In this issue Same sex marriage developments DWP confirms "protected persons" exempt from statutory override in relation to abolition of DB contracting-out HMRC updates guidance on Individual Protection 2014 DWP publishes response on exceptions to employer auto-enrolment duties Auto-enrolment qualifying criteria changes for career average schemes Pensions Regulator expects DC schemes to publish governance statements HMRC withdraws policy on deduction of VAT on pension fund management costs High Court holds that notice to members equalising benefits effective to amend subsequent trust deed and rules HMRC confirms new process to combat pension liberation
Same sex marriage developments
As noted in our 2014 Pensions Planner, the majority of the provisions of the Marriage (Same Sex Couples) Act 2013 will come into force next month (the relevant date has now been confirmed as 13 March 2014). There have been two interesting developments in this area this month:
• Walker v Innospec appeal decided
The Employment Appeal Tribunal has ruled in the appeal against the Employment Tribunal's earlier ruling in the case of Walker v Innospec. The EAT ruled that pension schemes are entitled to limit dependants' benefits in respect of civil partners by reference to service after 5 December 2005.
However, trustees and employers should be aware that the Secretary of State is to undertake a review of the difference in treatment under occupational pension schemes between civil partners / same sex married couples and married couples of the opposite sex. This report will consider whether to make changes to eliminate or reduce any difference in treatment. Therefore, trustees and employers need to continue to monitor developments in this area.
• Trustees given statutory modification power to amend rules
As part of the legislative changes to implement same sex marriage, the Government has introduced a power to allow trustees to modify their schemes by resolution in order to provide for pension payments to a same sex spouse. Any such modification would not infringe Section 67 of the Pensions Act 1995 (which, broadly, prevents rule amendments that would or may detrimentally affect a member's accrued pension rights), and would not require employer consent (unless the modification provides benefits in excess of those required under the legislation). > Back to Top
DWP confirms "protected persons" exempt from statutory override in relation to abolition of DB contracting-out
In order to offset the costs of increased National Insurance contributions for which employers will be liable as a result of the end of DB contracting-out, the current Pensions Bill includes a statutory "override" to allow employers to change pension scheme benefits without trustee consent.
This newsletter is for information purposes only. Its contents do not constitute legal advice and should not be regarded as a substitute for detailed advice in individual cases.
If you wish to discuss any of these issues further, please contact your usual Baker & McKenzie lawyer.
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In a recent consultation, the Government confirmed that the statutory override legislation will not automatically affect "protected persons", meaning that such members will not be affected by changes made to their pension arrangements pursuant to the statutory override. Broadly, protected persons are members of private sector schemes previously entitled to benefits under nationalised industry pension schemes, such as electricity, coal and railways.
The consultation can be viewed by clicking here. > Back to Top
HMRC updates guidance on Individual Protection 2014
HMRC has updated its guidance on Individual Protection 2014, which is a new form of personalised protection from the lifetime allowance charge to be introduced from April 2014 for individuals with pension rights that exceed £1.25m on 5 April 2014. The lifetime allowance reduces to £1.25m from 6 April 2014.
The guidance was first published in December 2013. The updated version of the guidance can be viewed by clicking here. > Back to Top
DWP publishes response on exceptions to employer auto-enrolment duties
The Department for Work and Pensions ("DWP") has published a consultation response on the exemption of certain categories of workers from the scope of auto-enrolment.
The DWP states in its response that it wishes to provide employers with flexibility, so that in a limited number of situations, which affect only a small number of workers, employers will not be obliged to go through the process of auto-enrolment. The areas identified for change by the DWP include workers who:
• have tax protected status for existing pension savings (for example, enhanced or fixed protection);
• are about to leave employment;
• have given notice of imminent retirement; and/or
• have recently cancelled pensions membership after having been enrolled contractually.
The areas where the DWP considered that exceptions should not be provided included where an individual was in serious ill-health and in respect of certain new starters or short-term/casual hires.
The next step is for the DWP to develop the proposals into workable exceptions (in particular, where an employer may not know about an
individual's circumstances) and then prepare a final consultation and regulations. No timescale has been indicated.
The response can be viewed by clicking here. > Back to Top
Auto-enrolment qualifying criteria changes for career average schemes
Regulations have been laid before Parliament to relax the criteria in relation to whether a career-average revalued earnings scheme ("CARE scheme") will constitute a qualifying scheme for auto-enrolment purposes.
