The Pensions Act 2014 received Royal Assent this month. It includes some major changes to the state retirement pension (including further increases in state pension age and the introduction of the new single-tier pension from April 2016). The Act also contains provisions affecting occupational pension schemes including the abolition of contracting-out and new restrictions on short service refunds.

Here are some of the key aspects of the Act for occupational pension schemes.

DB scheme funding

The Pensions Regulator has a new statutory objective under the scheme funding regime to "minimise any adverse impact on the sustainable growth of the employer". The regulator has used this as a springboard to launch its new Code of Practice on scheme funding and adopt a new policy on DB funding. This will all go live during summer 2014.

30-day vesting of money purchase benefits

Members accruing money purchase benefits will be entitled to a deferred benefit after 30 days' pensionable service (currently it is two years). This provision is expected to come into force very soon although no date has yet been confirmed. The requirement is overriding so scheme rule amendments are desirable but not essential. New joiners should be notified and scheme booklets and other communications updated.

Abolition of contracting-out

Contracting-out is to be abolished from 6 April 2016. Schemes holding GMPs will still have to honour them but new provisions and guidance will be introduced to assist trustees who want to convert them into main scheme benefits. Regulations will enable employers to reduce benefit accrual and/or increase member contributions in order to offset the additional national insurance costs that will arise.

Charges and transaction costs

The Act includes provisions allowing a charge cap on DC schemes. It is unlikely this will come into force before April 2015. There is also a section enabling regulations to be made requiring workplace pension schemes to disclose transaction costs to members. The DWP is currently consulting on the detail. 

Automatic transfer of small pots

The Act provides for the automatic transfer of money purchase pension pots of less than a specified amount (a current suggestion is £10,000). The DWP will be consulting on the details which will be in regulations and may not come into force until 2017.  

PPF compensation

A new long service cap will apply to PPF compensation. This will be the standard cap plus an extra three per cent of that cap for each year of service above 20 years, with a maximum of double the standard cap. This will apply to future payments for those already receiving PPF compensation as well as those qualifying for compensation in future. This should be taken into account by all schemes when valuing their liabilities for PPF or winding-up purposes. This provision is likely to come into force very soon.

Automatic enrolment exemptions

The Act allows regulations to be made excluding certain categories of employee from automatic enrolment. This includes those with fixed or enhanced tax protection and those working a notice period. No date has yet been set for this to come into force.

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.