UK: A Busy Week in Pensions - Regulator and UK Government Announcements

Last Updated: 15 December 2010
Article by Richard Evans and Jonathan Moody

Originally published 10 December 2010

Keywords: new guidance, incentive exercises, non-statutory pension increases

"MEMBERS' LOSS?" REGULATOR PUBLISHES NEW GUIDANCE ON INCENTIVE EXERCISES

Following several months' consultation, the Pensions Regulator has published new guidance on incentive exercises. This replaces the Regulator's original guidance published in January 2007.

The new guidance is much more bearish than the original guidance, and suggests that trustees should be involved in "policing" incentive exercises. The Regulator thinks it unlikely that an exercise could be a "win-win" for members and employer: "the employer's gain may well be the members' loss".

What is an Incentive Exercise?

An incentive exercise is an arrangement whereby an employer seeks to reduce pension scheme liabilities by persuading members to transfer or modify their benefits. The most common examples are:

  • transfer incentive arrangements – the employer encourages deferred pensioners to transfer out their benefits, for example by offering a top-up to transfer values, or cash payments.
  • pension increase exchanges – the employer offers pensioners the chance to give up non-statutory pension increases in return for an immediate uplift in their pensions.

What Does the New Guidance Say?

The Regulator's main points are as follows.

Trustees should start from the presumption that an incentive exercise will not be in most members' interests.

Fully independent financial advice should be made available to the relevant members, and should be promoted in the strongest possible terms. In almost all circumstances, the exercise should require members to take advice before accepting the employer's offer.

Trustees should engage in the offer process and apply a high level of scrutiny to ensure that members' interests are protected.

The employer's offer should comply with five principles:

  1. it should be clear, fair and not misleading
  2. it should be open and transparent
  3. conflicts of interest should be suitably managed
  4. the trustees should be consulted and their concerns should be addressed
  5. provision should be made for independent financial advice, as mentioned above.

To comply with principle (2), an employer may (for example) need to:

  • explain why the incentive exercise is being proposed
  • summarise the scheme's long-term funding objectives
  • refer members to the guidance.

Where Does this Leave Trustees?

The Regulator reminds trustees that they must comply with any applicable legislation – for example, as to:

  • modification of schemes
  • surrender of benefits
  • member consultation
  • data protection.

But the Regulator's expectations go well beyond this. Trustees are told that they should play an active role in any incentive exercise. This despite the fact that, in many cases, the offer to members will come from the employer – and trustees have not, traditionally, had a duty to "advise or warn".

The key point, in the Regulator's eyes, is that members should be put in a position where they can make free and informed choices. The Regulator acknowledges that final responsibility will then lie with members themselves: "trustees are not expected to make the members' decisions for them".

OTHER DEVELOPMENTS - AN INTRODUCTION

The Government has issued a number of other papers of interest this week. These include:

  • a consultation paper discussing future changes to pensions legislation following the Government's decision to use the Consumer Prices Index to fix the minimum increases to deferred pensions and (certain) pensions in payment;
  • a statement in that consultation paper that, where a scheme's rules governing accrued pensions promise increases based on the Retail Prices Index and do not specifically reserve a power to use another Index, the Government does not intend to give schemes any new powers to change the increases promised;
  • the first revaluation order and the first pension increase order which use the Consumer Prices Index as the measure of inflation;
  • more information about the new £50,000 annual allowance charge for tax purposes, including the detail of the proposed exemption from the charge where a member retires on grounds of "major" ill-health; this exemption will apply only where a doctor has confirmed that the member is unlikely ever to earn more than an "insignificant" level of income;
  • confirmation that the reduction in the "lifetime allowance" on tax-efficient pension saving, from £1.8m to £1.5m, will apply from 6 April 2012;
  • more information about how the reduced lifetime allowance will affect members who opted for so-called primary protection or enhanced protection of the rights they had built up before 6 April 2006;
  • details about the new "frozen" lifetime allowance of £1.8m for members who expect their current pension saving to exceed £1.5m when they come into payment and agree to cease further accrual; and
  • new rules which seem to be intended to create a new tax charge where sums or assets are paid to an unregistered pension scheme, or are used to secure the benefits promised by an unregistered pension scheme.

We will issue further updates on these topics next week.

Learn more about our Pensions practice.

Visit us at www.mayerbrown.com.

Mayer Brown is a global legal services organization comprising legal practices that are separate entities ("Mayer Brown Practices"). The Mayer Brown Practices are: Mayer Brown LLP, a limited liability partnership established in the United States; Mayer Brown International LLP, a limited liability partnership incorporated in England and Wales; and JSM, a Hong Kong partnership, and its associated entities in Asia. The Mayer Brown Practices are known as Mayer Brown JSM in Asia.

This Mayer Brown article provides information and comments on legal issues and developments of interest. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein.

Copyright 2010. Mayer Brown LLP, Mayer Brown International LLP, and/or JSM. All rights reserved.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Topics
 
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions