EB News

A fortnightly summary of the important changes in employee benefits law & practice  19/12/2011 - 01/01/2012

5th January 2012, London:

News

Wedgwood Museum collection can be sold off to pay pension deficit

The High Court sitting in Birmingham has decided that the Wedgwood Museum's collection of artefacts qualifies as an asset of Waterford Wedgwood Potteries (WWP), which went into administration in 2009. This means that the collection can be sold to pay off WWP's creditors, the largest of which is the Pension Protection Fund (PPF) as the WWP's pension scheme has a deficit of £134 million.

Although the museum had not been connected to the WWP for 50 years, in reaching its decision the court took into account the fact that 5 of the museum's employees were members of the WWP's pension scheme.

Legislation

Pensions Act 2011 (Commencement No 1) Order 2011, SI 2011/3034

This statutory instrument brings into force certain provisions of the Pensions Act 2011 on 1 and 3 January 2012 and 6 April 2012 -

• it brings into force on 1 January 2012 provisions relating to annual increases in periodic compensation paid by the Pension Protection Fund (changing RPI to CPI);
• it brings into force on 3 January 2012 provisions relating to: automatic enrolment into a workplace pension scheme; annual increases to be made by certain occupational pension schemes; the Pension Protection Fund; the financial assistance scheme; contribution notices and financial support directions issued by the Pensions Regulator; judicial pensions; and grants made by the Secretary of State to advisory bodies; and
• it brings into force on 6 April 2012 provisions relating to the abolition of certain additions to the state pension.

Pensions Act 2008 (Commencement No 11) Order 2011, SI 2011/3033

This statutory instrument brings into force section 49 of the 2088 Pensions Act (monitoring of employers' payments to personal pension schemes), for the purpose only of conferring power to make regulations under section 111A of the Pension Schemes Act 1993. It also amends section 111A so that, for the monitoring of contributions, the term ‘employee' includes a ‘jobholder' and it brings into force certain provisions which make minor and consequential amendments to the Social Security Contributions and Benefits Act 1992 in relation to state retirement pensions under Part 2 of that Act.

Cases

Pension 'unlocking' schemes held to be unlawful

In Dalriada Trustees Ltd v Faulds, the High Court held that pension reciprocation plans (also known as "unlocking schemes"), which claimed to allow early access to pension savings before minimum pension age, are invalid and that no further loan payments can be made. The plans used an arrangement of loans between unconnected members and schemes as a device to avoid tax charges on unauthorised payments.

The Regulator became involved in 2011 and appointed Dalriada as a trustee to the schemes. The court then held that the loans constituted a benefit derived from a member's pension scheme assets regardless of which scheme it was paid from. Section 173 of the FA 2004 encompassed both direct and indirectly provided benefits, meaning that the loans were deemed to be unauthorised payments.

Research

New research on employers' automatic enrolment readiness

The Pensions Regulator has published automatic enrolment research which shows improving levels of awareness and understanding among small and medium-sized employers, whilst awareness of the reforms remains high among large employers. Carried out approximately every six months, the regulator's tracker survey provides a snapshot of the progress that employers are making in their preparations as automatic enrolment approaches. The latest research can be viewed at www.thepensionsregulator.gov.uk/docs/ecr-employer-tracker-research-2011.pdf.

Undersaving Britain - pension saving at the lowest level in 10 years

Only 38% of working-age people - 11.6 million out of 30.4 million people - are saving into a private pension, the lowest level in the past ten years, new analysis by the Department for Work and Pensions shows.

The figures show a steady decline in pension saving between 1999/2000 and 2009/10, with the decrease being most dramatic among men and the under 40s. While the overall number of people saving into a private pension fell from 46% in 1999/00 to 38% in 2009/10, pension saving among men fell from 52% to 39%. And among people aged between 20 and 39 years old pension provision fell from 43% to 31%.

The analysis also reveals a map of pension provision across the UK in 2009/10, with higher pension provision in the South East (43%), Scotland (42%), the South West (41%) and the East (41%), and lowest pension participation in Northern Ireland (33%), London (34%) and West Midlands (34%).

