The five-year grace period that began on 6 April 2006 (A-day) is drawing to a close on 5 April 2011. As either a trustee or employer of an occupational pension scheme, you should ensure you have made the most of these special concessions.

Concessions making it easier to amend schemes in line with the new tax rules that came in to effect on A-day run out in April 2011. Originally, following A-day, the transitional concessions managed two significant changes.

1. Keeping pre-A-day HMRC benefit limits in place for schemes that want some or all of the limits to apply indefinitely.

2. Removing restrictions on scheme alteration powers that require HMRC approval.

The transitional concessions fall away in April and if pre-A-day HMRC benefit limits are not expressly re-incorporated into the scheme rules they will be lost.

Your scheme may have already dealt with this by doing an amending 'A-Day deed'. You should check where your scheme stands. If you have any concerns we can put you in touch with one of our preferred legal advisers to address this issue.

Before A-day, amending a scheme without HMRC approval put its tax exemptions at risk. Some schemes incorporated this requirement as a restriction on their alteration power. Since A-day, approval is neither required nor possible. There was concern that a restriction which could no longer be satisfied would render all future amendments invalid. There is also a question whether an alteration power can be used to amend itself.

Recent regulations allow schemes to remove this restriction before April and you should check whether your amendment power has the restriction or whether it has been removed. If you need help in identifying this please contact us.

Pension deadline extended until 5 April 2016 for refunding pension surplus

Refunding a surplus under a DB scheme may seem highly unlikely to occur now, but who knows what may happen in the future. Surpluses arise under defined contribution (DC) schemes where employer contributions have been retained in the scheme as a result of short service benefit.

The Pensions Act 2004 included a transitional power of alteration to help schemes that might otherwise have lost their power to refund surplus. However, it was drafted very widely and applies to any payments that might be made to an employer, not just refund of surplus (e.g. routine administrative payments such as reimbursement of expenses) and it also applies to schemes in wind up. The pensions community raised these issues with the DWP during last summer.

The DWP has now expressed its intention to amend Section 251. It's not clear how it will be changed but its scope will be narrowed so it doesn't apply to:

  • money purchase schemes (except earmarked schemes)
  • routine administrative payments to an employer
  • schemes in wind up.

Final salary schemes still fall within Section 251 but the deadline for compliance will be extended to 5 April 2016.

Next steps

Direction from the DWP has come rather late in the day since many trustees have already issued notices to employers and members. Should it be the case that you have started the process, we recommend trustees and employers consider the time and expense left to complete the process and possibly finish the task as it will provide certainty to the trustees.

For final salary schemes where trustees have not yet started the communication process, trustees will have the option of complying with Section 251 by 6 April 2016 and we suggest no further action is taken until the amending legislation is passed.

For money purchase schemes, where trustees have not yet started the communication process and for schemes that commenced wind up after 5 April 2006 (final salary or money purchase), where trustees have not yet started the communication process, no action should be taken.

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.