EB News

A fortnightly summary of the important changes in employee benefits law & practice  23/04/2012 - 06/05/2012

8th May 2012, London:

News

Solution to small pots still some way off

According to press reports, the government has pushed back its response to December's 'small pension pots' consultation.

Pensions minister Steve Webb had indicated he would shortly put out a set of proposals, expressing a preference for a system of transfers within the industry ('pot follows member') or a central aggregation scheme.

However, Department for Work and Pensions civil servants have admitted the earliest the industry can expect the government to announce anything publicly will be July, and is likely to be a date shortly before MPs go on summer recess.

The DWP small pots team is now said to have abandoned a single-policy response altogether, favouring a compromise solution in which transferring pots to new employers' schemes is the default - but with an option for schemes to opt out of this in certain circumstances, in which case an aggregator takes the cash.

First independent mutual launched, to run Civil Service scheme

The running of the Civil Service Pension Scheme has been transferred to a privately run company called MyCSP. Approximately 500 employees will leave the DWP and join MyCSP, which will oversee the pensions of 1.5 million civil servants and £4bn in pension payments each year. The shared-ownership model is based on that of the retailer John Lewis, with employees owning a 25% stake in the business and a chance to share profits.

Cases

Compulsory retirement ages - Seldon v Clarkson Wright and Jakes

The Supreme Court held in this case that an employer had identified legitimate aims (staff retention, workforce planning and 'dignity') which could potentially justify a compulsory retirement age. However, the case was remitted to the Employment Tribunal to decide whether the specific age in question (age 65) was proportionate means of achieving the legitimate aims or if another age was more appropriate. A Client Alert has been prepared on the case and its implications, and will be issued shortly.

Requirement for qualification was discriminatory - Homer v Chief Constable of West Yorkshire Police

The Supreme Court held in this case that the employer had committed indirect discrimination after introducing a requirement to have a degree into a job specification. The discrimination arose because an existing employee was unable to complete a part time degree before reaching retirement age. Further, as the tribunals had not considered the question of 'justification' properly, the case was remitted for this issue to be properly argued.

Both of the above cases emphasise that the test for justifying direct age discrimination is narrower than for indirect discrimination. Indirect age discrimination can be justified by, for example, a real need on the part of the employer's business; whereas, direct age discrimination must be justified by reference to public interest objectives.

Research

Auto-enrolment templates research published

DWP templates and accompanying guidance for auto-enrolment have undergone research to test their usability with employers, particularly small and micro employers, and their intermediaries.  DWP have now published the report findings at - http://www.dwp.gov.uk/docs/comms-res-auto-enrol-0412.pdf.

The appendices of the report contain two of the key draft templates:

  • Enrolment information; and
  • Generic postponement

The final versions of the templates, accompanying guidance and additional supporting 'good practice' material will be published on The Pensions Regulator's (TPR) website.

PPI publishes "Retirement income and assets: the implications for retirement income of Government policies to extend working lives"

The Pensions Policy Institute (PPI) has published the sixth in a series of research reports on retirement income and assets in the UK. This report considers how much longer todays over 50s might need to work and save to meet target levels of retirement income.

IoD publishes "Roadmap for Retirement Reform 2012"

The Institute of Directors (IoD) has published a new report in association with Lucida - Roadmap for Retirement Reform - which explores the scale of the challenge posed by a society habitually dependent on debt, an ageing population, low savings and a high number of people with little or no pension provision, and proposes four ways to address the crisis.

The research reveals that the UK's failing pension architecture is leading millions to abandon pension saving entirely, preferring to trust other vehicles such as ISAs.

The four recommendations of the report are -

  • Raise the state retirement age to 70 sooner than is currently planned.
  • Provide a single, flat-rate, universal, basic state pension, abolishing means-tested retirement income benefits such as Pension Credit.
  • Radically reform and simplify the pension architecture, which has become hugely complex, unattractive and enmeshed in a forest of regulation.
  • Develop a formal UK Government savings policy.

The full report is at www.iod.com/MainWebSite/Resources/Document/roadmap_apr12.pdf.

