03 May 2017

Pensions snapshot - May 2017

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This edition of snapshot summarises some of the key legal and regulatory developments that occurred up to the end of April 2017 in relation to occupational pension schemes. The topics covered in this edition are:

 

Pulse Flexible Packaging administration sale blocked by PPF

In April, the trustees of the Pulse Flexible Packaging (Pulse) pension scheme halted the takeover of the company through a pre-pack administration. Following the Work and Pensions Committee's criticism of the sale of Bernard Matthews through a pre-pack administration, there had been a more widespread outcry about the use of pre-pack administrations in general - some see them simply as a way of disposing of a company's pension scheme.

Crucially, in the case of Pulse, the pension scheme had become a secured creditor of the company through a previous restructuring exercise. This is generally not the case for a pension scheme and will have provided the trustees with more influence over the outcome in this instance. Equally, it appears that the PPF and the trustees had been advised that more value could be obtained from the company through a sale of its assets than through its sale under a pre-pack administration.

The scheme has an estimated buyout deficit of approximately £80 million, while creditors are expected to achieve £4m from Pulse. The 700 members of the scheme are expected to enter the PPF following the scheme entering a PPF assessment period.

Money purchase annual allowance and pensions advice legislation delayed; Pension Schemes Bill makes it onto the statute books

In the interests of fast-tracking the Finance Bill 2017 (the Bill) through the legislative process, the Government has decided to delay both the reduction of the money purchase annual allowance (MPAA) from £10,000 to £4,000 where an individual has already accessed their money purchase pension savings flexibly and the introduction of a £500 tax-exempt employer-arranged pensions advice allowance (the Advice Allowance). As such, the final version of the Bill, which received Royal Assent on 27 April, did not include clauses relating to the MPAA and the Advice Allowance.

It is anticipated that the omitted clauses will be included in a further Finance Bill to be passed once the forthcoming general election has taken place. Jane Ellison, financial secretary to the Treasury, confirmed that: “The Bill is progressing on the basis of consensus and therefore, at the request of the opposition, we are not proceeding with a number of clauses. However, there has been no policy change. These provisions will make a significant contribution to the public finances, and the government will legislate for the remaining provisions at the earliest opportunity, at the start of the new Parliament.”

The date from which the reduced MPAA, once implemented, will take effect is not yet clear and so the possibility of it being backdated to 6 April 2017 (as originally intended) should not be ruled out. It remains to be seen whether the Government will provide any further clarification in the meantime as to whether affected individuals will be permitted to pay £10,000 in the current tax year without incurring tax charges.

The same uncertainty exists in relation to the Advice Allowance and this will be particularly unsatisfactory for employers who have already included it in employee benefits packages and do not know whether it should be taxed as a benefit in kind.

Clauses relating to overseas pensions and offshore pensions transfers (in particular, the provisions imposing a 25% charge on certain transfers) were included in the final version of the Bill.

In the meantime, the Pension Schemes Bill (PSB) - which sets out a new regulatory regime for master trusts (including in relation to authorisation, supervision and winding-up) and enables a cap on early exit charges and a ban on member-borne commission - has completed its journey through Parliament. It received Royal Assent and became an Act on 27 April 2017.

Consultations on employer debt regulations and early exit charges

The DWP opened two new pensions consultations in April. One relates to the employer debt regulations which, as most people are aware, can have a significant commercial impact on employers of multi-employer pension schemes. The DWP is proposing to add a further deferred debt arrangement (DDA) to manage employer debts that could arise when an employment cessation event (ECE) occurs. A DDA would enable an employer to defer the requirement to pay an employer debt triggered by an ECE. Unsurprisingly, a range of conditions would need to be met before a DDA could be put in place and a DDA may terminate in various circumstances, meaning a new debt will probably arise. Trustees would appear to have a degree of power to trigger a DDA's termination. The DDA is aimed toward employers of non-associated multi-employer schemes (although the legislation does not restrict the use of DDAs to such schemes).

The second consultation relates to a proposed cap on early exit charges that may be payable by members of occupational pension schemes providing money purchase benefits. The cap, to a large degree, mirrors the cap that applies to contract based arrangements. The proposed cap will not just apply to pure money purchase schemes - hybrid schemes will also come within its scope.

The DWP has proposed that the legislative changes set out in both of these consultations should come into force on 1 October 2017.






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