PPF consultation on definition of “money purchase” – Sackers’ response to consultation

In this response:

• Background
• General
• Internally annuitised pensions
• Guaranteed investment returns
  
• Other underpins
  

Background

We are responding to the PPF consultation document, Money Purchase Benefits published in May 2014.  The consultation follows the publication of the Pensions Act 2011 (Transitional and Consequential Provisions) Regulations 2014 which make amendments to the definition of “money purchase benefits” following the Supreme Court decision following Bridge Trustees.  The consultation deals primarily with the PPF’s policy on out of cycle valuations for those schemes affected by the Regulations.

General

We consider that the application of a materiality test in order to test whether it is necessary to commission an out of cycle section 179 valuation for PPF levy purposes is helpful.  However, for those schemes which fall outside the materiality test (or which are unsure of their position in relation to materiality before conducting a valuation), the timescale to commission an out of cycle valuation by 31 March 2015 remains tight.

Internally annuitised pensions

In relation to section 179 valuations (to determine scheme liabilities for the purpose of payment of the PPF levy), we agree that it makes sense to apply the following treatment for money purchase benefits which have the option of being internally annuitised:

• before annuitisation, the benefit would be treated as money purchase and secured outside the PPF;
• after annuitisation, the benefit would be treated as not money purchase and protected by the PPF.

For a section 143 valuations (to determine liabilities to establish whether the PPF should take over the scheme), again we agree that any money purchase benefits which have been internally annuitised should not be treated as money purchase benefits after 1 April 2015.

These outcomes accord with our understanding of the amended definition of money purchase benefits in section 181 of the Pensions Schemes Act 1993 (which is not yet in force but is expected to be in force by the end of July 2014).

Guaranteed investment returns

We understand that your proposal is to treat benefits with a guaranteed investment return (GIR) as if they were cash balance benefits for the purpose of a section 179 valuation.

We are not sure this would work in all circumstances.  We are aware of a number of schemes which calculate GIRs in different ways –for example, by checking against performance for the last three years of the accumulation phase.  We consider it would be simpler to allow schemes to treat the benefit as appropriate under the guidance on section 179 valuations.

Other underpins

We assume that these would be dealt with as for hybrid schemes in the guidance referred to above.  We consider it would be helpful to state this in the response for the avoidance of doubt.