The Family Resources Survey (FRS) is a key source for pension information and between April 2009 and March 2010, interviewed around 25,000 private households across the UK.

The analysis is available on the DWP website, at -http://research.dwp.gov.uk/asd/index.php?page=adhoc_analysis. The figures based on a working age population of 30.4 million people.

ACA survey finds gulf between private and public pensions is growing

The Association of Consulting Actuaries has published the final report of its 2011 Pensions trends survey, entitled ‘Workplace pensions: challenging times', which suggests that the gulf between private and public sector pensions is set to grow in a tough economic climate. Key findings are:

• Nine out of ten private sector defined benefit schemes are now closed to new entrants and four out of ten closed to future accrual (half of these closing in the last year alone).
• 25% of private sector employers are now looking to buy-out (or buy-in) all their defined benefit scheme liabilities in the next five years, rising to 40% within a decade.
• Only just over a quarter of employers have budgeted for the cost of workplace pension auto-enrolment which begins in stages from October 2012.
• Whilst around three-quarters of employers say they are likely to auto-enrol all employees into their existing workplace pension scheme(s), 27% say they are likely to review their existing pension benefits to mitigate the cost of higher scheme membership.
• In all three areas of investment, longevity and inflation risk, at least half of the employers responding to the survey say that employers should share or take on a majority of these pension risks.
• A clear majority of employers currently operating defined contribution schemes are presently reluctant to move to large, multi-employer schemes.

Whilst the ACA survey report notes that few small employers are in a position to level-down pension provision as most offer no workplace pensions at present, the survey found a third of larger employers are considering such a move. Other findings include:

• Overall, a fifth of employers are looking to decrease their pension spend, balanced by 14% aiming to increase spend. A third of larger employers (employers with 250 or more employees) say they are looking to decrease their spending on pensions.
• Over the last three years, 21% of employers report that member opt-outs from workplace pension schemes have increased.
• Employers responding to the survey report average contributions into defined contribution schemes have changed very little over the last decade - contribution rates are generally failing to keep pace with the pension costs of longer life-spans and lower investment returns.
• Despite a near doubling in employer pension contributions over the last decade, close to a third of employers (31%) expect to take over ten years to remove their defined benefit scheme deficits.
• Only just over a quarter of employers (26%) say they have budgeted for the costs of auto-enrolment, with this falling to one in seven amongst employers with 49 or fewer employees. On average, budgets are based on estimates of 25% of employees opting-out of workplace pensions following auto-enrolment, but with smaller employers estimating between 30-40% of employees will decide to opt-out.
• Whereas, at present, over nine out of ten employers say their employees retire at age 65 or younger, in under a decade close to four out of ten employers expect the typical retirement age to be 67 or later. One in six employers expect typical retirement ages to move out to between age 68 to 70 by 2020.
• Upwards of eight out of ten private sector employers support the recommendations made by Lord Hutton that public service pensions should be scaled back (85%), that member contributions should increase (79%) and that the pension age in such schemes should increase to the State Pension Age (91%).

The ACA Pensions trends survey report - Workplace pensions: challenging times - is available at www.aca.org.uk/files/2011_Pension_trends_report-3_January_2012-20111222162316.pdf.

'Other'

HMRC

Scheme Returns and Event Reports - deadlines

The deadline for submitting Registered Pension Scheme Returns, Event Reports and trustee tax returns (form SA970) for the 2010/11 tax year is 31 January 2012. However, registration is needed by 13 January 2012. See - http://www.hmrc.gov.uk/pensionschemes/submission-deadlines.htm

2012-01-03

Overseas Transfers of Pension Savings - Draft Guidance

The draft Overseas Pension Schemes (Miscellaneous Amendments) Regulations 2012 have been published for an 8 week consultation. This draft secondary legislation makes changes to the system for transfers of pension savings to qualifying recognised overseas pension schemes (QROPS). HMRC has now published a document that contains the draft guidance in relation to the changes to the system for transfers of pension savings to QROPS that is the subject of an 8 week consultation. The draft guidance can be viewed at www.hmrc.gov.uk/pensionschemes/draft-guidance-qrops.pdf.

