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:

• Ministerial statement on change to the definition of “money purchase benefits”
• DWP publishes announcement on State Pension top ups
• Automatic enrolment and pensions language guide
• HMRC updates the Registered Pension Schemes Manual (RPSM)
• PPF Appoints Head of Operations for New Member Services Function
• PPF appoints a New Assessment Period Legal Panel
• Memorandum of understanding between the PRA and TPR
  
• IBM UK Holdings Ltd and IBM UK Ltd v Dalgleish and others

Ministerial statement on change to the definition of “money purchase benefits”

The Supreme Court’s July 2011 decision in the Bridge Trustees case concluded that it was possible for certain benefits to be within the definition of “money purchase benefits”, despite there being a potential mismatch between assets and liabilities.  Immediately following this decision, the DWP announced that it would legislate retrospectively (to 1 January 1997 when the definition of “money purchase benefits” was first introduced) to reverse the effect of this decision.

Whether benefits are classified as DB or DC makes important differences to:

• the protections offered by legislation on a wind up
• whether or not the scheme funding and employer debt requirements apply
• the availability of the PPF.

Section 29 of the Pensions Act 2011 (which is not yet in force) will introduce a new definition of “money purchase benefits” which will provide that a benefit is only DC if:

• before it comes into payment, its rate or amount is calculated solely by reference to assets which (because of the nature of the calculation) must necessarily suffice for the purposes of its provision to or in respect of the member;
• once in payment, the pension is secured by an annuity or an insurance policy with an insurer and, at all times before coming into payment, the member’s benefits met the test outlined above.

In effect, this definition is designed to ensure that a deficit cannot arise in respect of a DC benefit.  The change will impact on a range of pension protection legislation, wherever references are made to “money purchase benefits”.

In October 2013, the DWP published a consultation paper on reclassifying DC benefits, seeking views on a number of transitional easements to help schemes adjust to having DB benefits as a result of the new definition (where previously benefits were considered to be DC). In particular, the consultation paper considered the degree to which the change in the definition should be retrospective back to 1997 for all areas of legislation protecting member benefits. (For more information on the consultation, please see our Alert).

On 3 April Steve Webb, the Pensions Minister, issued a written ministerial statement explaining that he intends to lay regulations in respect of the change to the definition of “money purchase benefits” before Parliament in due course, to come into effect in July 2014.  In a welcome change to the consultation proposals, the Minister has confirmed that:

“Following the consultation I have assessed the implications of the retrospective application of the legislation very carefully. I can now confirm that in most cases transitional protection will be provided in respect of events occurring between 1 January 1997 (the date from which section 29 of the Pensions Act 2011 is effective) and the date these Regulations come into force in July 2014.  This means that schemes will not need to revisit past decisions in almost all cases, but will ensure that in the future members are protected if their schemes are unable to pay benefits that have been promised.”

The Government’s response to the consultation on the regulations is likely to be published at the same time as the regulations are laid.

DWP publishes announcement on State Pension top ups

On 2 April 2014 Steve Webb, the Pensions Minister, announced that pensioners and those who reach pension age in the next 2 years will be able to acquire up to £25 of additional State Pension a week.

The “State Pension top up” will be available from October 2015 to all those reaching State Pension age before 6 April 2016.  To obtain the additional payment people will need to make Class 3A Voluntary National Insurance contributions.

The cost of the top up is based on a person’s age and takes average life expectancy into account. For a 65-year-old, the contribution rate for an extra £1 of pension a week will be £890, whereas for a 75-year-old the contribution rate for the same amount of pension will be £674. An online calculator is available which illustrates the contribution rates based on age and the amount by which an individual wishes to increase their additional State Pension.

The top ups can be inherited, with a surviving spouse or civil partner entitled to at least 50% of the additional State Pension.

People will be able to pre-register their interest online or by calling a dedicated phone line (0845 600 4270 or 0345 600 4270).

The offer will be open for 18 months.

Automatic enrolment and pensions language guide

Recognising that individuals find pensions complicated to understand, on 1 April 2014, the DWP published a guide to using simple, consistent language when writing about automatic enrolment and pensions.  By making pensions more jargon free, the Pensions Minister hopes that people will not “turn away from pension saving at the first hurdle”.

HMRC updates the Registered Pension Schemes Manual (RPSM)

On 3 April 2014, HMRC announced several updates to the RPSM. These include guidance on Fixed Protection 2014 and changes to reflect the new Annual Allowance of £40,000, as well as amendments to numbering and minor corrections.

PPF Appoints Head of Operations for New Member Services Function

On 1 April 2014, the PPF announced the appointment of a Head of Operations for its new in-house Member Services function.

Elaine Wiscombe joins from AON Hewitt where she was a Client Relationship Manager.

PPF appoints a New Assessment Period Legal Panel

On 1 April 2014, the PPF appointed six firms to its newly created Assessment Period Legal Panel.

This panel is the last in a series of five panels launched by the PPF to aid and support the efficient and timely transition of schemes into the PPF and through the FAS wind-up. The new panel will focus its skills on three discrete PPF assessment tasks: Admissible Rules, Equalisation and the Benefit Specification.

As with all the other panel organisations, the  role of these six firms will be to work collaboratively with key stakeholders in order to progress schemes through the PPF assessment or FAS wind-up periods in a timely manner, and to deliver certainty to members as soon as practicably possible.

Memorandum of understanding between the PRA and TPR

On 2 April 2014, the Bank of England published a memorandum of understanding between the PRA and TPR.

The memorandum of understanding concerns the arrangements for co-operation and co-ordination between the PRA and TPR in carrying out their respective regulatory responsibilities under the Financial Services and Markets Act 2000, the Pensions Acts 2004 and 2008, and other relevant legislation.

IBM UK Holdings Ltd and IBM UK Ltd v Dalgleish and others

On 4 April 2014, the High Court ruled that IBM UK acted in breach of its duty of good faith to the members of its DB pension plans in closing the DB plans to future accrual and imposing a new restrictive early retirement policy.  It also found that IBM provided misleading information to members during the consultation process which preceded the closure.

A further remedies hearing will follow in due course.

We will publish an alert with further details on the decision shortly.