Pensions Newsletter July 2011
Inside this issue:
Pensions Bill 2011
Moving the goalposts on surplus and state pension age
6 April 2016 is now to be the deadline for passing a resolution under section 251 to retain a power to repay surplus to an employer.
The section is also amended so that only one resolution can be passed after April 2011 regardless of whether a resolution has already been passed prior to this date leaving open the possibility to pass a further amending resolution for those who were quick enough to get in before the original deadline.
State pension age will now increase from 65 to 66 in 2020.
As a result the equalisation of pension age for women has been accelerated so that this will catch up to 65 by 2018.
Auto Enrolment – New limits
The earnings trigger for auto enrolment which was originally set at £5035 is to be increased to £7475 per year and a 3 month deferment period is to be introduced so new workers will not need to be enrolled immediately.
A recent amendment to the Bill has seen the test for self-certifying that a money purchase scheme meets relevant quality requirements to allow it to be used as an alternative to NEST increase to a stricter level.
The requirement will now be that total contributions must not be less than the relevant quality requirements for 90% of jobholders as opposed to the “majority of jobholders” as was originally proposed when the Bill was introduced.
CPI Switch
The switch to CPI for government schemes is automatic. This is proving to be controversial and is already the subject of two legal challenges seeking to judicially review the situation.
For private sector schemes the switch is not automatic, but it will be possible to adopt CPI as an alternative measure to RPI where the scheme rules allow an amendment of this type as there will be no statutory modification power to do this.
Choosing to adopt CPI is expected to become a listed change for the purposes of the Consultation Regulations and would therefore require notification to and consultation with affected members.
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In the Courts - Exercise of Discretionary Powers
Futter and another v Futter and others; Pitt and another v Holt and another [2011] EWCA Civ 197
This recent coupling of cases has resulted in the “correction” of the Hastings-Bass rule and sets out new principles under English law for determining whether the courts can intervene to set aside a trustee’s exercise of a discretionary power where this has resulted in an unforeseen outcome.
The new principles can be summarised as follows:
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Where an act is outwith a trustee’s power this is void
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Where an act is within the powers of a trustee but the trustee either takes into account something which is not relevant, or fails to take account of something which is relevant then his act may be voidable, but only if it is also a breach of fiduciary duty.
The case does provide some comfort to trustees in stating that if they were acting properly within their powers and their decisions were a result of reliance on advice from “apparently competent advisers” then they will not generally be in breach of trust regardless of any adverse outcome as a result of the advice being incomplete or incorrect.
Historically, Scottish courts have been reluctant to look into questions regarding the exercise of trustees’ discretion, that position is considered likely to continue.
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Default Retirement Age
Regulations came into force in April which abolish the default retirement age and as a result, subject to transitional arrangements, it is now automatically considered to be discrimination to dismiss anybody on the basis of their age.
There are exemptions to this on the basis that you can objectively justify a retirement age and that this is “a proportionate response to a legitimate aim” which can include, for example, workforce planning and allowing for retention and recruitment of younger employees.
Guidance has been published by ACAS on this topic and is available here.
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Are your records up to date?
A recent Pensions Regulator survey has highlighted that only 39% of administration providers have read in detail and taken action on their record keeping guidance.
Although the administration of a scheme may be delegated to an administration provider, the trustees still remain accountable for this so it is imperative that they understand their responsibilities.
The Pensions Regulator has published a guide aimed at trustees of smaller schemes which sets out the following five steps for helping to improve administration of their schemes:
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Identify gaps and errors in member data
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Understand what trustees can expect from their administration provider and make sure they are delivering this
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Understand administration reports
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Have regular contact with the administration provider
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Set up an administration committee
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A second chance at the PPF
As it stands if a scheme fails to qualify for the PPF on its first attempt it must submit an application for reconsideration accompanied by a quote from an insurer of the cost of securing annuities for members equal to the lesser of their PPF compensation entitlement or scheme benefits.
This could prove problematic if since the initial application the funding position has worsened and for example, the trustees are unable to obtain a quote of this type from anywhere.
This requirement is to be removed making it easier for schemes to get a second chance at PPF admission.
There are also changes to reduce the PPF assessment period allowing this to be completed in less than a year and speeding up transfers.
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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
Contacts for Pensions Newsletter July 2011