Pensions Ready Reckoner

Topic

Developments

DC flexibility from April 2015 for those aged 55 and over

DC flexibility provisions will be in the "Pensions Tax Bill" to be introduced in Parliament this Autumn and will include tax anti-avoidance provisions. There is likely to be an HMRC technical consultation on the draft Bill in August. Requirements for Guidance to DC members will be in the "Private Pensions Bill" – see below.

Defined Ambition Schemes

The legislation introducing these new type of Schemes is in the "Pension Schemes Bill" introduced in the House of Commons on 26 June 2014. The Bill recategorises pension schemes in terms of the level of the employer's promise: being either "defined benefits schemes" OR "shared risk schemes" (defined ambition) OR "defined contributions schemes".

Pooling of risk - Collective benefits for DC arrangements

Provisions are included in the Pension Schemes Bill. It is envisaged that "Collective benefits" arrangements will be available under both shared risk schemes and defined contributions schemes.

Ban or restrictions on DB to DC transfers

If introduced, the ban or restrictions are likely to be in Regulations. A Government announcement is expected in the next few months.

and more minor Parliamentary matters:

Same sex marriages

As required under the Marriage (Same Sex Couples) Act 2013, the Government's "Review of Survivor Benefits in Occupational Pension Schemes" was published last month. The Government is still considering their position but looks unlikely to extend the level of survivor pensions required under present legislation.

GMP sex equalisation

Government remains of the view that GMP sex equalisation is required. However, the draft Regulations published in January 2012 have still not been made whilst the Government continues to search for a simplified process for GMP sex equalisation.

New definition of "money purchase benefits"

The Government have now announced that Section 29 Pensions Act 2011, together with transitional Regulations, are expected to come into force by the end of July 2014. This clarifies the definitions of money purchase benefits following the "Bridge" case. Some schemes which previously thought they had pure money purchase benefits are now faced with the prospect of final salary benefits which must be dealt with differently.

and not forgetting:

Abolition of DB contracting-out from April 2016

The abolition provisions are in the Pensions Act 2014 which received Royal Assent on 7 May 2014. Employers overriding power to amend future service accrual/member contributions to help offset the cost of increased national insurance contributions is set out in Regulations, expected to come into force this Autumn. The Regulations are presently in draft form. For a more in depth analysis, see the article "The end of Contracting-Out countdown: the clock is ticking".

Topic

Developments

The Pensions Regulator ("TPR")

1. TPR's new Code of Practice on the funding of DB schemes has been laid before Parliament and is expected to come into force this July. It reflects TPR's additional statutory objective under Pensions Act 2014 "to minimise any adverse impact on the sustainable growth of an employer" (for a more in depth analysis please see the article " New code of practice on funding defined benefits");
2. In addition, on 10 June 2014 TPR published ancillary papers relating to its view of DB schemes' funding, including its annual statement on funding, its strategy and policy on enforcement and its segmentation of employer covenants.

These are all important documents for employers and trustees to understand in relation to funding discussions.

Financial Conduct Authority ("FCA")

Following FCA's Consultation on DC quality standards and limiting charges in DC schemes, the FCA is expected to consult on draft FCA Rules later this year, including in relation to the "Guidance Guarantee" for DC members in relation to DC flexibilities, Rules for Independent Governance Committees ("IGCs") for DC arrangements and Regulations relating to DC quality standards and DC charges. (DC arrangements are thus becoming much more heavily regulated).

The Law Commission in their June 2014 Report on Investment Duties comment on investment duties in the DC context and obligations of the proposed IGCs. The Government/FCA may well adopt the Law Commission's recommendations.

Topic

Developments

Employer's duty of good faith:

IBM v Dalgleish (April 2014)

The April 2014 High Court decision – see our May 2014 Pensions Bulletin – continues to play out. Next up is the "remedies" hearing this July concerning the availability and extent of remedies for the Employer's breaches of good faith. Thereafter there may be appeals.

Sex equalisation: High Court approves compromise

Archer v Travis Perkins PLC (April 2014)

An example of the High Court's practical approach to resolving sex equalisation issues and to limiting the number of parties in the case.

There were numerous complex issues about whether past amendments to the scheme were legally valid. Instead of a full trial, the Court approved a "compromise" agreed between the parties and binding on members. As the Court explained "the compromise brings advantages to all those involved. It avoids the costs and uncertainties which a full trial of this complicated claim would bring".

Correction of scheme Rules:

Citifinancial Europe plc v Davidson (June 2014)

The High Court ordered the rectification (correction) of scheme documents to give effect to the intention of the parties.

This was a summary judgment, thereby limiting parties' costs.

Besides reiterating the need for convincing evidence that the mistake was a drafting error and that the parties all along intended a different result, the decision is important as:

1. The rectification order was given in a summary judgment without need for witnesses, cross-examination etc; and
2. The Court accepted, albeit somewhat reluctantly, that the intention of the Employer and the Trustees as signatories to the legal documents are key and not whether the true intention was shared by the scheme's members.

LLP partner a "worker" under Employment Rights Act

Clyde & Co LLP v Winkelhof (May 2014)

This High Court decision has implications for auto-enrolment as the Pensions Act 2008 auto-enrolment provisions also use the expression "worker".

Whether an LLP partner is a "worker" and has "qualifying earnings" for auto-enrolment purposes are the key issues. Some LLPs use service companies to employ their employees and this may affect the timing of any auto-enrolment requirement. The legal position is complex and specific advice should always be taken. (For a more in-depth analysis please see the article " A Can of Worms (and then some) – LLPs and auto-enrolment"

VAT:

ATP Pension Services AIS (March 2014, Court of Justice of the European Union)

We reported on "ATP" in our May E-Bulletin. At the end of May HMRC issued a further Brief (22/14) stating that HMRC is now generally reviewing the VAT treatment of pension scheme administration and fund management services and that HMRC will issue further guidance in the Autumn.