2015 pensions planner ....
In this issue
Your 2015 pensions legal planner….
New DC flexibility: the April 2015
Pension Protection Fund (PPF) levy
management - key dates reminder
Abolition of contracting-out
The Defined Contribution (DC)
landscape: governance and charges
Auto-enrolment: re-enrolment and
Tidying up some loose ends….
Pensions Legal Training 2015
Looking ahead to 2016
Our Annual Seminar - Thursday 29
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
If you wish to discuss any of these
issues further, please contact your
usual Baker & McKenzie lawyer.
Your 2015 pensions legal planner….
With the Government announcing its April 2015 pension changes as the “most
fundamental changes to how people can access their pension savings in
nearly a century”, 2015 promises to be an interesting year for all those
involved in pensions. We have already seen the easing of restrictions around
small pots and cash conversions and preparation is now underway for the
wider changes due to come into force April 2015.
A timeline of key dates during 2015 and into 2016 is attached here.
We set out below a handful of points, including the April 2015 changes, to
assist you with your pensions planning for 2015. A number of the issues may
require plan practice and rules to be revisited and it may be appropriate to do
so as one exercise, rather than piecemeal.
Much of the detailed legislation is still in draft form and we will keep you
updated on key action points and timing via our monthly Updates.
Several important pensions cases are also due to be heard by the Courts
during the year and the run up to the General Election in May is likely to be
see more proposals around pensions provision. We will provide you with
details on these too as they arise.
> Back to Top
New DC flexibility: the April 2015 changes
The new DC flexibilities are planned to come into force at 6 April 2015. From
that date, individuals with DC entitlements will be able to gain full access to
them, as cash, from age 55, taxable at their marginal rate of income tax
(although the 25% tax free lump sum still remains). Annuities may still be
purchased or scheme pensions paid; drawdown will become more flexible too.
The Government's "guidance guarantee" is proposed to assist individuals in
making the best choice for their circumstances. The commutation regime has
already been eased, with limits for taking cash instead of pension increased
and many schemes have addressed those changes already.
With the legislation nearing final form, trustees and employers can turn their
minds to the implications for their pension plans. Whilst, on the face of it, the
changes primarily affect plans with DC liabilities, they are relevant also to
plans with defined benefits. Here are some of the issues that trustees and
employers will need to be considering:
For plans with DC elements: will all or some of the flexibilities be
offered? Whilst the new forms of benefits (essentially the
uncrystallised funds pension lump sum and flexi-access drawdown)
will be authorised payments, there is no statutory requirement for a
plan to provide them. If a DC plan does not offer these flexibilities, the
new transfer rights being introduced under the Pension Schemes Bill
firstname.lastname@example.org Robert West email@example.com Chantal Thompson firstname.lastname@example.org Arron Slocombe email@example.com will give members the right to transfer their benefits to another arrangement that does. Key issues to consider when deciding to what extent to introduce the flexibilities include administration, cost, communication, investment and rule changes. For plans that are primarily DB: does the plan have DC liabilities (e.g. money purchase AVCs) and, if so, to what extent will the flexibilities be offered? Should a non-statutory transfer right be introduced to enable transfers of DB rights to a DC vehicle within 12 months before normal pension age? How will the trustees address the new requirement for member advice before making a transfer from DB to DC? For all plans: are rule amendments necessary to reflect the more relaxed commutation regime? To what extent do trustees of DB or DC plans have a duty to notify members of the new DC flexibilities? Retirement processes and member communications (including signalling the guidance guarantee) will need to be reviewed and adjusted to reflect the new regime. In some areas plan rules will already be drafted widely enough to accommodate the new regime (e.g. trivial commutation provisions); in others, the new legislation will override existing provisions and practices (e.g. the new transfer rights under the Pension Schemes Bill). If introduced, the new flexibilities will have greater ramifications across retirement processes, administration, member communication, investment strategy, transfer processes, member option terms and, inevitably, costs. Trustees and employers will therefore be likely to want to address these issues early in 2015 and to confirm their decisions as the legislation is finalised. > Back to Top Pension Protection Fund (PPF) levy management - key dates reminder The total estimated PPF levy for 2015/16 is £635m, a reduced amount compared with £695m for 2014/15. Key actions and dates for trustees and employers are: Action Deadline Submit Scheme Return on Exchange By 5pm, 31 March 2015 Submit Contingent Asset Certificate or re-certification of a Contingent Asset for existing arrangements (e.g. company guarantees, securities, credit or bank guarantees) on Exchange with hard copy documents as necessary to the PPF By 5pm, 31 March 2015 Asset Backed Contribution Certificate to be sent to PPF By 5pm, 31 March 2015 Mortgage Exclusion ("Officers'") Certificate and supporting evidence to be sent to Experian By 5pm, 31 March 2015 Deficit Reduction Contributions Certificate to be submitted on Exchange By 5pm, 30 April 2015 Deadline to confirm legal advice held By 29 May 2015
on Last Man Standing status to be sent to PPF Certification of full block transfers to be completed on Exchange By 5pm, 30 June 2015 The PPF will take into account information submitted on Exchange by these deadlines in the correct format when calculating a plan's PPF levy. > Back to Top Abolition of contracting-out An item for the agenda this year for all pension plans with salary-related contracted-out liabilities that have not already started to consider the issue, is abolition of contracting-out. For those employers with plans open to accrual, there will be a potentially significant cost consequence when full National Insurance ccontributions automatically become payable in relation to active members at 6 April 2016. Whilst the final legislation is still awaited (and may be deferred to the Summer), it is an issue that employers will need to tackle over the next 12 months, to understand the additional costs involved and the options for mitigating those costs. An overriding statutory power to amend future service benefits will assist employers. Time and planning will be needed to consider the impact of this on costs, benefit design, and the necessary changes to plan rules and practice. For trustees and employers with contracted-out schemes which are either open or closed to accrual, the effect on administration, plan rules and practice will also need to be considered. Whilst the over-riding policy objective is to retain the protections and restrictions that currently apply to accrued contracted-out rights, in some cases issues will arise - for example, where bridging pensions are offered or where State pension offsets are applied to benefits or contributions, how will the new-shape State pension scheme affect benefits that are yet to become payable? An audit of plan rules and practices will identify any action that needs to be taken. Further guidance is still awaited expected from the DWP on GMP equalisation and conversion, another item to watch for the 2015 pensions agenda. We will update you on key action points as the details are published. > Back to Top The Defined Contribution (DC) landscape: governance and charges The increasing focus on DC governance for both trustees and employers is set to continue with a proposed new, streamlined Code of Practice expected from the Pensions Regulator, the introduction of new quality and transparency requirements for all DC arrangements, new Independent Governance Committees for contract-based arrangements and regulation of charges across the board. Here are some of the key points that will need to be addressed: From April 2015:
default investments under a qualifying scheme used for automatic enrolment will be subject to an annual charge cap of 0.75% of funds under management; the practice of re-imposing employers' consultancy charges on members will be banned; trustees of occupational DC schemes will have a host of new duties including ensuring that default investment arrangements are in the best interests of members, that these are reviewed regularly, that transaction costs borne by members are assessed and that core financial transactions are processed properly. Whilst, in practice, many trustees will have these in hand already under existing governance arrangements, a plan audit will be necessary to enable the chair of the trustees to provide the new annual governance statement; contract-based arrangement providers will need to establish Independent Governance Committees to oversee the governance of these arrangements; the short service refund regime will be amended so that, within an occupational DC plan, benefits will vest after 30 days, bringing them into line with contract-based arrangements. > Back to Top Auto-enrolment: re-enrolment and new exemptions As auto-enrolment staging dates apply progressively to smaller and medium-sized employers, auto- enrolment planning and implementation continues. For the larger employers with initial staging dates at the end of 2012, late 2015 will bring with it the triennial re-enrolment obligation. Employers will need to set their re-enrolment date and assess their workforce in the same way as at their original staging date, auto-enrolling eligible jobholders who are not in a qualifying scheme. The