.
3. Defined Ambition Developments
The Government has clarified its view that ‘defined ambition’ pension plans will take the form of DC plans with some form of guarantee during the accumulation stage. The legal framework for defined ambition, and also for Collective DC arrangements, is set out in the Pension Schemes Bill 2014/2015 but the detail will be provided in subsequent regulations. The Government decided not to proceed with the ‘DB lite’ form of defined ambition that would have involved relaxing some of the statutory restrictions on the accrual of future DB benefits.
4. Short Service Benefits
From a date yet to be announced (but expected to be this year), members who have pure DC benefits in an occupational pension plan will be entitled to short service benefits after 30 days’ relevant service. Members with more than 29 days’ service will no longer be eligible for a refund of contributions. The change applies to new members joining the pension plan after the provisions come into force. Trustees will need to ensure that administration procedures and member communications are updated, and that their pension plan rules conform with preservation requirements.