UK: Pensions Ready Reckoner - October 2014

Last Updated: 3 November 2014
Article by Clive Weber

A quick overview of some key pension developments in Parliament, from the Pensions Regulator, the FCA and from the Courts:

PARLIAMENT

 

Topic

Developments in outline

DC flexibility from April 2015 for those aged 55 and over

14 October 2014 – Introduction of the Taxation of Pensions Billin Parliament. The Bill amends the pension tax provisions in Finance Act 2004, to introduce DC flexibility from April 2015, as well as allowing trivial commutation from age 55 onwards from April  2015. The practical effect will depend on scheme rules and and trustee decisions.  Accessing DC funds flexibly is by way of drawdown from the member's "flexi-access drawdown fund", or as a new type of authorised lump sum namely an "uncrystallised funds pension lump sum" ("UFPLS"). Activating flexi-access or an UFPLS triggers the new limited annual allowance of £10,000 for future money purchase contributions.

Member communications should be suitably caveated as (1) the Bill does not become law unless and until it receives  Royal Assent, expected early 2015; and (2) the Bill merely sets the tax parameters – individuals' actual benefits, including any options for DC flexibilities, depend on what trustees decide to allow. This latter part of the Bill has in particular ben criticised as not (at present) also involving the employer in the design of schemes' DC flexibility options.

The Bill reflects the more favourable tax treatment on death for individuals' DC pension pots, announced by the Government on 29 September 2014. 

Onerous HMRC reporting obligations on  trustees/individuals/DC providers operating the  new DC flexibilities are included in the Bill.

Note the "lifetime allowance" tax rules continue notwithstanding the new DC flexibilities introduced by the Taxation of Pensions Bill.

Ancillary changes to the "DC flexibility" changes from April 2015

The Financial Conduct Authority ("FCA") Consultations on proposed changes to its Conduct of Business Rules for FCA independent advisers have closed, namely:

(1) "Retirement reforms and the Guidance Guarantee" issued July 2014 and closed 22 September 2014. The Consultation relates to FCA setting standards for Guidance to DC members at the point of retirement, bearing in mind the proposed DC flexibilities from April 2015.

(2) "Proposed Rules for independent governance committees" issued August 2014, Consultation closed 10 October 2014.

The above FCA Consultations, together with further FCA draft Rules later this year relating to quality standards and charges, will provide a comprehensive and heightened regulatory regime for all DC contract based arrangements. The DWP will implement similar changes to DC trust based schemes by issuing appropriate Regulations.

Defined Ambition Schemes
(risk sharing schemes)

New risk sharing schemes occupy the middle ground between fully promising members' benefits as with a DB scheme, or no promise about the level of pension benefits as in a DC scheme. Accordingly, the Pension Schemes Bill, introduced in the House of Commons on 26 June 2014 and given its Second Reading on 2 September 2014, categorises pension schemes according to the level of the employer's promise relating to benefits in the accumulation (before retirement) phase. The categories are "defined benefits schemes" OR "shared risk schemes" (defined ambition) OR "defined contributions schemes". The legislative framework for shared risk schemes will be lighter than for defined benefit schemes. Many have criticised this new categorisation of "promised" benefits, as adding further complexity and confusion to pensions.  The concept of schemes providing some benefits promise but not a full promise has been around for a long time; shared risk schemes extend and build on this concept.

Pooling of risk - Collective benefits for DC arrangements

Provisions are also included in the Pension Schemes Bill to enable members' DC benefits to be pooled and hence risks shared. It is envisaged that "collective benefits" arrangements will be available under both shared risk schemes and defined contributions schemes. However tax changes will also be needed and these have yet to appear. The detail of how such collectives will work will be in Regulations yet to be published.

Ban or restrictions on DB to DC transfers?

The Government announced in July 2014 that there will be no ban or restriction on DB to DC transfers. Instead deferred members considering transfers must obtain "advice" from an independent professional FCA authorised adviser. Detailed obligations on scheme trustees to satisfy themselves that "advice" has been obtained will be included in the Pension Schemes Bill.

The Government has said it will consult on whether DB schemes may offer direct access to DB benefits to their members rather than DB members first having to transfer to a suitable DC arrangement. Given the consultation has at the time of going to press not yet been issued,  implementation is unlikely to be by April 2015.

and more minor Parliamentary matters:

Same sex marriages

As required under the Marriage (Same Sex Couples) Act 2013, the Government's "Review of Survivor Benefits in Occupational Pension Schemes" was published in July 2014. The Government is still considering its position but looks unlikely to extend the level of survivor pensions required under present legislation unless forced to do so by Court decisions e.g.  the forthcoming decision in Innospec v Walker, see below "From the Courts".

