UK: Pensions Update - January 2012

Last Updated: 16 January 2012
Article by Caoimhe O'Neill and Michael Jones

Flexible Apportionment Arrangements are on the way!

Amendments to the Employer Debt Regulations introducing Flexible Apportionment Arrangements ("FAA") were laid before Parliament on 15 December. They are due to take effect from 27 January 2012.

The amended legislation follows the Government's consultation on FAAs which was reported in our June newsletter. As we discussed then an FAA can be used where: the funding test is met; all of the pensions liabilities of the "leaving" employer are reapportioned to another employer or employers "staying" in the scheme; the trustees and the employers who are parties to the FAA agree; and, where an employment-cessation event has already occurred, no part of the debt must have been paid.

These remain the requirements for an FAA. However, changes from the initial legislation include allowing a cessation employer the option to make a partial payment of Section 75 and FAAs will become a notifiable event. The issue of cessation arrangements for charities/not-for-profit organisations or for non-associated employers is still not addressed despite our writing to the DWP specifically pointing out the issues. Revised Pensions Regulator guidance dealing with FAA is expected next year.

The grace period (during which no debt is triggered if the employer intends to employ another active member) is to be extended from 12 to 36 months. However, the extension beyond 12 months is only with trustee consent, if trustees have concerns about the employer's financial circumstances.

The Government confirmed that the existing "scheme apportionment arrangements" and "regulated apportionment arrangements" are being retained. However, to apportion liabilities, (rather than fixed or floating amounts of debt), the Government is of the view that only an FAA is appropriate.

An FAA is a welcome addition to the options available to corporate groups looking to restructure their business without triggering unnecessary debts. From the trustee perspective, as consent is required, they will retain control over their use.

Useful links

A copy of the Government's response can be found at: http://www.dwp.gov.uk/docs/employer-debt-consultation-response.pdf

Auto Enrolment changes

The DWP has published its consultation paper entitled "Automatic Enrolment Earnings Thresholds Review and Revision 2012/2013".

As you will be aware, from October 2012 the phasing in of the requirement for all employers to auto-enrol eligible employees into pension scheme commences. There are two relevant financial triggers involved in the process: (i) the auto enrolment earnings threshold, which is relevant as to the annual earnings an employee must have to be caught by auto enrolment, and; (ii) the qualifying earnings band, being the band of earnings on which contributions are calculated.

Originally the auto enrolment earnings trigger was set at £7,475 and the qualifying earnings band was between £5,035 and £33,540. The Government has a duty to review these figures annually, taking into account various factors. The consultation asks whether the auto enrolment earnings trigger (£7,475) should be linked to: the PAYE personal tax threshold (£8,105 for 2012/13), the NI primary threshold (£7,605 for 2012/13) or the CPI increase on the original figure (£7,864 for 2012/13) or any other factors.

In looking at the qualifying earnings band the Government is asking whether the lower limit should continue to be calculated by reference to the minimum threshold for NICs and the upper limit set by reference to the NIC upper limit in 2008 and then revalued by rise in average earnings (as recommended by the Making Automatic Enrolment Work review) or other factors. In particular, for the lower level the Government are considering taking the £5,035 figure and increasing/replacing it with: the rise in NIC lower limits (£5,564 for 2012/13); NIC paid contributions for basic state pension (£7,605 for 2012/13); the rise in average earnings (£5,983 for 2012/13) or; CPI rises (£6,055 for 2012/13).

For the upper limit they are looking at: the actual NIC upper limit (£42,475 for 2012/13); or increasing the £33,540 figure by either: the rise in average earnings (£39,853 for 2012/13) or CPI (£42,332 for 2012/13).

The consultation looks at the impact of all these options on employer and employee costs. The Governments recommendations are: an auto enrolment earnings trigger of £8,105 (i.e. the actual PAYE tax threshold) and; a qualifying earnings band of £5,564 (actual NIC lower limit) to £39,853 (i.e. the rise in average earnings). These figures would then increase each year.

Having a known increase mechanism would at least give employers some degree of certainty. Whether the increase mechanisms being considered are appropriate is a point for consultation. The consultation runs until 26 January 2012.

Useful links

A copy of the consultation can be found at: http://www.dwp.gov.uk/consultations/2011/auto-enrolment-revaluation.shtml

HMRC make changes to reduced annual allowance and carry forward provisions

HMRC have announced changes relating to the reduced annual allowance and the three-year carry forward provisions for 2008/9, 2009/10 and 2010/11. This will allow some individuals a short-term opportunity to make higher pensions contributions for 2011/12, and possibly 2012/13, without triggering an annual allowance charge.

This change will be particularly relevant to employees who want to make full use of their carry forward, especially those planning to register for the new fixed protection from 6 April 2012 and who therefore only have until 5 April 2012 to make further pension contributions, or to employers who have made special arrangements to restrict pension contributions for certain employees to avoid triggering annual allowance charges.

