Developments in Employee Benefits law and practice

06 November 2017

Weekly update on new developments in the pension industry for week ending 20 November 2017: Finance (No.2) Act 2017 | Safeguarded Flexible Pension Benefits: Simplified valuation and risk warnings | Updated HOC Library briefing paper on impact of Brexit on State pensions | ABI guidance to help firms support vulnerable customers | Draft Pension Protection Fund (Compensation) (Amendment) Regulations 2018: technical consultation

Finance (No.2) Act 2017

The Finance Bill (Session 2017–19) received royal assent on 16 November 2017 as the Finance Bill No (2) Act 2017.The Bill was introduced to grant certain duties, to alter other duties, and to amend the law relating to the national debt and the public revenue, and to make further provision in connection with finance. Provisions include the reduction in the money purchase annual allowance, from £10,000 to £4,000, with effect from 6 April 2017. 

Safeguarded Flexible Pension Benefits: Simplified valuation and risk warnings

New guidance has been published relating to the information that must be provided as a result of the Pension Schemes Act 2015 (Transitional Provisions and Appropriate Independent Advice) (Amendment) Regulations 2017 and the Pension Schemes Act 2015 (Transitional Provisions and Appropriate Independent Advice) (Amendment No.2) Regulations 2017. The regulations cover money purchase benefits with guarantees (such as guaranteed annuity rates).

Updated HOC Library briefing paper on impact of Brexit on State pensions

The House of Commons Library has published an updated briefing paper looking at EU law on State Pension entitlement and the possible impact of Brexit.

ABI guidance to help firms support vulnerable customers

The Association of British Insurers (ABI) has published guidance to help firms spot and support vulnerable people in the long-term savings market.

Draft Pension Protection Fund (Compensation) (Amendment) Regulations 2018: technical consultation

This consultation seeks views on the draft Pension Protection Fund (Compensation) (Amendment) Regulations 2018, relating to PPF compensation and bridging pensions.

Bridging pensions allow members of defined benefit occupational pension schemes who retire before reaching State Pension age to be paid a higher rate of pension initially. The pension then reduces when the member receives their State Pension or from another date specified in their pension scheme rules (the decrease date).

Currently, pensioner members in receipt of a bridging pension at the higher rate when their scheme enters the Pension Protection Fund (PPF) receive PPF compensation based on this rate for life. Had the pension scheme not entered the PPF, the member’s scheme pension payments would have reduced at the decrease date.

Between 31 August and 1 October 2017 the government ran a consultation which sought views on its preferred approach to address the PPF bridging pensions anomaly by actuarially converting the bridging pension into a flat-rate lifetime equivalent amount (known as smoothing).The vast majority of those who responded to the consultation agreed that the government should legislate to correct the PPF bridging pension anomaly. However, a significant proportion of respondents expressed a preference for the alternative approach set out in the consultation, one based on the rules of the original scheme. After careful consideration of the responses, the government has decided to address the PPF bridging pension anomaly by more closely aligning with the approach that schemes would have taken.

This technical consultation seeks to establish whether the draft regulations achieve the policy intent.

The changes to PPF compensation rules will come into effect in February 2018, subject to Parliamentary procedures.

Contact:

John W. Wilson LLB(Hons) FPMI ACII, Head of Research| Email: john_wilson@jltgroup.com

Stephen Williams, Senior Research Consultant | Email: stephen_williams@jltgroup.com