UK: Pensions Ready Reckoner - Sep 04, 2015

Last Updated: 10 September 2015
Article by Clive Weber

A recap of latest developments in the exciting world of occupational pensions.





DC flexibility

  • Secondary annuity market

In his Budget on 8 July 2015 (covered in a separate article elsewhere in this Bulletin) the Chancellor announced that the Government will legislate for a secondary annuity market, to help individuals already with annuities who cannot access the April 2015 flexibilities. To ensure annuitants are adequately informed and protected, the start date for the new secondary annuities market will be April 2017 instead of April 2016.

WB comment: the regulatory and tax changes needed are substantial and therefore the postponement is understandable. Finance Bill 2016 will contain the tax changes.

Notably absent from the Budget was any sign that members of DB schemes are to be entitled to directly access the cash value of their DB benefits. 


  • Budget 08/07/2015
  • Annual Allowance
  • Lifetime Allowance
  • Lump sums on death aged 75 or over

Never a dull moment: the July 2015 Budget announced the following changes, from tax year 2016-17:

  • Annual Allowance restricted for high earners.
  • Pension Input Periods to correspond to the tax year.
  • Death aged 75 or over: as previously indicated, lump sum death benefits on death aged 75 or over will be taxed at the recipient individual's marginal income tax rate (instead of at the special lump sum death benefits rate of 45%).  Where the death benefit recipient is not an individual e.g. a trust or company, the tax rate remains at 45%.
  • Lifetime Allowance to be reduced to £1 million, with the facility for members to opt for protection in respect of the reduction from the present £1.25 million. Apart from the Lifetime Allowance change (which will be in Finance Bill 2016) the above changes are in Finance Bill 2015. The Committee stage of the Finance Bill commences on 8 September 2015.


  • Qualifying Recognised Overseas Pension Schemes

HMRC have reviewed the operation of Section 169 of the Finance Act 2004 under which transfers from UK registered pension schemes to overseas pension schemes are, in the case of qualifying overseas schemes, authorised transfers. Trustees considering making such transfers should now ensure they first take legal advice as HMRC has narrowed the list of permissible arrangements and, in effect, put the burden on transferring trustees to verify whether the recipient overseas scheme meets HMRC's requirements, particularly that benefits cannot (save in ill-health) be accessed prior to age 55. (Notably, some overseas schemes permit early access in other circumstances e.g. financial hardship.) Please see the separate article elsewhere in this Bulletin.

End of DB contracting-out

  • Effective 6 April 2016
  • Impact on scheme rules
  • Lifetime allowance excess lump sums

State of play:

  • The legislation enabling employers to (within limits) alter their DB contracted-out schemes is already in force.
  • Further regulations have now been made to smooth the operation of scheme rules from 6 April 2016 when the single-tier state pension applies.
  • Disappointingly, there is no change to the existing requirement that contracted-out rights accrued since 6 April 1997 cannot be reduced where a member with benefits in excess of the Lifetime Allowance wishes to access them by taking a lump sum.

Short service refunds from DC schemes

  • Abolition from 1 October 2015


Reminder – the legislation changes from 1 October 2015 so that new DC members with short service will usually have to receive full scheme benefits instead of refunds of contributions. DC schemes should review their scheme rules and specialist legal advice should be sought.


Data Protection

  • EU reforms

The European General Data Protection Regulation, having direct effect in EU Member States, is expected to be finalised this year and take effect in 2017. Not only are data protection requirements tightened but fines for non-compliance are greatly increased (penalties of up to 5% of worldwide annual turnover). Please see the separate article elsewhere in this Bulletin.


Guaranteed Minimum Pensions

  • Sex equalisation


Government still intends to legislate. (Now it is back in power it cannot duck this one!) Timing remains uncertain.

Refunds of scheme surplus to employers

  • End of five-year transitional period

Reminder – the transitional period ends on 6 April 2016 for trustee "section 251" resolutions to enable schemes to repay surplus. Please contact us if you are unsure whether your scheme has completed a Section 251 Resolution. One should never rule out the possibility of a surplus: the "problem" prior to the year 2000 was often surplus, not deficit!


