Hot Topics

The Pension Protection Levy

The PPF has published a consultation on its plans for the levy for 2009/10. This announces that the scaling factor will be 2.22 and indicates that this figure is 'unlikely to change' when the final levy determination is published in November. It has also announced that it plans to collect £700 million in levy for the 2009/10 year and that Dun & Bradstreet have been retained as insolvency risk providers for 2010/11 and 2011/12.

A further consultation on the longer term future of the levy is expected later in October.

Pension schemes should take steps now to minimise their levy for 2009/10, for example by certifying deficit reduction contributions or contingent assets.

Briefing note: The 2009/10 pension protection levy consultation (October 2008)

Press release: Punter Southall welcomes announcement from PPF on levy scaling factor September 2008)

GMP Simplification
 
In September 2008, the Department for Work and Pensions consulted on draft regulations that will enable schemes to convert their Guaranteed Minimum Pensions (GMPs) into ordinary scheme benefits. On the surface, this new option (which will be available from April 2009) is an attractive one, as GMPs are subject to strict regulatory requirements that differ from those for ordinary scheme benefits and hence are complicated to administer.
 
However the proposed conversion process will not be without its own complications. In particular, GMPs are likely to need to be equalised between men and women before the conversion can take place. As the PPF’s recent consultation on its proposals for GMP equalisation showed, this is not likely to be straightforward.

Briefing note: Simplification of contracted-out benefits (September 2008)

Briefing note: A solution for equalising GMPs? (July 2008)

Good Record-Keeping

At the end of July 2008, the Pensions Regulator (TPR) issued a consultation paper on good record-keeping, which proposed that schemes should hold a core set of data for all scheme members. In addition, trustees should be responsible for identifying what further information is needed to run their scheme efficiently.

TPR intends to proceed initially by educating trustees on the importance of good record-keeping and using guidance to enable them to maintain good records. The proposals are only recommended as good practice, but TPR will reconsider the position in 2009 and may consider enforcing its recommendations at that stage if its ‘educate and enable’ strategy has not achieved an improvement in data quality.

We are very happy to assist schemes who are interested in carrying out data audits to identify problems with their data and to initiate measures to improve data quality.

Briefing note: The Pensions Regulator consults on good record-keeping (September 2008)

Personal Accounts

The proposed launch date for personal accounts is April 2012.This might seem a long way off, but personal accounts are likely to have significant implications for employers who already offer a pension scheme.

From 2012, all employees aged between 22 and State Pension Age with annual earnings in excess of £5,035, must automatically be enrolled into either personal accounts or a scheme that provides at least broadly equivalent benefits.

Whilst not all the details of personal accounts are yet clear, employers should be taking account of the introduction of personal accounts and automatic enrolment when making decisions about pensions today. Punter Southall can help you understand how personal accounts may affect you.

Briefing note: Personal accounts (September 2008)

Press release: Auto enrolment not personal accounts focus for 2012 (September 2008)

Primary and Enhanced Protection

Individuals whose benefits at A-Day exceed the lifetime allowance, initially set at £1.5 million, now have only six months left in which to notify HM Revenue and Customs if they intend to rely on transitional protection of their benefits against the lifetime allowance charge.

Under primary protection, a fixed percentage of the lifetime allowance can be protected. Individuals can continue to enjoy the full flexibility to build up further benefits or transfer to other schemes, but any excess growth over the rate of increase in the lifetime allowance will lead to tax charges.

Individuals who register for enhanced protection are not subject to any test against the lifetime allowance, but instead there is a much more stringent set of rules preventing further accrual and transfers in all but limited circumstances.

Individuals who may wish to take advantage of either sort of protection should take action now in order to ensure that they have submitted their form by 5 April 2009. Trustees or employers may wish to check that any affected members or employees are aware of the deadline.

Briefing note: Countdown to 5 April 2009 for primary and enhanced protection (September 2008)

Cash Equivalent Transfer Values

With effect from 1 October 2008, trustees have taken on the responsibility for setting the assumptions for cash equivalent transfer values on a ‘best estimate’ basis. The Pensions Regulator has issued guidance to help trustees in reaching their decisions. In some respects, the guidance goes further than the legislation itself in setting out the Pensions Regulator’s expectations for trustees, particularly in respect of circumstances in which it might be possible to reduce transfer values.

The final guidance was issued on 29 September and contained very few changes from the draft previously consulted on. Trustees should now take account of the revised guidance when making decisions on their cash equivalent transfer value policies.

Press release: Punter Southall welcomes the publication of final guidance on transfer values (September 2008)

Briefing note: The calculation of pension transfer values (October 2008)