Currently, a CARE scheme will only count as a qualifying scheme if it revalues benefits at a rate that is equal to or above a "minimum rate", which is a rate equal to the lesser of the annual increase in RPI, the annual increase in the general level of prices and 2.5%. A CARE scheme which revalues benefits on a discretionary basis can also be a qualifying scheme if the scheme's funding reflects the "minimum rate" and this is recorded in the formal funding documents.
Under the amending regulations, further flexibility is being introduced so that CARE schemes whose rules specify a revaluation rate below the "minimum rate" can be a qualifying scheme if the funding of the scheme is based on the assumption that revaluation will be applied at or above the "minimum rate" and the formal funding documentation in place reflects this.
The regulations can be viewed by clicking here. > Back to Top
Pensions Regulator expects DC schemes to publish governance statements
The Regulator has issued a statement stating that it expects trustees of occupational defined contribution ("DC") schemes to publish an annual governance statement, which should be easily available to members and employers. The Regulator recommends publishing the statement in the scheme's annual report and accounts or on a scheme website.
The Regulator has published a standardised governance statement, as a guide. This confirms that the scheme is complying with the requirements of the Regulator's DC code of practice and guidance published in November 2013 (in particular, that it exhibits the "quality features" set out by the Regulator). Alternatively, the governance statement should explain why the scheme has adopted a different approach where a quality feature is absent or only partly in place. As an additional tool for trustees, the Regulator has also published a template to enable trustees to assess their scheme against the specified DC quality features.
The Regulator's statement, with links to the various templates, can be viewed by clicking here. > Back to Top
HMRC withdraws policy on deduction of VAT on pension fund management costs
Following the decision in the case of PPG Holdings BV by the ECJ, HMRC has withdrawn its existing policy under which it considers investment management costs as relating solely to the activities of a pension scheme.
This means that employers may now be entitled to deduct VAT on some pension fund investment management activities as general costs. However, HMRC has confirmed that it will not allow VAT to be deducted by an employer where the services were not provided to the employer and where the supply was limited to investment management services only (i.e. it was not a combined supply of both investment management and pension administration services). As transitional arrangements will apply for six months, employers who pay for combined administration and investment management services provided to their pension scheme, should check the terms of HMRC policy carefully.
The announcement can be viewed by clicking here. > Back to Top
High Court holds that notice to members equalising benefits effective to amend subsequent trust deed and rules
The High Court has ruled, in the case of Vaitkus and others v Dresser-Rand UK Ltd and another, that a notice issued to female members in 1991 was effective to equalise the pension scheme's normal retirement age to age 65 for both male and female members. This was despite a conflicting provision in a subsequent trust deed and rules executed in 1992.
The case was quite specific to its facts: the judge found that the 1991 announcement constituted a valid amendment to the pension scheme rules in accordance with the interim deed in place in 1988, and that, as provisions of the later 1992 trust deed and rules artificially backdated their effective date to the date of the interim deed, the terms of the announcement were not overridden by the contrary provisions in the 1992 trust deed and rules.
This case comes in a long line of cases dealing with equalisation approaches in the early 1990s is an example of where equalisation was deemed to be effective. > Back to Top
HMRC confirms new process for pension scheme registration to combat pension liberation
In a recent newsletter, HMRC has provided information about how its efforts to combat pensions liberation are working. This follows the changes made in October 2013 to strengthen existing processes, both in terms of how new applications to register pension schemes are dealt with and how requests for information about the tax status of a receiving scheme for a proposed transfer are addressed.
The key points noted by HRMC in its recent newsletter:
• On receipt of a new application for a pension scheme registration, HMRC will review the application to make a decision on whether or not to register the pension scheme (previously, the process was automatic). HMRC may well then request further information to help it make its decision, and the application will be rejected if the information is not received within 45 days.
• Although too early to give a definitive indication, applications for registration over the period from 21 October 2013 to 30 January 2014 have dropped by nearly a half.
• In relation to pension scheme transfers, HMRC will respond to requests for confirmation of the registration status without seeking consent from the receiving scheme. However, HMRC notes that it will only confirm registered status if its information indicates that there is not a significant risk that the scheme was set up, or is being used, to facilitate pension liberation.
• Any suspected pensions liberation cases should be notified to HMRC, which may lead HMRC to de-register the pension scheme. > Back to Top
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