Commutation of Small Personal Pension Funds - Draft Guidance

Following the publication of draft secondary legislation to enable individuals to access savings held in small personal pension schemes (that is, £2,000 or less) by way of lump sum payment (commutation), HMRC has now published draft guidance for consultation. The draft guidance explains how the regulations will apply and can be viewed at www.hmrc.gov.uk/pensionschemes/small-pots-guidance.pdf.

Newsletter 51

This issue of the newsletter concentrates on filing notices, contracting out, ITEPA 2003, Pt 7A, Employer asset-backed pension contributions, Small pension pots, Transfers to QROPS, Drawdown pension tables and amendments to the RPSM. See - www.hmrc.gov.uk/pensionschemes/newsletter51.pdf.

New TM1 (money purchase illustrations)

The FRC's Board for Actuarial Standards has published a new version (2.0) of Technical Memorandum (TM1): Statutory Money Purchase Illustrations. TM1 sets out the assumptions to be used in statutory money purchase illustrations (SMPIs). The changes to TM1, which follow extensive consultation, include:

• Restructuring TM1 to make the document shorter and easier to follow with some guidance now included in an accompanying document
• Updating the mortality assumptions to better reflect current market practice
• Text which emphasises that providers of SMPIs must take proper account of potential investment returns when setting the long-term investment assumption used in their projections.

See - www.frc.org.uk/bas/press/pub2684.html.

Government announces Heads of Agreement on Public Service Pension Reform

On 20 December 2011, the Government set out the headline agreements reached with trades unions on public service pension reform. The Government has now set out its final position on the main elements of scheme design to be introduced in 2015. Trades unions have agreed to take these to their Executives as the best that can be achieved through negotiations.

Heads of Agreement have been reached with the NHS Pension Scheme, the Principal Civil Service Pension Scheme, the Teachers' Pension Scheme and the Local Government Pensions Scheme based on the enhanced offer made by the Government on 2 November 2011.

In all schemes the accrual rate has been improved. This has been offset by lower revaluation of accruals prior to retirement linked to prices rather than earnings as in the Government's preferred design. This has meant no extra cost to the taxpayer.

The government has agreed that the 'Fair Deal' policy, which governs the treatment of pension rights on public to private outsourcings, will stay in place.

Cabinet Office response to Civil Service Pensions Contributions Consultation

The Cabinet Office has published the government's response to its consultation on increasing employee contributions to the Principal Civil Service Pensions Scheme for 2012/13. Key points are:

• additional contributions to take effect from April 2012;
• the contribution increases will be on a tiered basis, with individuals allocated to a contribution band according to their pensionable earnings based on their full time pay;
• those earning under £15 000 (full-time rate) will see no increase in contributions;
• those earning up to £21 000 (full-time rate) will not see contributions increase by more than 0.6 percentage points in 2012-13; and
• the maximum amount of contributions increase will be 2.4 per cent in 2012-13.

These proposals remain unchanged from the consultation. Proposals for Civil Service pension contributions in 2013-14 and 2014-15 will be the subject of a separate consultation next year.

See -  http://www.hm-treasury.gov.uk/statement_cst_201211.htm and http://www.cabinetoffice.gov.uk/resource-library/written-ministerial-statement-civil-service-pensions.

ABI Consultation on 'Shopping around for a decent retirement income'

The ABI announced in September 2011 that it would introduce a compulsory code, binding all its members, to actively encourage people to shop around. Under the code ABI members will remove the annuity application form from all communication they send to their customers, which means customers will not simply be able to roll their pension over into an annuity with the same provider. The new consultation asks for views on this draft code of conduct which will go further than simply removing the application form:

• All communication with customers must include a standard statement on the first page about the benefits of shopping around.
• Illustrations of possible annuities given by the provider which have not been asked for by the customer must follow strict rules to ensure options are comparable and include a very clear statement about the benefits of enhanced annuities due to medical conditions even if the provider does not offer the product.
• Providers' sales processes must take customers through the key questions they should consider when buying an annuity.

The consultation paper can be viewed at www.abi.org.uk/Publications/60176.pdf.

 

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