Pope Anderson LLP

Changes to taxation of high earners

In the 2009 Budget the Chancellor announced that from April 2011, for individuals earning over £150,000 per annum, the higher tax relief on pension contributions will taper away so that those earning over £180,000 per annum will only receive basic rate (20%) tax relief.

This is a major change to a long established tax incentive available to encourage individuals to save for their retirement. It now means that a higher earner who saves for retirement will only benefit from 20% tax relief on any pension contributions (including employer contributions and defined benefit accrual) but will still pay tax at their marginal tax rate when this pension is drawn, as well as a recovery charge at retirement if their benefits exceed the Lifetime Allowance.

Anti-forestalling legislation was introduced effective 22 April 2009 to prevent ‘higher earners’ making large new contributions to take advantage of the current regime while this is still available to them. The anti-forestalling legislation was extended to those earning over £130,000 in the December 2009 Pre-Budget report.

Although final details are still to be confirmed and the Government is still consulting on this issue, it now looks more likely than not that these proposals will come into force. In fact, the changes made since the original April 2009 announcement have mostly served to restrict tax relief further and close any perceived loopholes.

The change dramatically affects the efficiency of pension saving for high earners, and affected members should be encouraged to review their retirement plans with an IFA.  We recommend that you check if any executives and higher earners are affected.  If so Pope Anderson can help you to re-examine your remuneration policies for these employees.

Personal Accounts now NEST

The Pensions Act 2008 provides that from 2012 employers will need to automatically enrol all eligible workers into a qualifying pension scheme and make at least a minimum level of contribution. 

The Government is setting up a new pension scheme which employers can use to fulfil their new duties - the National Employment Savings Trust (NEST), which was previously known as Personal Accounts.

Even though 2012 is a couple of years away employers should start considering now how the 2012 changes will affect them and what action may need to be taken. Your usual Pope Anderson consultant will be able to help and we recommend that a meeting be arranged in the near future to begin the planning process.

Disclosure Requirements

In 2009 the Department for Work and Pensions (DWP) consulted on proposals to simplify the disclosure requirements on pension schemes.  The consultation proposed a “single overarching disclosure principle”, with disclosure requirements consolidated into one set of Regulations.  It also suggested that fixed time limits for providing certain information be replaced by “reasonable periods” and that legislation be amended to enable information to be sent electronically.

As a result of the responses received, the DWP has decided:

• Not to proceed with the “single overarching” principle;
• To give further consideration to consolidating the disclosure requirements into one set of Regulations;
• To change the information requirements for SMPIs so that statements can be shorter and more straight forward;
• Not to adopt “reasonable periods”;
• To reduce to one month the period in which basic scheme information must be given to new members; and
• To allow schemes to use electronic communications as their default method (members will be able to opt out and request paper copies).

Consultation on the draft Regulations closes on 1 March 2010.  The Regulations are intended to come into force from 1 October 2010 with the amendment reducing the timescale for providing basic scheme information to new members coming in force from 1 October 2012.

The full consultation document can be found at:

http://www.dwp.gov.uk/docs/pen-scheme-disclosure-consultation-jan2010.pdf

Trustees and employers should review their processes to ensure that they will satisfy the new requirements, and consider the use of electronic communications as their default.

Cemex UK Marine Limited v MNOPF Trustees Limited

The High Court has ruled in the case of Cemex UK Marine Limited v MNOPF Trustees Limited that no employer debt is triggered where, before 6 April 2008, an employer in a multi employer final salary scheme ceased to employ any active members but continued to employ eligible, deferred or pensioner members.

From 6 April 2008 the Employer Debt Regulations were changed to make it clear that ceasing to employ any active members is the trigger. 

Schemes which operated on the ceasing to employ actives basis before 6 April 2008 may need to consider whether statutory debts were actually triggered and whether employers remain liable for a debt in future.

The Pensions Regulator

Campaign for good governance launched

The Pensions Regulator has launched a campaign to encourage good governance and administration and better management of pension scheme risks.

The Regulator expects trustees to:

• Meet the trustee knowledge and understanding requirements and use the trustee toolkit unless they have an equivalent way to access appropriate training;
• Ensure adequate internal controls to assess, document and manage risks to the scheme;
• Know the quality of their records and have a plan for improvement where needed;
• Remember they are accountable for the service provided by advisers, administrators and others, know what activities they perform for the trustees and have a formal appointment process; and
• Ensure that if their scheme is winding up it is completed within the Regulator’s two year framework.

The Regulator will help by:

• Providing updated guidance on internal controls;
• Publishing a revised scope and guidance for trustee knowledge and understanding and updating the trustee toolkit;
• Publishing bite-sized e-learning for trustees on risk management;
• Consulting on new proposals for record keeping; and
• Updating existing guidance on winding up pension schemes. 