Government has been consulting on various exemptions with a view to permitting the exclusion of specified classes of worker from the auto-enrolment requirement. These are eagerly awaited by employers, particularly those with individuals who have fixed or enhanced protection who will otherwise need to be auto-enrolled and then opt out in order to maintain their tax protection. The DWP is consulting on the exclusions with a view to their introduction at 6 April 2015; we will keep you updated by way of our monthly Update. Employers embarking on re-enrolment should also be aware that some easements have been introduced to the auto-enrolment process, including some around pay reference periods and deadlines for some obligations. These have been broadly well received by later staging employers and employers re-enrolling may wish to consider whether any of the easements will assist them. > Back to Top Tidying up some loose ends…. for plans that have not yet provided in their rules for payment of benefits to the surviving spouse of a same sex marriage, this can be added to the house-keeping agenda for review in 2015. As for civil partnerships, there is still a decision to be made with regard to the
provision of benefit for surviving same-sex spouses for service prior to December 2005; new shared parental leave provisions come into effect for employees whose baby is due, or who are adopting a child, on or after 5 April 2015 - plan practice and rules should be reviewed to ensure the required treatment of leave (which broadly reflect the maternity leave requirements); where plans have not done so already, money purchase benefits should be reviewed in order to confirm that they are truly money purchase benefits given the revised statutory definition of "money purchase benefits". This will be relevant to money purchase arrangements with specific features, such as guaranteed interest rates or underpins. Any re-classification of benefits may need to be reported to the Regulator by 31 March 2015, require a statutory funding valuation to be undertaken with an effective date earlier than 24 July 2015 and the PPF to be notified of potential eligibility. > Back to Top Pensions Legal Training 2015 With the new year upon us, we would like to share with you our Pensions Legal Training Programme for 2015. You will see that we have a wide range of sessions available, including our Annual Seminar on 29 January, hot topics for 2015 (the April Budget changes and abolition of contracting-out to name two) and a number of refresher sessions too. Our sessions are designed for pensions managers, scheme secretaries, trustees and employers and a short summary of each session is included in the Programme to help you decide if it is for you or your colleagues. Many of them will assist in addressing the issues to be faced in 2015. Our regular sessions, such as the Annual Seminar, Breakfast Briefings, Think-tanks and Trustee Training events, will be run at our offices as usual. You should automatically receive an invitation to these. All other sessions can be fitted in to your normal business day, say as part of trustee training during the year, at your offices or ours – please contact your usual Baker & McKenzie Pensions contact to discuss further. > Back to Top Looking ahead to 2016 member-borne adviser commission and consultancy charges will be banned under qualifying schemes used for automatic enrolment, as will active member discounts; plans will automatically cease to be contracted-out at 6 April ( see above); the much discussed "pot follows member" may be introduced at October 2016; defined ambition and collective benefits legislation may be finalised and new-style pension arrangements become a reality. > Back to Top
Our Annual Seminar - Thursday 29 January Many of the above topics and more will be considered in our Annual Pensions Seminar on Thursday, 29 January 2015. The seminar will cover: Budget changes: opportunities & challenges; best practice in Trustee decision-making; the changing landscape of DB regulation; and 2014 in review: a case law and Pensions Ombudsman update. To register your interest, please contact firstname.lastname@example.org. Very best wishes for 2015 from the Baker & McKenzie Pensions team > Back to Top Baker & McKenzie International is a Swiss Verein with member law firms around the world. In accordance with the common terminology used in professional service organizations, reference to a "partner" means a person who is a partner, or equivalent, in such a law firm. Similarly, reference to an "office" means an office of any such law firm. Before you send an e-mail to Baker & McKenzie, please be aware that your communications with us through this message will not create a lawyer-client relationship with us. Do not send us any information that you or anyone else considers to be confidential or secret unless we have first agreed to be your lawyers in that matter. Any information you send us before we agree to be your lawyers cannot be protected from disclosure.
If you wish to opt out of these communications, please click here