EB News Service

A fortnightly summary of the important changes in employee benefits law & practice

29th November 2010, London:

NEWS

NEST update

NEST Corporation, the trustee body of NEST (National Employment Savings Trust), has announced the charging level for NEST. NEST will charge 0.3 per cent annually on a member's funds under management, with a charge on contributions of 1.8 per cent. The key facts are:

  • Earlier this year, the Government announced that NEST would operate with two charging elements: an annual management charge (AMC) of 0.3 per cent and a contribution charge expected to be around 2 per cent.
  • The duty of setting the charge level lies with the Trustee of NEST.
  • NEST Corporation (the Trustee) has set the charge on contributions at 1.8 per cent. The charge on contributions will cover the initial set-up costs of NEST.

It has also been reported that NEST is tendering for pension fund trustees indemnity insurance in order to indemnify trustee members for legal defence costs and damages arising from alleged maladministration by trustee members.

The Pension Act 2008 and the NEST Scheme Order and Rules contain various provisions in connection with exoneration and indemnities for cases where the trustee members have acted in accordance with their duties, both as a collective trustee and in the discharge of their duties as part of a non-departmental public body. Trustee members also have the power to insure against any losses, costs or damages arising from a liability in connection with the administration or management of the scheme, subject to certain statutory exclusions such as pay fines or penalties.

Update on the reduced Annual Allowance from next April

Pension schemes in existence at A-Day, where no action was taken to nominate an end date for the first Pension Input Period (over which someone's annual allowance on tax advantaged pension saving is measured), have an end date permanently fixed as 6 April; this is the default position under the legislation. One symptom of this is that the reduced annual allowance of £50,000 is in effect already partly in force because the next Pension Input Period end date will be in 2011/12.

The industry has been lobbying for the option to end the current Pension Input Period (PIP) within this tax year but, due to the legislative provision which precludes having two PIPs ending in the same tax year, many pre-A Day schemes have not been able to do this. However, HMRC has just circulated a note which sets out a process whereby schemes and individuals who have never nominated a PIP end date can make a retrospective nomination for their first PIP to end on 5 April 2007.  This will need to be done before the legislation presently in draft receives Royal Assent next summer.

The HMRC Note also clarifies a discrepancy between the draft legislation and the draft guidance on whether actual pension savings in a previous tax year are necessary to qualify for the new carry forward of tax relief provision.  The answer is ‘no'; all that is required is that the individual was a scheme member during that year.

Consumer and Retail Price Indices - October 2010

The all items RPI is 225.8 for October 2010 (up from 224.3 in September). CPI annual inflation stands at 3.2%, up from 3.1% in September. In the year to October, the all items RPI rose by 4.5%, down from 4.6% in September. The RPI for November 2010 will be published by the Office for National Statistics (www.ons.gov.uk) on 14 December 2010.

PPF administration levy and general levy unchanged in 2011/12

In a written Parliamentary statement, the Minister of State for Pensions, Steve Webb, has announced that both the PPF administration levy and the general levy will not be increased in the 2011/12 financial year.

The administration levy funds the running costs of the PPF and is payable by eligible schemes annually. It is calculated by reference to the number of scheme members. The general levy on occupational and personal pension schemes covers the running costs of the Pensions Regulator, the Pensions Ombudsman and the Pensions Advisory Service and is also calculated each year by reference to the number of members in a scheme.

CASES

Employer's 'no detriment guarantee' legally enforceable - Whitney v Monster Worldwide Ltd

The claimant became an employee of Monster Worldwide Ltd after the trading activities of his then employer were transferred to it under a 'TUPE' transaction. He had been a member of his 'old' employer's final salary pension scheme, which paid two-thirds of final salary to members after 30 years' membership, but that scheme was wound up and replaced by a money purchase plan.

