On October 4, 2012 the Department for Work and Pensions issued a consultation on draft amendments to several sets of pension regulations, contained in the Occupational Pension Schemes (Miscellaneous Amendments No.2) Regulations 2013 (the "Draft Regulations").
The Draft Regulations make various technical changes in relation to indexation as a consequence of the switch to CPI, and also introduce a limited new power for trustees of schemes which provide bridging pensions to modify their scheme's rules to take account of the impact of changes to State Pension Age.
The following changes are proposed in relation to the switch to CPI:
- The Draft Regulations amend the Occupational Pension Schemes (Transfer Values) Regulations 1996 (the "Transfer Value Regulations") by removing direct references to "RPI" and inserting instead references to "the general level of prices". This amendment will ensure that pre-1986 leavers who were not previously entitled to a cash equivalent transfer do not gain this right as a result of the member's scheme moving to CPI. The Transfer Value Regulations provide that pre-1986 leavers who are entitled to uncapped revaluation by reference to RPI are excluded from the right to a cash equivalent transfer value.
- Two changes are proposed in relation to benefits derived from pension credits:
- to permit schemes which have paid RPI-based increases for pension credit benefits to continue to do so without tracking CPI levels as well, and also to clarify which of the two percentages in the relevant revaluation order should be used in which circumstances; and
- to abolish the requirement for annuities bought with cash balance benefits, which derive from pension credit benefits, to provide Limited Price Indexation. This change brings pension credit benefits held in a cash balance scheme into line with the position on cash balance benefits generally.
In addition, the following change is proposed in relation to bridging pensions:
- to amend the Occupational Pension Schemes (Modification of Schemes) Regulations 2006 to introduce a limited new power for trustees to modify the terms of any bridging pensions offered under a scheme in light of the changes in State Pension Age. There is no obligation on trustees to modify their scheme if they do not wish to do so. The power is limited and is not intended to allow trustees to make wider or general changes.
The consultation on the Draft Regulations closes on 14 November 2012.
On a related note, the publication of the Draft Regulations coincides with the Office of National Statistics' ("ONS") separate consultation paper on changing the method of calculating RPI. The consultation closes on 30 November 2012.