11 Mar 2016

Pensions snapshot - March 2016

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This edition of snapshot summarises some of the key legal and regulatory developments that occurred up to the end of February 2016 in relation to occupational pension schemes. The topics covered in this edition are:

 

Not a "Safeway" to equalise: High Court rules that Safeway could not have equalised normal pension age by announcement

In this case the High Court rejected the supermarket brand Safeway's claim that it had equalised normal pension age for male and female members by virtue of announcements issued to members in 1991.

It was decided that the terms of the scheme's power of amendment would have required a deed to have been executed in 1991 (which was the point in time that Safeway argued equalisation had been effected).  Instead, only announcements had been issued, with a deed not following until 1996.  The Court also took the view that the deed entered into in 1996 could not retrospectively amend the normal pension age to provide for less favourable treatment for members as this was contrary to EU law.

As has been widely reported, this decision will mean an extra £100 million funding liability for this particular pension scheme and, therefore not surprisingly, it is being appealed.  In the meantime it is another reminder for pension schemes that they must carefully consider whether they did equalise properly in accordance with the law and the terms of the scheme's power of amendment.

DWP introduces power to modify GMP revaluation provisions in scheme rules

The DWP has issued draft regulations that are intended to introduce a statutory modification power from 6 April 2016 relating to GMP revaluation in formerly contracted-out schemes. 

The legislation currently provides that schemes may provide that fixed rate revaluation of the GMP is triggered at the time when the member leaves contracted-out service.  However, this is being amended to take into account the end of contracting-out so that after 6 April 2016, fixed rate revaluation will be triggered not by when contracted-out service ends, but from when pensionable service ends.

Schemes will have to amend their rules to carry out fixed rate revaluation from the end of pensionable service even if they had already chosen fixed rate revaluation as their preferred method.  However concerns had been raised that some scheme amendment powers would be too restrictive to allow for this amendment.  Therefore, in order for the option for fixed rate revaluation to remain open for such schemes, the DWP has introduced this statutory modification power.

Earning the right to a transfer: Hughes v Royal London

In this case Mrs Hughes had originally applied for a transfer of her pension benefits from a personal pension scheme administered by Royal London to a pension arrangement of her choice.  Querying the nature of the proposed receiving scheme, Royal London had refused the transfer. This led Mrs Hughes to complain to the Pensions Ombudsman.  The Ombudsman decided that Mrs Hughes had no statutory right to a transfer on the basis that she was not an "earner" (a requirement to allow a statutory transfer to proceed) as she had no earnings in respect of employment in relation to the receiving scheme.

The High Court overturned the Ombudsman's decision on the basis that it concluded that Mrs Hughes was, in fact, an "earner" within the meaning of the statutory definition.  Earnings from another source of employment were sufficient to satisfy the definitions; earnings did not have to be earnings in respect of employment in relation to the receiving scheme. This meant that she did have a statutory right to transfer her pension benefits.

The High Court case has caused some concern as it may make it easier for members to transfer their pension rights into a suspected pensions liberation vehicle given that it will now nearly always be the case that the statutory test for "earner" will be satisfied.

No Chancellor's TEE party:  Treasury backs down on pensions tax reform

It has been reported that the Treasury will no longer proceed with radical reforms to the pensions taxation system as part of the forthcoming Budget.  There were suggestions of a move to a tax, exempt, exempt, ("TEE") system in conjunction with a form of pensions ISA (i.e. the initial contribution made by the pensions saver would be taxed, the investment return exempt from tax and then the pension payment at retirement also exempt from tax).  The proposed change would have hit higher rate tax payers the hardest.  Even though it seems unlikely that the Budget will feature this change, it will be interesting to see whether there are any future developments on this front.

PPF confirms compensation cap and levy ceiling for 2016/17 financial year

The PPF compensation cap and levy ceiling for the 2016/17 financial year has been confirmed by statutory order.

With effect from 1 April 2016, the compensation cap will increase from £36,401.19, to £37,420.42.  The 90% level that applies for members of schemes entering the PPF who are under their scheme's normal pension age will therefore be £33,678.38.

The order also confirms that on 1 April 2016, the overall PPF levy ceiling will rise from £947,610,293 to £981,724,264.

 











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