Sackers’ Response to DWP Consultation on Bridging Pensions

Background

The DWP is consulting on draft regulations on bridging pensions whichintroduce a power for trustees of schemes which provide bridging pensions to amend their schemes’ rules by resolution to take account of the impact of changes to SPA. The aim is to help trustees who may not otherwise have been able to amend their terms easily in these circumstances, if at all. The proposed power is stated to be limited in scope to members not yet in retirement. The power is also limited to amendments to take account of the changes to SPA and the Finance Act 2004.

We have restricted our comments to the aspects of the consultation which relate to the issue of bridging pensions.

In this response:

• Impact on schemes
  
• Scope: Current pensioners
  
• Related legislation from HMRC and BIS
  

Impact on schemes

In our experience, a number of schemes have already withdrawn their bridging pension option due to the current lack of certainty in the factors affecting them, notably the continuing changes in SPA and changes to state pension benefits more generally.

The impact of the change in SPA is likely to vary significantly between schemes, depending on the type of bridging pension in place.

Schemes which operate bridging pensions in the form of a rearrangement of the standard scheme benefit will, in many cases for future retirees, be able to deal with the changes in SPA by smoothing the benefit so that it is cost neutral to the scheme. However, those which operate an additional benefit based on accrual, are unlikely to be able to alter these in the same way. It is therefore these schemes that are most likely to require the assistance of the power proposed by the draft regulations in respect of future retirees. We address the question of the treatment of individuals who have already retired in the next section.

Scope: Current pensioners

Limiting the scope of the modification power to members not yet in retirement fails to take account of those pension scheme members whose SPA has already been adjusted and who are currently in receipt of a bridging pension. In our experience, it will already be possible in many cases to adjust scheme benefits without the need for statutory support, to deal with bridging pensions for individuals who have not yet retired. By contrast, many schemes may not adjust pensions already in payment, even though the payment period of the benefit itself has changed for reasons beyond their control.

Consequently, those schemes are committed to the amount of the reduction payable to such members, with no scope to make adjustments to take account of the changes to SPA that have already occurred. As a result, this will have funding implications for those schemes which have committed to the adjustment of members’ benefits and where these are already in payment. In our view, it is these schemes, which are now committed to paying benefits that had not been anticipated or funded for, that are most in need of assistance to deal with the impact of the increases to SPA.

We would be interested to know therefore, why the stated intention of the proposed regulations is to restrict them to people who have not yet retired. Having said that, we question whether in fact the wording of draft regulation 4 achieves the stated aim of excluding existing pensioners from the scope of the resolution.

Finally, we note that the proposed permitted amendments are very prescriptive: amend either from 60-65 to SPA or from SPA to 60/65 (female / male). We believe that latitude would be helpful: for example, a scheme may wish to adopt a set age of (say) 65 for both sexes.

Related legislation from HMRC and BIS

We understand that the draft Finance Bill 2013 (which is due on or before 11 December 2012) will include provisions that are designed to align the tax rules governing bridging pensions with SPA. However, it would be helpful to know, for the purpose the present consultation, how this alignment will work, as well as the Government’s intentions for amending bridging pension provisions contained in the Equality Act (Age Exceptions for Pension Schemes) Order 2010.