EDHEC-Risk Institute Shifting Towards Hybrid Pension Systems: A European Perspective

The purpose of this paper is to examine recent developments and the major risks of retirement systems, from both the sponsor and pension risk perspective, while focusing on European pension schemes.

The study looks at plan design and governance, with the aim of moving towards an ideal retirement plan, and it analyses the challenges for the financial management of hybrid pension plans.

It observes that it is clear that complete reliance on sponsor guarantees makes little sense in view of the prevailing economic context and demographic trends in Europe. With more hybrid pension schemes in Europe, and a shift towards Defined-Contribution (DC) funds in the United Kingdom and the United States, there is a requirement for improved governance, investment options and communication to employees.

ONS publishes details of UK's funded and unfunded pension obligations

These statistics provide breakdowns for private sector pensions, workplace pensions for which the Government is responsible (funded and unfunded) and state pensions. The report reveals that the total accrued-to-date pension obligations of all UK pension providers at the end of 2010 were estimated to be £7.1trn. The total comprised £5trn of Government obligations (£3.8 trillion is for state pensions and £900 million for unfunded public sector pensions) and £2.1trn of private sector obligations.

See - http://www.ons.gov.uk/ons/rel/pensions/pensions-in-the-national-accounts/uk-national-accounts-supplementary-table-on-pensions--2010-/index.html and http://www.ons.gov.uk/ons/dcp19975_262207.xml

'Other'

TPR publishes updated valuation guidance

The Pensions Regulator has published updated guidance and case examples on how trustees and employers should approach funding valuations in the current challenging economic environment. A Client Alert on the guidance and its implications is available. See http://www.thepensionsregulator.gov.uk/ for the papers.

DWP consults on new regulations for Disclosure of Information

Current legislation requires occupational pension schemes to provide basic scheme information to new members within two months of joining. With the introduction of automatic enrolment from October 2012, this could mean that members may not receive this information until after their opportunity to opt-out has expired. These proposed changes therefore amend the timescales so that basic scheme information is provided before the end of the one month opt-out period.

Existing disclosure requirements are set out in three sets of regulations. The longer-term aim is to have one consolidated set of regulations providing a consistent disclosure regime across all types of pension scheme.

DWP: Automatic enrolment - Career average schemes as qualifying schemes - A consultation

This consultation seeks views on whether proposals to revise Regulation 36 of the Occupational and Personal Pension Schemes (Automatic Enrolment) Regulations 2010 will achieve the intended effect, particularly for employers with Career Average Revalued Earnings pension schemes that they are intending to use as qualifying schemes.

The Government's policy on career average pension schemes is to allow them to be used as qualifying schemes and for the purposes of automatic enrolment so long as they provide for the benefits to be revalued at, or above, a prescribed minimum rate. 

The consultation proposes amendments to those regulations to give more flexibility for schemes over how they provide for revaluation while still ensuring that members' interests are fully protected. See - http://www.dwp.gov.uk/consultations/2012/auto-enrol-career-ave-qual-sch.shtml

HMRC publishes draft regulations

The draft Pensions Schemes (Application of UK Provisions to Relevant Non-UK Schemes) (Amendment) Regulations 2012 make consequential changes to the tax rules for members of relevant non-UK pension schemes.

The regulations relate to how the age 75 and drawdown pension reforms in FA 2011 apply to members of non-UK pension schemes. See - http://www.hmrc.gov.uk/pensionschemes/age-75-drawdown.htm

FSA publishes new rules to ensure pension transfers are suitable for scheme members

The Financial Services Authority (FSA) has published new rules and guidance, following consultation, to strengthen the protection for members of defined benefit pension schemes who are considering moving their money into personal pensions. The new rules can be viewed at - http://www.fsa.gov.uk/library/communication/pr/2012/043.shtml

PPF Plans to Move Compensation Administration in-house

The PPF wants to bring member services in-house because it believes that - with a projected membership of more than 300,000 by 2014 - the PPF is now large enough to make this move a viable option. It is also a similar model to that used by many of the top 100 UK pension funds.

The PPF will take the first step in the implementation programme by requesting expressions of interest for an IT system which will be used to run the new in-house services.

 

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