The claimant asserted that he (and about 27 other key employees) was contractually entitled to a 'no detriment guarantee' (NDG), under which he was to be no worse off than he would have been under the final salary scheme, and that the NDG transferred to Monster Worldwide. He commenced proceedings against Monster Worldwide, seeking payment of the shortfall pursuant to the NDG, and he was successful in the High Court.

Monster Worldwide appealed but the Court of Appeal dismissed the appeal holding that the old employer had given a no detriment guarantee to the claimant, that guarantee was a binding commitment and the defendant was now bound by its terms.

The moral of the case is that employers involved in TUPE transfers should ensure historic "no detriment" pension promises are not overlooked, as these can amount to binding commitments even where they are not formalised in a single document.

Cost, alone, may amount to 'justification' in discrimination cases - Woodcock v Cumbria Primary Care Trust

The EAT has upheld an employment tribunal decision that a redundant chief executive, dismissed without proper consultation so that his notice expired before he qualified for an enhanced pension at age 50, had not been unlawfully discriminated on grounds of age. This was due to the fact that, although there was less favourable treatment on grounds of age, it was justified as a proportionate means of achieving a legitimate aim.

Although the EAT held that this case was decided on more than just an argument based on cost, it doubted the rule in Cross v British Airways that 'cost alone' can never amount to objective justification observing that it should be possible to justify a discriminatory state of affairs if the cost of rectifying it is disproportionate in comparison to the discriminatory effect.

Justification of compulsory retirement may be justified - Georgiev v Tehnicheski universitet - Sofia, filial Plovdiv

The European Court of Justice has ruled that a Bulgarian national law, providing for the compulsory retirement of university professors at age 68 and permitting extensions of employment beyond 65 only on the basis of fixed-term contracts, is capable of being justified. Delivery of quality teaching and allocating posts between the generations were potential legitimate aims.

Test of dishonesty for professional trustees when deciding if exemption clause applies - Fattal v Walbrook Trustees (Jersey) Ltd

The High Court has confirmed the test of dishonesty for professional trustees in relation to trustee exemption clauses. The court held that a 'subjective' belief that a deliberate breach of trust was in the best interests of the beneficiaries was not enough to protect a professional trustee from a claim of dishonesty if that belief was not also 'objectively' reasonable. This decision follows a previous court of appeal ruling in Walker v Stones [2001]. However, it is still unclear whether the objective element of the test applies to lay trustees.

RESEARCH

Introduction of universal state pension provides ideal opportunity to merge NICs and income tax says CPS report

In this report for the Centre for Policy Studies, influential tax and benefit analyst David Martin:

  • shows how, in the near future, only 6% of benefits will be paid on a contributory basis - and thus the time has come to recognise that the contributory principle has faded away,
  • shows how the contributory basis has been corrupted with £13 billion being diverted to green policies between 1997/98 and 2005/06, and
  • recommends that NICs should be merged with income tax, adding that the introduction of universal state pension provides the ideal opportunity.

See - http://www.cps.org.uk/cps_catalog/abolish%20nics.pdf

'OTHER'

NEST consults on rule amendments

The National Employment Savings Trust is consulting on two amendments to the NEST scheme rules, published in March 2010 -

  • 1. The first would enable an employer to formally cease to participate in NEST (under the current scheme rules, employers can stop using NEST at any time but they would still be classed as participating employers).
  • 2. The second would allow NEST to automatically adjust the member's benefit age (that is, the age at which the member intends to take his benefits) if the member decides not to take his benefits at a pre-arranged date.

See -

http://www.nestpensions.org.uk/documents/NEST_rules_consultation_12_November_2010.pdf

New Pensions Regulator employer debt guidance finalised

Trustees and employers of multi-employer defined benefit schemes need to be aware of final Pensions Regulator guidance when using any of the six available statutory mechanisms for reducing or avoiding employer debts after 6 April 2010.

