UK: Pensions "To Do" List - 2014

Last Updated: 13 February 2014
Article by Alistair Hill and Jane Foley

There are a number of forthcoming changes and important deadlines in the pensions arena which will require action in 2014. Start planning for these now to ensure you are ready to go!

TAKE ACTION NOW TO CUT THE COST OF YOUR PPF LEVY

Employers and Trustees of UK defined benefit pension schemes have a number of tools available to them for cutting the cost of their Scheme's Pension Protection Fund (PPF) risk-based levy. The risk- based levy is the most significant part of the PPF annual levy charged to a scheme and is based on the scheme's funding level and risk of employer insolvency.

It is important to consider the options available now for making savings as the deadlines to be met are fast approaching.

Action Deadline
Submit scheme returns on Exchange 5pm on 31 March 2014
Certify new contingent assets 5pm on 31 March 2014
Re-certify existing contingent assets 5pm on 31 March 2014
Certify deficit-reduction contributions made on or before 31 March 2014 5pm on 30 April 2014
Certify full block transfers that have taken place on or before 31 March 2014 5pm on 30 April 2014

What can be done?

  • Take steps now to ensure that information on the Scheme's annual return, submitted via Exchange, is up to date and accurate by 31 March 2014
  • Consider whether there is cash available to make additional deficit-reduction contributions to the scheme and / or if planned contributions could be brought forward. If so, take actuarial advice on the impact such contributions would have on the PPF levy before deciding to proceed with the necessary steps to make and certify these within the timescales
  • Consider whether any new contingent assets (e.g. a parent or other group company guarantee, securities over property, letters of credit) could be put in place to reduce the PPF levy and agree an action plan for meeting the 31 March 2014 deadline
  • If you already have contingent assets in place, make sure these are re-certified by 5pm on 31 March 2014. Unlike previous levy years where a contingent asset could only use the simpler re-certification process if it had been certified in the previous year, the re-certification process can now be used for contingent assets which have been certified at any point during the past 5 levy years if certain conditions are met
  • The employer insolvency assessment is based on the average annual Dun & Bradstreet failure score assessed on the last working day of the month between 30 April 2013 and 31 March 2014. Employers should do all they can to minimise the impact of these on the 2014 / 2015 PPF levy e.g. by ensuring that all Company information is accurate and up to date
  • If Actuarial Valuations are delayed beyond the end of March for any reason (even with the agreement of the Pensions Regulator) they will not be counted for the 2014 / 2015 PPF levy
  • Time should be allowed (where required) for obtaining actuarial input and trustee agreement. In some cases the PPF require hard copy documents, and allowance should also be made for accessing the Pensions Regulator's Exchange certification system online

How we can help

Dundas & Wilson can help you to mitigate PPF levy costs in a number of ways including assisting with putting new contingent assets in place and certifying that these meet the PPF's prescribed requirements, re-certifying existing contingent assets and assisting with negotiations over deficit reduction contributions.

MARCH 2014

Same-sex marriages

Same sex marriages will be permitted in England and Wales from 29 March 2014. Equivalent legislation in Scotland was passed on 4 February 2014. Although the date on which the changes will come into force is awaited, it is expected that same sex marriages will be permitted in Scotland later this year.

Various amendments have been made to pensions legislation to reflect the change in England and Wales from next month. This includes a provision allowing trustees to modify their scheme by resolution to provide for payments to be made to a surviving (same-sex) spouse to ensure compliance with the new law.

However, an agreed approach between employer and trustees is always preferable and we recommend that employers and trustees consider and decide on a policy for the treatment of same-sex married couples and update the Scheme documentation to reflect this.

APRIL 2014

New Disclosure Requirements – Be Aware

New disclosure of information requirements consolidating and updating the existing disclosure regime come into force on 6 April 2014. The key changes relate to the use of "lifestyling" in relation to Defined Contribution investments, the use of electronic communications to members and clarification of the assumptions used to produce statutory money purchase illustrations.

Employers and Trustees should carry out an audit of the Scheme's information disclosure policies and communications to members to ensure compliance with the new requirements from April.

Reduction in the Lifetime and Annual Allowances

The lifetime allowance will reduce to £1.25m and the annual allowance will reduce to £40,000 from 6 April 2014. Employers and Trustees should carry out a review of the Scheme Rules to check if any amendments are required and write to Scheme members to inform them of the change and the availability of transitional protection.

APRIL 2015

All change in public sector pensions

It is all change in the world of public sector pensions over the next year or so with:-

  • the new Local Government Pension Scheme in Scotland due to come into e_ect from 1 April 2015 (1 April 2014 in England)
  • the new NHS and Civil Service pension schemes due to come into e_ect from 1 April 2015
  • Public sector schemes coming under the Pensions Regulator's wing from April 2015

Coupled with the changes brought about by the new Fair Deal guidance published in October 2013 there really is a lot to take on board. If you are a public body or a contractor providing services to a public body, take the following key steps to make sure you are already taking account of the recent changes and are prepared for the new ones:-

  • Carry out an audit of your existing contracts and negotiate new contracts in light of new Fair Deal
  • Take advice on the impact of the Pensions Regulator's role extending to cover public sector schemes and what this means for you.

APRIL 2016

DB Contracting out – the end of an era?

From April 2016, defined benefit pension schemes will no longer be able to contract out of the State Second Pension. Although there is still over 2 years until the change there are a number of issues to be considered by Trustees and employers before this date.

Take the following preparatory steps to ensure you stay ahead of the game:-

  • A statutory power for employers to make changes to their schemes to offset the loss of the contracting out rebate has been introduced. Take steps now to consider whether any benefit changes will be introduced as a result and prepare a plan of action for introducing any agreed changes
  • Consider making use of HMRC's GMP reconciliation service which will be available from April 2014 to allow schemes to reconcile their GMP data with HMRC's records in preparation for the end of DB contracting-out in 2016
  • Watch out for news on GMP equalisation. If this is required by the Government (as is expected to be the case later this year) action will be required to ensure compliance

2014 – 2018

Auto-enrolment – is your staging date fast approaching?

Make sure you have a clear plan in place for meeting your auto- enrolment obligations from your staging date. If your staging date is in 2014 or 2015 you should take steps now to identify which pension scheme(s) you will use for auto-enrolment and seek legal advice to ensure that both the selected scheme and procedures for auto-enrolment comply with the 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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