 The full statement on good governance can be found at:

http://www.thepensionsregulator.gov.uk/docs/governance-statement-nov-2009.pdf

Revised Internal Controls Guidance

 The Regulator has published revised internal controls guidance for consultation.  The guidance aims to ensure that trustees, especially of smaller schemes, have the tools and skills necessary to manage the most critical risks in their scheme, particularly in the current economic climate. The Code of Practice on internal controls is not currently being revised.

Suggested control procedures are set out for seven key risk areas below, along with principles for implementing an adequate framework for identifying, evaluating and managing risk:

• Lack of knowledge and understanding;
• Conflicts of interest;
• Ineffective relations with advisers;
• Poor record keeping;
• Deterioration in employer covenant;
• Investment risk; and
• Ineffective retirement processes.

The guidance on internal controls can be found at:

http://www.thepensionsregulator.gov.uk/pdf/internal-controls-con-doc.pdf

The consultation runs to 1 March 2010.

Revised Code of Practice and Guidance on Trustee Knowledge and Understanding

The Regulator’s revised Code of Practice on Trustee Knowledge and Understanding (TKU) is now in force.  The key changes are:

• In order to know the essential elements of the scheme’s trust documentation, trustees will be required to read it thoroughly, and
• The Regulator expects trustees to use its Trustee Toolkit unless they can find an alternative learning programme which covers all the items in the scope guidance.

The corresponding Guidance on the scope of the TKU requirement, which outlines everything a trustee needs to know and understand, has also been reviewed, with the main change being a reduced requirement on trustees of small (12-99 members) fully insured DC schemes.   

The full documents can be found at:

http://www.thepensionsregulator.gov.uk/pdf/codeTkuFinal.pdf

http://www.thepensionsregulator.gov.uk/docs/tku-scope-for-db-with-dc-2009.pdf

http://www.thepensionsregulator.gov.uk/docs/tku-scope-for-dc-only-2009.pdf

http://www.thepensionsregulator.gov.uk/docs/tku-scope-for-dc-only-2009.pdf

The trustee toolkit has also been reviewed although changes have been kept to a minimum.

Update on the PPF

PPF Levy 2010/11 finalised

The Pension Protection Fund (PPF) has published the final levy determination for 2010/11. The details are as previously reported:

• The PPF aims to collect an overall levy of £720 million;
• The risk based scaling factor is 1.64, and the scheme based scaling factor is 0.0145%;
• The risk based levy will be capped at 0.5% of PPF liabilities;
• The probability of failure for foreign employers will now be calculated in a consistent way to UK employers.

Contingent asset and deficit reduction certificates, which may reduce your levy for the 2010/11 year, need to be submitted by the 31 March and 9 April 2010 deadlines. Please contact your usual Pope Anderson consultant for assistance.

PPF Levy 2011/12

The PPF published the 2011/12 Pension Protection Levy Consultation Policy Statement: Insolvency Risk on 28 January 2010. The following changes apply:

• Dun & Bradstreet will collect accounts from the Charity Commission; and
• A new attribute called ‘nationwide’ will be introduced for businesses with three or more branches in different UK regions.

Schemes and employers should contact D&B as soon as possible to ensure they hold the correct information.  The deadline for providing D&B with information for the 2011/12 levy is 30 March 2010.

GMP equalisation for schemes entering the PPF

The Pensions Act 2004 requires that the PPF does not discriminate between men and women in the compensation it pays to members attributable to pensionable service on or after 17 May 1990. However, the GMP calculation method and payment age is different for males and females.

The PPF has now concluded that schemes should equalise benefits for GMP differences during the assessment period, rather than it being dealt with by the PPF itself.  This will involve trustees equalising benefits before the section 143 valuation, to determine if the scheme is eligible for the PPF, is carried out.  The necessary scheme rule changes could therefore be made contingent on PPF entry to avoid taking on extra liabilities if PPF entry is not secured.

The method to be used will result in members receiving the greater of the overall pension payable to a male and female member who are identical in every other way.  Before being put into practice the actual methodology and implementation is being considered further by the PPF. 

Amending Regulations

 The DWP consultation on the draft Pension Protection Fund (Miscellaneous Amendments) Regulations 2010 ended on 15 January. The Regulations would make changes to the payment of compensation:

• Increasing the minimum age for compensation from 50 to 55;
• Reducing the notice period for early retirement from 6 to 2 months; and
• Altering the calculation for career average schemes.

The Regulations would also allow the PPF to charge interest at a daily rate of 5% above the Bank of England base rate from the twenty-ninth day after the date the levy is due, and provide for a waiver in specific circumstances.  It is intended that the interest regulations will come into force from 1 April 2010 and the other amendments from 6 April 2010.