Possible future legislation

  • Section 75 debts
  • Easing transfers
  • Revamp of pension taxation

Government consultations of particular interest:

  • DWP's consultation regarding possible Section 75 easements (debts in multi-employer schemes for non-associated employers) – consultation closed on 22/05/2015, upshot awaited.
  • Treasury consultation on pension transfers and exit charges – possible further legislation to ensure DC flexibilities are working properly. Consultation closes on 21 October 2015.
  • Treasury consultation on strengthening the incentive to save (aka removal of pensions tax relief) – interpreted by some as the Chancellor's bright idea to raise billions of pounds by restricting tax relief on pension contributions and instead conferring exemption on the emerging pension: cashflow windfall for the Treasury, or are we being too cynical?! The consultation opened on 8 July and closes on 30 September 2015. The Government will then decide what action to take, if any.  Please see the separate article elsewhere in this Bulletin.






Investment advice

Trustees of the Rex Procter Scheme v Scottish Widows

(June 2015)

In this interesting decision the Scottish court decided that the trustees' investment contract with Scottish Widows was governed by English law and that the trustees' claim against Scottish Windows for allegedly negligent advice regarding an investment contract switch was time barred.  The claim had been lodged more than 6 years after the investment contract switch and more than 3 years after the alleged loss had bene discovered – the law does not permit the making of 'old' claims beyond a certain point.


Duty of good faith

IBM v Dalgleish

(June 2015)



The High Court has given IBM permission to appeal its decisions

  • that IBM was in breach of its duty of good faith in altering the terms of its scheme and subsequently closing it to future accrual
  • regarding remedies for the breaches

WB comment: this long-running case looks set for the Court of Appeal next year. Adjustments to members' benefits can be successfully made without breaching the duty of good faith provided appropriate steps are taken – see, for instance, Bradbury v BBC where the High Court upheld the capping of salary increases for pension purposes (covered in our June 2015 Bulletin).

Survivor benefits

Innospec v Walker 

(June 2015)

The Court of Appeal were due to decide whether only limited or full survivor pension rights have to be granted to registered civil partners. Decision awaited.


Other appeals pending  

There are numerous appeals due to be heard in the Court of Appeal later this year or in 2016. These include:

  • Briggs v Gleeds (valid execution of amending deeds)
  • MF Global Services (validity of indemnity for section 75 debts in corporate group)
  • Horton v Henry (whether the Court can force a bankrupt individual to exercise options under his pension policy so that the sums form part of the bankrupt's estate and are payable to creditors). This case clearly has important implications in the light of the new DC flexibilities!




  • Numerous recent pension liberation decisions including those in Johnston, where the member had a statutory right to transfer (the Ombudsman holding that the trustees making the transfer were not at fault) and Hughes, where there was no statutory transfer right (and the Ombudsman upheld the trustees' refusal to make the transfer).
  • The PO has also ruled that, on complaints about retirement benefits, the scheme administrator was not yet bound to address GMP sex inequalities in the absence of legislation requiring them to do so.




Assessing and monitoring the employer covenant

TPR published on 13 August 2015 its practical guide to the assessing and monitoring of the employer covenant.  TPR's Chief Executive urges trustees "to use this important guide to assess and monitor their employer covenant in a way that is proportionate to the circumstances of the scheme and the need for an employer to grow".  Please also see the separate article elsewhere in this Bulletin.




Pre-pack administrations

Concerns about certain pre-pack administrations (where pension liabilities might, in effect, be dumped on the PPF) continue. The PPF's further guidance indicates that in certain circumstances it will enquire about the level of consultation by the insolvency practitioner with the scheme trustees.




UK Statistics Authority

In June 2015 the UK Statistics Authority opened its consultation on price indices, following the independent expert's January 2015 report. The consultation closes on 15 September 2015 and the Authority is expected to make its final decisions later this year.

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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