Pensions Newsletter - Spring 2009
Welcome to the Spring 2009 Pensions Newsletter.
In this edition:
Statutory Rate Of Revaluation Of Deferred Pensions To Be Reduced From 6 April 2009
The Pensions Act 2008 contains provisions that make provision for a reduction of the statutory rate of revaluation of deferred pensions for service from 6 April 2009. Statutory revaluation is to remain geared to price inflation over the period of deferment, but the cap is being reduced from 5% pa to 2.5% pa for benefits accrued after 5 April 2009.
A reduction in the cap could be expected to reduce the cost of future benefit provision. However, its application will create another tranche of benefit, adding to administrative and communication complexities (and costs). Employers and Trustees should review their scheme trust documentation to ensure that revaluation after 5 April 2009 will operate as desired.
Getting “Help” From The Tax Man To Make The Most Of Your Pension
Following the change on 6 April 2006 in the Pensions Taxation Regime limitations on tax benefits are based around annual contribution and lifetime fund limits. If your fund is over the lifetime allowance you should register for enhanced or primary protection. 5 April 2009 is the last deadline to do so.
Also, from April 2011 tax relief for the higher paid in relation to contributions will be limited.
If you are likely to be affected by either of these issues we suggest that you contact us as a matter of urgency to discuss how the negative impact may be minimised.
“Pensions Act 2008 - Automatic Pension Enrolment”
The Pensions Act 2008 which arrived on the statute book at the end of November 2008 substantially reforms the private pension system in Scotland and England & Wales. When the Act comes into force in 2012, all eligible workers who are not already members of a qualifying pension scheme will require to be automatically enrolled into a pension scheme by their employer. The foundation of the Act was the Government’s White Paper, Personal Accounts: a new way to save published in December 2006. This highlighted that an estimated seven million people were not saving enough for their retirement and concluded that a voluntary approach to saving was unlikely to change peoples’ behaviour.
To read more click here.
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Flexible Retirement – Consultation, Consultation, Consultation
Since our last newsletter, the DWP has launched a new consultation on age discrimination, this time on the impact of age discrimination on employers’ flexible retirement policies. This follows on the heels of the earlier DWP consultation which suggested that occupational schemes be allowed to either stop or reduce benefits for workers over the age of 65 or stop death-in-service benefits in order to keep costs manageable for employers.
The DWP has indicated that its initial consultation found age discrimination laws were causing considerable unrest among firms, trustees and pension advisers.
The government has recognised that employers are facing considerable additional costs when employing older workers.
Pension schemes already qualify for a number of exemptions to the age discrimination rules including minimum and maximum age of entry, maximum length of service calculations etc.
The DWP are now seeking to consult on alternative options for a further exemption in respect of flexible retirement arrangements to mitigate any disincentive effect. The first option would add a wide statutory exemption, for all pensions rules and practices etc. linked to flexible retirement arrangements, to those listed at Schedule 2 to the Age Regulations. The second, more limited option, would allow occupational pension schemes not to provide death in service benefits in respect of members in flexible retirement arrangements.
The exemptions would be permissive, not mandatory. Employers and schemes would continue to consider their individual position (and that of the sector in which they operate) to determine the extent to which they wish to rely on any exemption. In some cases, they may choose not to invoke an exemption at all.
The consultation closed on 10 March 2009.
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The Equality Bill
The Bill is still in its draft stages, and though there were high hopes of it coming into force this year, it is yet to be introduced into parliament. That said, there has been a lot of noise about the intentions and objectives of the Bill, including the possible broader effect on pensions. One of the areas likely to be significantly affected will be public procurement.
The Bill will introduce a new general Equality Duty for the public sector which will add duties in relation to religious belief, sexual orientation, gender reassignment and age. Currently, the Equality Duty only extends to race, disability and gender. The Government aim to increase the level of transparency and public bodies will have to comply with their Equality Duty by reporting on gender pay, ethnic minority employment and disability employment.
The public sector spend in excess of £150 billion every year on private sector contracts and will have to consider more carefully how those contracts will comply with the Equality Duty and promote equality in the work place. It is therefore inevitable that the Equality Duty will be introduced into the private sector by these means as it will be an important requirement to successfully tender for contracts in the public sector.
The Government will also be working with business, the Equality and Human Rights Commissions and others alike to develop a kite-mark scheme. The scheme will recognise and effectively approve employers who are compliant and transparent about reporting on equality matters. The kite-mark will show which organisations have demonstrated a particular level of equality compliance.
The extension of the Equality Duty is just one of the many changes the Government will propose in the Equality Bill and companies will require to make sure that they are ready for it.
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Pensions Regulator Launches “Pensionwise” For Employers
The Regulator has set up a free online programme called “Pensionwise” designed to provide support and guidance to Employers of occupational pension schemes and promote and improve understanding of good pension scheme administration.
For more details click here
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Guaranteed Minimum Pension (GMP) Conversion
The DWP has published its response to its consultation on the draft Regulations which are designed to enable trustees of defined benefit contracted-out occupational pension schemes to convert Guaranteed Minimum Pensions (GMPs) into ordinary scheme benefits which are of at least equal actuarial value.
'The Occupational Pension Schemes (Contracting-out) (Amendment) Regulations 2009 are expected to come into force on 6th April 2009. To view click here.
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Employer Duty To Consult On Scheme Changes
The Department for Work and Pensions (DWP) has commenced consultation on a package of amending regulations which include a proposal to give the Pensions Regulator the power to fine employers who breach their duty to consult with members before making specified changes to future pension arrangements
We would advise that employers continue to factor in appropriate timescales in the decision making process to allow them to take account of members’ views.
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Record-Keeping Final Guidance Published
The Pensions Regulator has issued final guidance on record keeping, following a twelve week consultation. The guidance helps those responsible for record-keeping and administration to put in place good practices for measuring the presence of member data. It also gives advice on assessing the risks of incomplete or inaccurate data.
To view the record keeping guidance click here.
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Statement To Employers On Impact Of Current Economic Conditions
Following a similar statement issued to pension scheme Trustees last autumn the pensions Regulator has recently issued a statement to employers who sponsor final salary pension schemes regarding scheme funding in the current market conditions. The statement highlights that the Regulator recognises that the economic conditions are of real concern to Employers and reassures them that the current scheme funding regime is flexible enough to cope with the economic downturn. In that vein that Regulator stated that it will continue to apply the flexibilities of the scheme funding system pragmatically, looking for outcomes in the best interest of the scheme and employer.
To view the statement click here
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The information contained in these articles is given for general information only, reflects the current law on the date of the article, and does not constitute legal advice on any specific matter
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