UK: Pensions Update - January 2014

Looking Forward: Great Expectations Or Bleak House?
Last Updated: 27 January 2014
Article by Jennifer Bell and Susan Jones

Looking forward to 2014 and beyond

The pace of change for pension schemes will continue in 2014 and beyond. In place of our usual Pensions update we have produced a timeline plotting the main developments which we expect. Not all of them will happen exactly as set out – details and timings may change and some may not happen at all.

Significant changes may include:

  • the amendment of the money purchase definition;
  • the abolition of contracting-out; and
  • new disclosure regulations.
Date Development Comment
Early 2014 High Court ruling on the employer's duty of good faith in the IBM case. We expect to receive judgment imminently in this important case looking at the extent of an employer's duty of good faith to pension scheme members.
29 March 2014 First same sex marriage can take place. Survivors' pensions must be provided on the same basis as for opposite sex spouses but only in relation to service since 5 December 2005. This may change following the outcome of Walker v Innospec and a government review due to report by July 2014.
31 March 2014 Final date for providing scheme information and certifying contingent assets for PPF levy. Deficit repair contributions need to be reported by 30 April 2014 and full scheme transfers by 30 June 2014 (where the scheme has fewer than two remaining members as at 1 April 2014).
1 April 2014 The automatic enrolment joining window extends from one month to six weeks. Further changes to the automatic enrolment regime are anticipated including exemptions for employees with HMRC fixed protection and those who have given notice of retirement.
1 April 2014 PPF compensation cap increases to £36,401.19. The compensation cap is to be increased for individuals with more than 20 years' service. This change is expected later in 2014.
1 April 2014 The new Local Government Pension Scheme (LGPS) commences. The new LGPS provides career average benefits. Other public sector schemes are due to be replaced from April 2015.
6 April 2014 Automatic enrolment earnings levels increase. Threshold earnings: £10,000
Upper limit: £41,865 These rates are reviewed annually.

6 April 2014

New disclosure regulations come into force for occupational and personal pension schemes.
These are intended to harmonise, simplify and consolidate the current disclosure regulations. They include some simplification of the basic scheme information and Statutory Money Purchase Illustrations as well as clarification of electronic disclosure. Most changes are permissive, one exception being a new provision to provide additional information on lifestyling.
6 April 2014 Annual allowance reduces to £40,000. Lifetime allowance reduces to £1.25m.
Those with pensions savings valued at between £1.25m and £1.5m as at 5 April 2014 may be able to apply for individual protection (by 5 April 2017) which will give them a personalised lifetime allowance up to a maximum of £1.5m. 6 April 2014 New money purchase definition.

The new money purchase definition is due to come in with retrospective effect to 1 January 1997. Draft regulations dealing with transitional provisions were published for consultation in October 2013 but nothing official has been heard from the DWP since. The 6 April 2014 date may not now be realistic.
July 2014 Regulator's revised code of practice on DB funding. The revised code will reflect how the regulator's approach to DB funding has evolved over the last eight years and take into account its new statutory objective to "minimise any adverse impact on the sustainable growth of an employer".
Later in 2014 Clarification of pension provision which must be provided following a TUPE transfer. Draft regulations were issued for consultation in February 2013 which attempted to address the mismatch between automatic enrolment and pension protection on TUPE transfers as well as clarifying the contribution rates which must be provided. Final regulations are still awaited.
Later in 2014 Regulations and guidance on the equalisation of GMPs. There is no firm date for this. The last formal statement from the DWP was in April 2013 when it said it would be laying regulations at a "future date".
Later in 2014 Further developments on the regulator's powers to issue contribution notices and financial support directions. There are several of cases in the pipeline which should help clarify the extent of the regulator's powers. These include Nortel, Lehmans, Box Clever and Desmonds.
Later in 2014 No more short service refunds for money purchase benefits. No contribution refunds of money purchase benefits will be available for a member leaving a scheme with at least 30 days' pensionable service.
Later in 2014 Automatic transfer of small pots. This is proposed to apply to DC pots of up to £10,000 which will automatically transfer from DC scheme to DC scheme where contributions have ceased.
Later in 2014 Charge cap for DC schemes. A cap on charges for active and deferred members in default funds of DC automatic enrolment qualifying schemes had been proposed from April 2014. Recent reports suggest this has been delayed.
April 2015 Regulator assumes responsibility for regulating public sector schemes. There will be a code of practice setting out the standards of conduct and practice expected of those governing and administering schemes. The code will cover areas such as knowledge and understanding, reporting breaches, conflicts, managing risks and recording keeping.
5 April 2016 Last day for trustees to pass a resolution enabling surplus to be paid to an employer. No scheme surplus can be paid to an employer unless a statutory resolution is in place. The power to do this expires on 5 April 2016.
6 April 2016 Abolition of contracting out. All contracting out will cease from this date. Employers are expected to be given powers to modify benefits or contributions in order to offset the additional NI costs they will incur.
6 April 2016 Single tier state pension commences. This ties in with the abolition of contracting out as there will be no state second pension.
1 October 2017 Second transitional period for automatic enrolment begins. Total DC contributions must be at least 5% of qualifying earnings (or equivalent).
5 April 2018 Last day for modifying scheme rules to remove restrictions on protected rights. Protected rights were abolished on 6 April 2012. Regulations give trustees an overriding power to modify the scheme to remove express restrictions on former protected rights.
1 October 2018 Full payment of automatic enrolment contributions. Total DC contributions must be at least 8% of qualifying earnings (or equivalent).
The future Defined ambition schemes. The aim of defined ambition is to remove some statutory and regulatory barriers in order to "enable industry innovation and development of new products including those which will give people more certainty about their pensions and encourage more risk". The DWP consulted on a range of proposals in November 2013 but no legislation is expected until after the 2015 general election.
The future VAT recovery on pension administration expenses. There may be some movement from HMRC on allowing employers to recover VAT on pension scheme expenses. This follows the PPG case and may depend on the decision of the Court of Justice of the European Union in ATP.
The future European pensions directive. A new European pensions directive is expected which will focus on pension scheme governance and reporting standards. It is unlikely to introduce new, more stringent funding requirements.

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.

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