We’re listening… The Government consults on pensions issues

Introduction

The Coalition Government has been keen from the outset to make its mark on UK pensions. As well as undertaking a number of reviews into the previous administration’s plans (including a full evaluation of the proposals for automatic enrolment and NEST), various Government Departments, and TPR, are actively consulting on several aspects of pension provision.

We set out below highlights from some of the key pensions consultations currently under consideration.

In this Alert:

• TPR Guidance
• Revised guidance on transfer incentives
• DWP: Abolition of contracting-out on a DC basis
• BIS/DWP: Phasing out the default retirement age
• EU: Pensions Green Paper
• Sackers’ responses

TPR Guidance

Multi-employer schemes and employer departures1

As part of its series of guidance on employer support, TPR has published draft guidance on multi-employer DB schemes and employer departures. It aims to help trustees understand their responsibilities and options, as well as the different mechanisms by which an employer can exit the scheme.

Employers are also on TPR’s radar, with a section of the draft guidance devoted to raising their awareness and highlighting TPR’s expectations of them.

TPR encourages trustees to let it know if they have concerns about a transaction. Equally, if employers are worried about the potential implications of an employer departing the scheme, they may apply for clearance. If a transaction results in a material detriment to the scheme, TPR states that it will consider using its anti-avoidance powers.

Closing date: 23 September 2010

Revised guidance on transfer incentives2

Concerned by their increase in popularity, TPR has issued revised guidance ontransfer incentives. This builds on the 2007 guidance on Inducement Offers and aims to strengthen TPR’s position.

TPR’s draft guidance says that an incentive offer from an employer to scheme members should adhere to five guiding principles. It must:

• be clear, fair and not misleading;
• be open and transparent;
• manage conflicts of interest;
• ensure that trustees are consulted; and
• make it clear that members should take independent financial advice.

The draft guidance also suggests that trustees “should start from the presumption that such exercises are not in the members’ interests”, and that they should therefore approach any incentive exercise “cautiously and actively”.

Closing date: 5 October 2010

DWP: Abolition of contracting-out on a DC basis3

On 28 July 2010, the DWP published a consultation on draft regulations designed to implement certain consequential amendments to give effect to the proposed abolition of DC contracting-out from 6 April 2012.

While mainly an issue for DC Schemes, DB schemes which are contracted-out on a protected rights basis will need to consider whether they wish to remain contracted-out going forwards. Alternatively members can be contracted back in to the State Second Pension.

Closing date: 19 October 2010

BIS/DWP: Phasing out the default retirement age4

Under the Age Regulations, it is lawful for an employer to dismiss an employee aged 65 or over by reason of retirement (known as the default retirement age (DRA)).

In a measure inspired by increasing longevity, the Government intends to remove the DRA from legislation on 6 April 2011 (allowing a transitional period for retirements already in train until 1 October 2011). From that date, employers will need to objectively justify having a compulsory retirement age for their workforce.

While the consultation does not deal with the potential impact on pension schemes, schemes are bound to feel the change because for generations they have paid benefits at “normal” retirement date.

Closing date: 21 October 2010

EU: Pensions Green Paper

The European Commission launched an EU-wide public consultation on pensions seeking views on whether, and how, the EU pensions framework should be adjusted to support Member States in providing adequate and sustainable pensions.

Inspired by growing pressure on European pensions systems as a result of demographic ageing, the Green Paper reignites the debate on the possible application of Solvency II to occupational pension schemes. The Commission considers “the Solvency II approach could be a good starting point, subject to adjustments to take account of the nature and duration of the pension promise, where appropriate.”

Closing date: 15 November 2010

Sackers’ responses

Although it has been said that “laws are like sausages, it is better not to see them being made”5, the consultation process offers a valuable opportunity to review the proposals before they are finalised.

We welcome feedback on the issues raised in any consultation. The consultations described above are, however, all public consultations to which anyone can respond. If you have specific concerns, you may wish to make your own submission – live examples in connection with an issue in draft legislation or guidance can be highly persuasive in effecting change.

1 Please see our Alert: Employer Debt and Multi-Employer Schemes dated 6 July 2010

2 Please see our Alert: TPR issues draft guidance on transfer incentives dated 15 July 2010
3 Please see our Alert: Abolition of DC contracting-out: consultation on implementing legislationdated 30 July 2010
4 Please see our News: The end of the default retirement age is nigh! dated July 2010
5 Otto von Bismark (1815-1898)