Week ending 9 Nov: DWP guidance on new MP definition|New disclosure rules for public sector schemes
DWP guidance on new MP definition
The Department for Work and Pensions has issued guidance explaining the changes to the definition of money purchase benefits in occupational pension schemes, under section 29 of the Pensions Act 2011, from July 2014.
The Supreme Court judgment in Bridge Trustees v Houldsworth and another  UKSC 42,  1 All ER 659, decided that certain benefits could be considered money purchase benefits even though it was possible for them to develop funding deficits. This led to uncertainty about what type of pension arrangements fell within the meaning of money purchase benefits.
Section 29 of the Pensions Act 2011 (section 29) which came into force on 24 July 2014 (with retrospective effect to 1 January 1997) clarifies the definition of money purchase benefits to remove this uncertainty.
The effect is that for a benefit to be a money purchase benefit, the amount or rate of the benefit must be calculated only by reference to the scheme’s assets which, because of the nature of the calculation, must necessarily suffice to provide the benefit. There is no possibility of a funding shortfall for a money purchase benefit (in the absence of fraud or error) because whatever the amount or rate of the benefit is, will equate to the scheme’s assets available for the provision of that benefit.
Trustees and managers of schemes may need to consider whether their scheme provides any benefits that fall outside the definition of money purchase benefits in section 29 which, before 24 July 2014, were treated as money purchase benefits. If so, trustees and managers need to take account of how the regulations apply to their schemes. The guidance sets out the different circumstances in which the legislation may apply.
See - http://www.gov.uk/government/publications/money-purchase-benefits-in-pensions-law-guidance-on-changes-from-2014
New disclosure rules for public sector schemes
The DWP is proposing to amend the Occupational and Personal Pension Schemes (Disclosure of Information) Regulations 2013 (SI 2013/2734) in order to ensure they work as intended in relation to the new public service pension schemes which are being introduced from April 2015 under the Public Service Pensions Act 2013. The DWP is therefore seeking views by 28 November 2014 on the draft Occupational and Personal Pension Schemes (Disclosure of Information) (Amendment) Regulations 2015.
DoH issues draft NHS Pension Scheme transitional regulations
The Department of Health has published the draft National Health Service Pension Scheme (Transitional & Consequential Provisions) Regulations 2014. In relation to the new NHS Pensions Scheme for England and Wales, these propose modifications, from 1 April 2015, to contracting-out provisions, early leaver and other provisions, and the tax regime.
Opt rates for ‘2014 stagers’
According to new research by DWP, automatic enrolment opt out rates are remaining stable at around 10% for employers who staged for automatic enrolment between January 2014 and July 2014.
The research release presents findings from a survey of 50 employers with between 90 and 499 workers who have staged automatic enrolment between January 2014 and July 2014. It therefore includes employers from the ‘large’ category with 250 or more workers, as well as the ‘medium’ category with between 51 and 249 workers. Key findings are:
• The overall opt out rate was 12 per cent of those workers who were automatically enrolled. Most individual employers had between 5 and 15 per cent of their workers opting out following being automatically enrolled. The DWP’s 2012/13 survey of larger employers found an average opt out rate of 9 per cent, and the DWP says given the small sample sizes and consequent margins for error, it appears that opt out rates are remaining stable around one-in-ten.
• Across the 46 employers providing data, overall participation in a workplace pension increased from 44 per cent to 76 per cent.
• Opt out rates were 23 per cent for workers over 50 years old, compared to 7 per cent for those under 30 years old and 9 per cent for those aged between 30 and 49 years old.
• Part-time workers were 8 percentage points more likely to opt out than full-time workers, with an opt out rate of 18 per cent for part-time workers compared to 10 per cent for full-time workers.
• The most common reasons given for opting out were: concerns about affordability; feeling that they already had adequate retirement provision (largely cited by older workers); being close to retirement; and feeling that the contribution rate is too low.
• Employers who took part in this study only rarely incurred substantial ad hoc costs as a result of implementing automatic enrolment. The majority of employers were relatively comfortable with the financial outlay they had made, seeing implementation as mandatory and therefore unavoidable.
• The majority of employers felt that the ongoing administration costs of automatic enrolment were manageable. However many expressed concerns about the costs of employer contributions, especially when the statutory minimum contributions rise.
• Whilst a large majority of employers had existing pension schemes, most had to select new schemes that would be in compliance with the guidelines around automatic enrolment. Most employers setting up new schemes used master trusts. NEST was the most commonly used of the master trusts due to being seen as “the government pension scheme”.
• Employers generally began preparing 3-6 months in advance of their staging date, and the person responsible for implementation was generally a human resources professional but not a pensions specialist.
• The most common piece of advice given to smaller employers was to prepare early, with employers staging in 2014 citing an ideal preparation period of between 6 to 9 months ahead of staging.
Pensions Regulator publishes Kodak and UK Coal case reports
The Pensions Regulator has issued a report, published under section 89 of the Pensions Act 2004, explaining how it helped to facilitate an innovative rescue plan for Kodak’s UK pension scheme.
The Regulator has also issued a section 89 report explaining its role in facilitating the July 2013 restructuring of UK Coal’s operations, following a major fire which resulted in the closure of the company’s Daw Mill mine.
Pension Scheme Bill completes committee stage
The House of Commons public bill committee considering the Pension Schemes Bill 2014-15 finalised its examination of the Bill on 4 November 2014.
Amendments agreed during the committee stage and other key points are –
• The definition of pensions guidance as “guidance given for the purpose of helping a member of a pension scheme to make decisions about what to do with the cash balance benefits or other money purchase benefits that may be provided to the member”.
• The guidance providers will be TPAS and CAB. Anyone who is not a designated guidance provider who falsely claims to be giving pensions guidance will be committing a criminal offence.
• Steve Webb indicated that individuals will have a “second bite” at the guidance guarantee if they want it. They will still have access to telephone and website advice. The government is happy with the progress it is making to establish a framework to provide the guidance guarantee and an update on progress will be published towards the end of 2014.
• It was confirmed that cash equivalent transfers from unfunded DB public-sector pension schemes to DC schemes would be prohibited.
• Steve Webb confirmed that a different transfer regime is required for pension schemes that provide collective benefits.
The Bill as amended can be found at –
EAT ‘holiday pay’ decision could impact pensions
In Fulton and others v Bear Scotland Ltd and others; Woods and others v Hertel (UK) Ltd; Law and others v Amec Group Ltd, the Employment Appeal Tribunal (EAT) dismissed an appeal by the employers against a decision of the employment tribunal that payments for non-guaranteed overtime were part of normal remuneration. Therefore, they were to be included as such in the calculation of holiday leave taken under reg 13 of the Working Time Regulations 1998, SI 1998/1833. The EAT allowed the appeal by Hertel and Amec against the tribunal's findings that the employees could claim the consequent arrears of pay as being unlawful deductions from their pay under the Employment Rights Act 1996 insofar as in any case a period of more than three months had elapsed between such deduction.
According to legal commentators, one consequence of this case is that, depending on scheme rules, pensionable pay in some pension schemes could increase. Schemes affected, both DB and DC, are those that include variable elements in the pay that is used to calculate benefits and contributions (e.g. qualifying earnings for auto-enrolment).