The guidance multi-employer guidance was finalised following a consultation by the Regulator earlier this year. Only minor changes have been made but, usefully, a table has been added summarising the key characteristics of the available options such as 'apportionment'. See -

http://www.thepensionsregulator.gov.uk/guidance/multi-employer-schemes-and-employer-departures.aspx 

UK responds to European Commission consultation on pensions

The Coalition Government has set out its response to the European Commission's Green Paper "towards adequate, sustainable and safe European pension systems", welcoming it as a timely contribution to the debate on the challenges of an ageing society. However, Minister for Pensions, Steve Webb, observes that "We fully support creating a robust and sustainable single market for insurance, but we don't believe the new capital solvency requirements should be applied to occupational pensions".

The Green Paper asked if a new solvency regime for defined benefit pensions should be introduced. However, in the UK the employer's covenant already places a legal obligation on employers to pay into pension schemes, this is enforced by the Pensions Regulator and the Pension Protection Fund offers protection in the event of an employer becoming insolvent.

PPF Transfers First Scheme Through New Assess & Pay Programme

Paterson Printing Pension scheme has become the first scheme to transfer through the PPF's new Assess & Pay programme. Launched in May, the new process was set up to help the PPF get schemes through assessment more quickly.

Phillip Beecroft, Head of Operations Development at the PPF, said: "Since we opened our doors we've transferred 195 schemes to the PPF, representing almost 51,000 members. But we still have 215,000 people waiting for their schemes to complete a PPF assessment period. Reducing the length of the assessment process will give members the certainty that they are looking for. That is why we have developed the Assess & Pay programme which has been designed to reduce the time a scheme is in assessment from an average of 35 months to just under two years. The Paterson Printing Pension Scheme is the first scheme to benefit from the new process."

PPF publishes new FOI responses

The Pension Protection Fund (PPF) has published several Freedom of Information request responses on its website, including:

  • Confirmation of no correspondence between the PPF and the Conservative or Liberal Democrat Parties regarding use of services for their autumn 2010 conferences.
  • Refusal to list the top 100 levy paying schemes in monetary terms on the grounds that data on individual schemes is "restricted information" under section 197 of the Pensions Act 2004.
  • Refusal to give more detail about the PPF's decision to reject a particular contingent asset arrangement.

See: http://www.pensionprotectionfund.org.uk/Pages/WhatsNew.aspx 

FSA Consultation: CP10/29 - Platforms: Delivering the RDR and Other Issues for Platforms and Financial Services Authority (FSA)

On 17 November 2010, the Financial Services Authority issued a consultation on proposals to ensure that the platform services used to buy and manage investments after January 2013 are fully aligned with standards required by the Retail Distribution Review. The main proposals:

  • Prevent product providers from making payments that advisers could use to disguise the charge the customer is paying for advice, and which could influence advisers in recommending one product over another.
  • Ensure platforms allow their customers to transfer their investments elsewhere without having to cash them in first.
  • Require platforms to be upfront about the income they receive from fund managers or product providers.
  • Make sure that customers who invest in funds through platforms are provided with information about the fund from their fund managers, and maintain their voting rights.

See - http://www.fsa.gov.uk/pages/Library/Policy/CP/2010/10_29.shtml

Equitable Life: Important next steps - Update

The web page, linking to information regarding the transparent and fair payment scheme for Equitable Life policyholders, has been updated with revisions being made to the following sections -  

  • Update and next steps
  • Background and progress so far
  • The Equitable Life (Payments) Bill
  • Useful links

See - http://www.hm-treasury.gov.uk/fin_equitable_life.htm

Institute of Actuaries - Longevity improved at accelerated rate in 2009

Longevity unexpectedly increased at a higher rate during 2009 than during the previous two years, the Institute of Actuaries' latest figures show. Men now aged 65 can expect to live an extra 0.4 years reaching 87.5 years while women of the same age today should on average live another 0.8 years reaching almost 90. The improvement is due to ongoing falls in mortality rates among all age cohorts from 18 to 102, which reduced by 4.4% for men and 6.2% for women in this age range during 2009.  See - http://www.actuaries.org.uk/research-and-resources/pages/continuous-mortality-investigation-news

 

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