7 days

7 Days is a weekly round up of developments in pensions, normally published on Monday afternoons. We collate this information from key industry sources, such as the DWP, HMRC and TPR.

In this 7 Days:

• The Pension Protection Fund and Occupational Pension Schemes (Levy Ceiling and Compensation Cap) Order 2014
• BIS issues revised guide to the 2006 TUPE regulations
• FRC challenges the reporting of companies classifying pension liabilities as equity
• NEST investment guide sets the record straight on its approach
• Bradbury (Pensions Ombudsman)
  

The Pension Protection Fund and Occupational Pension Schemes (Levy Ceiling and Compensation Cap) Order 2014

The PPF is required to charge a levy to DB occupational pension schemes (and the DB element of hybrid schemes) to fund the compensation it will pay to scheme members if their employer becomes insolvent and the scheme is underfunded below a certain level. The level of compensation payable to members who are below their scheme’s normal pension age is normally limited to a maximum of 90% of the compensation cap.

The Secretary of State is required to set a levy ceiling preventing the PPF from raising the levy above a set maximum.

The levy ceiling is uprated annually in line with the general level of earnings in Great Britain (unless there is no increase). Similarly, the Secretary of State increases the compensation cap following a review of the general level of earnings in the previous tax year.

This Order increases:

• The compensation cap from £34,867.04 to £36,401.19 with effect from
  1 April 2014. When applying the 90% provision to the updated cap it will provide, at age 65, a maximum level of compensation of £32,761.07
• The levy ceiling from £933,556,533 to £941,958,542 for the financial year beginning 1 April 2014.

BIS issues revised guide to the 2006 TUPE regulations

The Collective Redundancies and Transfer of Undertakings (Protection of Employment) (Amendment) Regulations 2014 have been laid before Parliament and will come into force on 31 January 2014, subject to saving and transitional provisions.

TUPE provide rights to employees when their employment changes when a business is transferred to a new owner. The new regulations are generally intended to provide employers with more clarity and flexibility when involved in a transfer.

BIS has issued a revised guide to TUPE which takes into account the changes made by the new regulations. In addition, the guide now includes information on the treatment of pension rights on a TUPE transfer.

FRC challenges the reporting of companies classifying pension liabilities as equity

On 15 January 2014, the FRC warned boards against entering into arrangements that turn pension obligations into equity instruments in their accounts.  

The Financial Reporting Review Panel (FRRP) of the FRC has, over recent years, considered several annual reports and accounts of companies which have put in place arrangements to provide additional collateral to their pension schemes in exchange for reduced annual contributions and a longer period to fund the pension scheme deficit.

The FRRP acknowledges the genuine commercial reasons for establishing such arrangements and has focused on companies that have reclassified pension liabilities as equity instruments.

Specifically, some of these arrangements, usually involving the establishment of a Scottish Limited Partnership which holds the collateral, have included additional features which appear to have been introduced in order to achieve an accounting outcome whereby the company’s obligation to make future payments to its pension scheme is transformed into an equity instrument in the company’s consolidated accounts. This has a favourable impact on financial solvency, gearing and reported comprehensive income notwithstanding that the company has retained the obligation to fund the pension deficit.

Following enquiries by the FRRP, each of the companies has revised either the arrangements or the amounts recognised with the result that the concerns of the FRRP have been addressed for the future from the date of the change.
Richard Fleck, Chairman of the FRC’s Conduct Committee and chair of the FRRP said, “The FRRP believes that it is important that companies and their advisers are aware that the FRRP will ordinarily open an enquiry into the financial reporting of any company in which material pension liabilities are reclassified from debt to equity.”

NEST investment guide sets the record straight on its approach

NEST has launched a new detailed guide to explain its investment approach and its ambition for NEST members.

The guide shows how NEST’s investment approach aims to deliver high quality while keeping costs low.

Press release

Bradbury (Pensions Ombudsman)

The Pensions Ombudsman has concluded that the BBC’s conduct, in seeking to impose a 1% cap in increases in pensionable salary through the mechanism of scheme members’ pay awards, did not amount to a breach of the implied duty of trust and confidence which arises from an employee’s employment contract.

Click here for a full case report.