18 August 2011 - Post by:Robert Tellwright
Pension scheme trustees and pensions managers often ask us about the burning legal issues on the horizon that will need to be dealt with in the next quarter. Auto-enrolment, pensions tax, flexible drawdown and identifying your statutory employers seem to be the favourites.
It’s already been an eventful summer – disturbances in London and elsewhere, the European debt crisis, turbulence on the stock markets, and (importantly) spectacular victories for England in the cricket.
Amidst all of this, you could be forgiven for overlooking what has been (for want of a better expression) a “riot” of new regulations and regulatory guidance for the pensions industry to get to grips with. Whilst some of these developments may seem like issues for the agenda in 2012 and beyond, there are plenty of points which will need to addressed sooner than you may think:
Some of the final details and key practicalities around auto-enrolment into pension saving are now being revealed by the DWP. Employers considering using a defined contribution pension scheme for auto-enrolment will be interested in guidance on how to self-certify that their scheme meets the required quality standards. There’s new information around staging dates, notice requirements, and lots more. It’s all in draft so you will have time to check if it will work for your particular scheme (or else make your views known to the DWP by October 2011).
The Regulator has also published a checklist of action points for trustees to consider – emphasising the importance of liaising with the employer to get an early indication of its intentions for auto-enrolment. Although the first staging date for the largest employers to adopt the regime is not until October 2012, some consultants are already getting nervous about the lack of pre-planning amongst some employers. I don’t blame them – preparing for auto-enrolment will require a lot of planning, requiring an integrated effort between Finance, HR and Pensions functions. Time to get the ball rolling…
Finance Act 2011
The tax regime applying to pension schemes is never prone to staying still for too long, and this year has proved to be no exception. Trustees and employers have been busy considering the impact of the new reduced Annual Allowance, and will soon be required to provide a “scheme pays” facility for members who trigger an AA charge and wish to pay the charge from their scheme benefits. Again, careful thought will be required in designing this facility to meet the needs of the member, the trustees, employer and administrators.
The lifetime allowance will drop to £1.5m on 6 April 2012, and any members who want to preserve up to £1.8m worth of accrued pension will need to register for fixed protection before that date. A personal tax issue, some might say, but perhaps worth communicating to those members who may be affected.
Then there is the removal of the requirement for compulsory annuitisation at age 75. The Finance Act 2011 will provide a more flexible approach, paving the way for flexible drawdown options for any member who can demonstrate a secure income in retirement of £20,000 pa. It won’t be compulsory to make this option available to members, but again pension managers will need to consider whether or not to offer this option, and if so, on what terms.
Identifying statutory employers
The Pensions Regulator has also been busy, and has recently decreed that trustees will now be required to identify all scheme employers – that is, those that are treated by legislation as employers for employer debt purposes – and to provide details in scheme returns from November 2011. There’s a good reason for this: some schemes may have lost their eligibility for PPF protection and not realise it.
Trustees and sponsors will need to sit down in the very near future to review the scheme’s history and establish exactly which employers must be included in the return to comply with this requirement. This could prove to be a big ask, particularly where the sponsor group has complex employment arrangements (the classic example being where members’ employment is recorded by reference to the business division they work in, rather than the legal entity they work for).
In short, it looks like there are busy times ahead for all of us. Oh, and did I mention the abolition of protected rights…?
Robert Tellwright is an associate at Allen & Overy LLP.