GMP sex equalisation

Government remains of the view that GMP sex equalisation is required. However, the draft Regulations published in January 2012 have still not been made. The Government continues to search for a simplified process for GMP sex equalisation.

New definition of "money purchase benefits"

Section 29 Pensions Act 2011, together with transitional Regulations, came into force at the end of July 2014. This clarifies the definition of money purchase benefits following the "Bridge" case. Some schemes which previously thought they had pure money purchase benefits are now faced with the prospect of final salary benefits which must be dealt with differently.  (See the article on " What does money purchase mean?" ).

and not forgetting:

Introduction of Single Tier State Pension and abolition of DB contracting-out from April 2016

These provisions are in the Pensions Act 2014 which received Royal Assent on 7 May 2014. Employers' overriding statutory power to amend future service accrual/member contributions to help offset the cost of increased National Insurance Contributions is contained in (draft) Regulations expected to come into force this Autumn. Regulations will also be made automatically amending scheme references to certain terms  which will no longer apply from April 2016 e.g.  "basic state pension" which is sometimes used in scheme rules as a deduction in  calculating pensionable earnings. Generally on the April 2016 contracting–out changes, please see our July 2014 eBulletin.

and also not forgetting:

Reforming the law on trustees' investment duties

Following the Law Commission's Consultation (October 2013) on "fiduciary duty" in the investment context, the Government are expected shortly to announce their views on whether further legislation is needed e.g. to regulate fiduciary investment managers and investment consultants

 

PENSIONS REGULATOR

 

Topic

Developments

The Pensions Regulator ("TPR")

(1) TPR's new Code of Practice on the funding of DB schemes came into force in July 2014. It reflects TPR's additional statutory objective under Pensions Act 2014 "to minimise any adverse impact on the sustainable growth of an employer";

(2) In addition, on 10 June 2014 TPR published ancillary papers relating to its view of DB scheme funding, including its annual statement on funding, its strategy and policy on enforcement and its segmentation of employer covenants.

These are all important documents for employers and trustees to understand in relation to funding discussions.

 

 

FROM THE COURTS/PENSIONS OMBUDSMAN

 

Topic

Developments

Employer's duty of good faith:

IBM v Dalgleish (April 2014)

The April 2014 High Court decision – see our May 2014 eBulletin – continues to play out. The upshot of the  "remedies" hearing this July concerning the extent of remedies for the Employer's breaches of good faith is awaited.

RPI/CPI:

Arcadia Group Ltd v Arcadia Group Pension Trust (31 July 2014)

The High Court decided that:

(1) The particular definition of "Index of Retail Prices" in the Rules did not preclude the choice of a different index (e.g. CPI);

(2) Following the High Court's 2012 decision in "Qinetiq", switching index for future pension increases and revaluation was not contrary to the "past service" protections under Section 67 Pensions Act 1995; and

(3) The Rules being silent as to who chooses the applicable index, the choice was in the hands of the Employer and the Trustee acting jointly.

See the article on " Which inflationary index?".

VAT:

ATP Pension Services AIS (March 2014, Court of Justice of the European Union)

We reported on "ATP" in our May E-Bulletin. At the end of May HMRC issued a further Brief (22/14) stating that HMRC is now generally reviewing the VAT treatment of pension scheme administration and fund management services and that HMRC will issue further guidance in the Autumn. We have now officially reached Autumn and the HMRC further guidance is still awaited.

Rectification:

Citifinancial Europe plc v Davidson (5 June 2014)

The High Court gave summary judgment (no full trial) allowing the scheme's definition of "salary" to be rectified as there was convincing proof of the parties' intention – a practical decision.

 

Loss of pension rights:

Griffin v Plymouth Hospitals NHS Trust (26 September 2009)

The Court of Appeal have decided that the Employment Tribunal's approach to calculating compensation for loss of pension rights was incorrect. The Court indicated that the 2003 guidelines were substantially out of date in view of pension developments since then.

Forthcoming decisions:

Innospec v Walker

The Employment Appeal Tribunal's decision is, we understand, under appeal due to be heard in February 2015. The EAT upheld the exclusion of pre-5 December 2005 service in calculating the pension due to the survivor of a registered civil partnership (the exclusion is in Regulation 18, Schedule 9 Equality Act 2010).

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
 
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.