Useful links

A copy of the technical guidance can be found at: http://www.hmrc.gov.uk/manuals/rpsmmanual/RPSM06108030.htm

How will it work?

Individuals are allowed to carry forward unused allowance from the previous three years to add to the standard annual allowance of £50,000. The HMRC policy for 2011/12 was previously that if there is unused relief in an earlier year but in a year between then and now the pension input amount exceeded £50,000 then the excess contribution above the £50,000 would eat up part or all of the unused annual allowance being carried forward. The effect was to reduce the amount of unused annual allowance that survived to be available for use in 2011/12.

Since there was no such charge on accrual between £50,000 and £255,000 over the tax years 2008/09, 2009/10 and 2010/11, it has been argued that unused relief is not used up by contributions over £50,000 for these particular tax years. The result is that for this tax year some employees may have higher carry forward allowance than previously expected.

Who will be affected?

  • Employees who make pension contributions below £50,000 for either 2008/09 or 2009/10 followed by a year of contributions above £50,000.

Important points to note

  • Pension "contribution" is measured across all schemes, so employers should make sure they carefully identify all employees affected by this change.
  • Individuals who wish to maximise their pension saving for 2011/12 should confirm what their pension input period is. It could be that savings made into an existing arrangement now actually count towards the 2012/13 year. If so, these individuals may need to set up a new arrangement to ensure that the contributions fall into 2011/12 and so make full use of the carry forward from 2008/09.

PPF GMP equalisation plans

The Pension Protection Fund (PPF) has published details of a 6 month pilot study for equalising guaranteed minimum pensions (GMPs) in schemes undergoing an assessment period and for equalising compensation payable by the PPF once schemes transfer.

Since GMPs are payable from age 60 in the case of women and age 65 in the case of men, there has been an ongoing debate about whether the benefits derived from GMPs should be equalised and if so, how.

Schemes entering or currently in an assessment period will be asked to submit a GMP questionnaire, requiring collation of extensive historical benefits data. The PPF will use a series of actuarial assumptions in equalising compensation where this data is missing or incomplete for schemes that have already transferred.

Section 179 valuations undertaken by levy-paying schemes will not be required to reflect GMP equalisation. Whether this easement has any real value may depend on the forthcoming DWP consultation exercise about proposed legislative amendments that will require schemes to equalise for GMPs. These changes are likely to affect the current scheme funding provisions.

HMRC guidance on Fixed Protection

The Finance Act 2011 (FA 2011) reduces the lifetime allowance from £1.8 million to £1.5 million with effect from the 2012/13 tax year. Transitional relief in the form of fixed protection is available for individuals who have planned their retirement savings on the assumption that the lifetime allowance would remain at its previous level.

By claiming fixed protection, an individual will continue to be entitled to a protected lifetime allowance of £1.8 million provided he registers with HMRC before 6 April 2012 and meets the necessary requirements.

HMRC have published the following key points about the new rules:

  • Deadline: Unlike with primary and enhanced protection, there is no provision in the FA 2011 or underlying regulations allowing HMRC to accept late applications for fixed protection. Applications must therefore be received by HMRC in the appropriate form before 6 April 2012 and online applications will not be accepted.
  • Losing fixed protection: A member must tell HMRC if he loses fixed protection. This will be for one of the following reasons:
    • he accrues further benefits beyond a stipulated level;
    • he joins a new arrangement (except for the transfer of existing pension rights);
    • he makes an impermissible transfer into an arrangement; or
    • he makes a transfer out of an arrangement that is not permitted.

If any of the above events occurs, fixed protection is lost with effect from the date the event occurs.

Useful links

A link to the guidance can be found at: http://www.hmrc.gov.uk/pensionschemes/lifetime-allowance/savings.htm

"Equity looks on that as done which ought to be done"

A recent High Court decision has looked at the legal maxim that equity looks on "that as done which ought to be done" in a pensions context. The High Court considered the matter in HR Trustees Ltd v Wembley plc (in liquidation) and another [2011] which concerned the validity of an amendment made to a trust deed governing an occupational pension scheme.

An amendment that changed the basis on which pensions in payment were increased each year from "5% fixed" to "5% LPI" was held to be valid by the High Court. The scheme's amendment power required the trustees to "forthwith declare" an amendment in writing, but the declaration was signed by only four of the five trustees, calling into question its validity. The court ruled that this omission amounted to an administrative oversight and that the trustees had validly exercised their discretion to make the amendment.

This decision highlights that equitable maxims still have a role to play in modern pensions law. The amendment provision in question is unusual, although it was standard Legal & General wording used in a large number of insured schemes. There may therefore be some application in other schemes. Whether this decision has wider implications where there has been a defective amendment is more questionable. We would doubt, for example, that it could be used to solve many of the equalisation issues still being address by schemes where parties have failed to make actual decisions/pass resolutions required to make the amendment valid.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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
Caoimhe O'Neill
Michael Jones
 
In association with
Related Video
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
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). 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 & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd 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 or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.