11 November 2015 - Post by:Stephen Richards
The nights are drawing in, the Christmas adverts are well underway, and we have 35 working days remaining in 2015. Here are my suggested priorities for pension schemes before the turn of the year:
Section 251 resolutions – the deadline for reviving a scheme surplus power is now imminent
If your scheme rules before 6 April 2006 included a power for surplus funds to be paid to a participating employer while the scheme was on-going, that power lapsed on 6 April 2006. Trustees are able to pass a resolution reviving powers of this type if they are satisfied that this is in members’ interests, but this process will no longer be available after 5 April 2016, and must be started by 5 January 2016 at the very latest.
Short service refunds – are amendments required?
Members who joined a DC scheme on or after 1 October 2015 will acquire vested rights in the scheme after 30 days’ pensionable service, which may be maintained or transferred when they leave the scheme. This change does not override scheme rules, so schemes may need to update references to eligibility requirements for short service refunds, and reduce any opt-out period following contractual enrolment to 30 days. Administrators must ensure that refunds are not offered or paid except in appropriate cases, to avoid making unauthorised payments.
End of DB contracting-out – does the employer wish to amend benefits?
Schemes affected by the end of DB contracting-out on 6 April 2016 should act soon if the scheme sponsor plans to offset the consequent increase in payroll costs, either by using a specific statutory power or via a scheme rule amendment. A 60-day member consultation period may be required in relation to proposed changes.
GMP reconciliation – registration deadline
Trustees of schemes which provide guaranteed minimum pensions (GMPs) in relation to pre-April 1997 contracted-out service need to consider their approach to reconciling scheme data with HMRC records. This process may identify members wrongly attributed to the scheme by HMRC and may also reveal historic or on-going under or overpayments which may need to be rectified. Register by 5 April 2016 to obtain data from HMRC.
Annual and lifetime allowance changes for higher earners – action required?
Changes to the annual and lifetime allowances will take effect from 6 April 2016. The annual allowance will be tapered away for earners with income (including employer pension contributions) in excess of £150,000. In addition, the lifetime allowance will be reduced to £1 million. Trustees should consider communicating with potentially affected members about the April 2016 changes to the annual and lifetime allowances and scheme sponsors may wish to consider the impact these changes will have on their employees.
Now would be a good time to take stock. It has been a tumultuous year in pensions and we have seen a number of changes, with more to come in 2016. Make sure your knowledge and understanding of the pensions landscape is up-to-date and that you are on track to meet all your compliance and governance requirements.
Stephen Richards is a senior associate at Allen & Overy LLP.