Past Technical Bulletins

The Government announces its future plans for pensions

The Government has recently made a number of announcements about its future plans for pensions. Most recently, the Queen's Speech on 6 November announced a new Pensions Bill to "place a duty on every employer to contribute to good quality workplace pensions for their employees". This will require employers to enrol their employees automatically into a new system of personal accounts, unless the employer already provides an adequate pension scheme for them. Now that the Conservatives have indicated that they have some concerns with the proposals for personal accounts as they currently stand, we can look forward to some interesting debates in Parliament.

The Pension Protection Fund consults on its plans for the risk-based levy

The usually lazy days of August saw the publication of two major consultations.The first to come out (on employer debt) is considered in this Technical Bulletin; the second was on the future development of the Pension Protection Fund (PPF) levy from 2008/9 onwards. This consultation comes as the first phase of the PPF levy is coming to an end.All schemes (except new ones set up since 6 April 2007) will be required to provide a section 179 valuation for the calculation of risk-based levies by 31 March 2008 and so there will no longer be a possibility of relying on a converted MFR valuation for future levy years.

The Pensions Regulator indicates its intention to issue its first Financial Support Directions

When the Pensions Regulator replaced the Occupational Pensions Regulatory Authority (Opra) in April 2005, much was made of the fact that this was a regulator with teeth.Unlike its predecessor, it was given explicit powers to deal with employers who might be trying to avoid their obligations to their pension schemes. Chief among these moral hazard or anti-avoidance powers were Contribution Notices and Financial Support Directions.We have yet to see the first Contribution Notice (a demand for immediate payment where there has been a deliberate attempt to avoid an employer’s obligation to a scheme), but the first Financial Support Directions (FSDs) are now imminent.

The Pensions Regulator issues further guidance

Over the last few weeks, the Pensions Regulator has issued a flurry of paperwork for trustees, companies and advisors to sift through.These include a number of important pieces of guidance and papers for discussion and provide an insight into the way in which the Regulator’s risk-based regime is developing. In addition to the themes discussed in these papers, the Regulator has also been playing an active role in improving the funding of defined benefit schemes through its role in the scheme funding process (see later in this Technical Bulletin).

Consultations Issued on the Deregulatory and Institutional Reviews

In its White Paper of May 2006 (‘Security in retirement: towards a new pensions system’), the Department for Work and Pensions (DWP) announced its intention to set up a rolling deregulatory review of pension regulations and to review the organisations responsible for the regulation and protection of UK pension schemes.

Pension Protection Fund Consults on 2007/8 Levy Estimate

In December 2006, the Pension Protection Fund (PPF) published a further consultation document on the pension protection levy for 2007/8 (following an earlier consultation in September). This indicates that the PPF expects to raise £675 million in 2007/8, 80% (£540 million) from the risk-based element of the levy and 20% (£135 million) from the scheme-based element. This compares with the estimate of £575 million for 2006/7, of which the PPF now expects to collect only £300-£320 million. The reason for this substantial shortfall arises partly as a result of equity market conditions at the time the levy was calculated and partly because employers took active steps to reduce their liabilities.

Final age discrimination regulations published

On Friday 10 November 2006, the Department for Work and Pensions (DWP) published final regulations to amend the legislation on age discrimination as it affects pension schemes. These regulations had previously been subject to a brief consultation in mid October. Trustees are at last in a position to be able to judge what action may be needed in their schemes to deal with discriminatory rules and practices.

The Pensions Regulator Issues Guidance on Member-Nominated Trustees and Directors

The Pensions Regulator issued guidance on member-nominated trustees (MNTs) and member-nominated directors (MNDs) on its website on 15 August 2006. This complements the Code of Practice on ‘Member-nominated trustees and directors – putting arrangements in place’ which was laid before parliament in July and which covers the new requirements for trustee bodies to consist of at least one third MNTs/MNDs. The guidance covers three main areas: exemptions from the requirements, transitional provisions for existing schemes and practical guidance on implementing MNT/MND arrangements.

Amendments proposed to FRS17

The cost of providing a defined benefit pension scheme has become a more prominent item in company accounts in recent years, with FRS17 now being implemented in full for accounting periods ending on or after 1 January 2005. The Accounting Standards Board (ASB) is at present involved in a wide-ranging research project addressing the fundamental principles of pensions accounting (and has recently published an update on its discussions to date).Whilst that project is underway, they have also launched a consultation on the disclosure requirements under FRS17 with comments invited by 11 September 2006.

Age discrimination regulations made

Final age discrimination regulations have now been made and will come into force on 1 October 2006. These regulations are the final stage in the UK Government’s implementation of the European Employment Directive, which has already given rise to legislation against discrimination on the grounds of disability, religion and sexual orientation.

Consultation on draft EU directive on Portability of Supplementary Pensions

Now that the requirements of the 2003 EU Pensions Directive (such as the new scheme funding regime) are finally in force, it may be an appropriate moment for us to look forward to another EU Directive which could also have significant implications for the UK.

The Pensions Commission Publishes its Second Report

On 30 November, the Pensions Commission (chaired by Lord Turner) published its second report setting out its detailed recommendations for reforming the UK pensions system. The report including appendices weighs in at 760 pages – the Executive Summary alone is 40 pages long! Whereas the recent reforms introduced by the Pensions Act 2004 were aimed at addressing some of the specific concerns about occupational pension schemes, the Pensions Commission’s report looks at UK pensions as a whole. It makes two key recommendations: the reform of the state pension system and the introduction of a new National Pension Savings Scheme (NPSS).

The Pensions Regulator Consults on Funding Defined Benefit Schemes

The goalposts on scheme funding have been shifted again by the Department for Work and Pensions (DWP) which indicated that the regulations and Code of Practice on scheme specific funding will now come into force on 30 December 2005. However, the legislation will still apply to any valuations carried out with an effective date of 22 September or later so long as the valuation is not signed off until after 30 December 2005.

Consultation on Age Discrimination Regulations

The Department for Trade and Industry has now published draft regulations on the subject of age discrimination. These regulations, which will implement the age discrimination requirements of the European Employment Directive, are due to come into force in October 2006. Overall, these are wide-ranging regulations that will have a substantial impact on employers’ recruitment, promotion and retirement policy. However, there are extensive exemptions for occupational pension schemes, which mean that, in practice, most pension schemes will be able to carry on as before.

Consultation on the calculation of transfer values

The Actuarial Profession is consulting on a new version of its guidance note on transfer values (GN11). This is likely to have considerable implications for the way that defined benefit schemes calculate transfer values. It was initially hoped that the new GN11 would be in force by September; it now looks likely that the consultation process will take longer than originally expected and it could be at least April 2006 before the new GN11 is in force.

Key provisions of the Pensions Act 2004 come into force

Many of the provisions of the Pensions Act 2004 came into force on 6 April 2005, including the Pensions Regulator and the Pension Protection Fund as well as changed requirements on the indexation of pensions. This article looks briefly at how the pensions landscape has changed since 6 April. We have produced more detailed briefing notes on many of these issues; please contact us if you would like more information on any topic.