EB News Service

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

1st November 2010, London:   


Independent review of NEST and Government response.

On 27 October, the Minister for Pensions, Steve Webb, made a Written Ministerial Statement announcing the publication of the outcomes of the independent review into auto-enrolment and NEST. He also signalled the Government's response to that report, which was subsequently published at -


The review team was asked to look at the best way for the Government to implement automatic enrolment into workplace pensions and the main recommendations from the report are:

  • The earning threshold for automatic enrolment should be aligned with the personal allowance for income tax and the threshold from which pension contributions become payable should be aligned with the National Insurance primary threshold. Workers who earn between the above thresholds may opt in to saving and receive an employer contribution if they wish.
  • Automatic enrolment should apply to all employers regardless of size (as originally intended).
  • There should be an optional "waiting period" of up to three months before a worker needs to be automatically enrolled. However, workers may opt in during the waiting period.
  • There should be a simple system for employers to certify their money-purchase pension scheme meets the required contribution levels.
  • NEST is necessary to support successful implementation of automatic enrolment and will go ahead as planned.

The Government has been considering the full suite of recommendations since the end of September, and its thinking fed in to the Spending Review (see below). The view taken is that the recommendations are a sensible and balanced package of proposals. Therefore, the Government will now proceed with implementation of the reforms on this basis. This means that employers can now start to plan for their new obligations which will start to take effect in less than two years time.

Comprehensive Spending Review - implications for pensions.

On 20 October 2010, the Chancellor of the Exchequer presented his 2010 Spending Review. The review sets out the government's spending plans for the period to 2014/15 and includes a number of pensions-related announcements. The key announcements relating to pensions include:

  • Green light for NEST and auto-enrolment (see above)
  • State Pension Age to be raised to 66 by 2020; female SPA to increase to 65 by 2018
  • The Government will await the final Hutton report before making major decisions over public sector pensions, but employee contributions will increase in the interim and there will be a consultation on the discount rate for valuing liabilities
  • £1.5bn compensation for Equitable Life policyholders
  • The Savings Credit element of Pension Credit is to be frozen for four years (but see the Universal Pension heading, below)

All CSR papers can be downloaded from -


Universal Pension for all and end of means-testing?

The Business Secretary, Vince Cable, has confirmed that the government would like to introduce a flat-rate state pension. However, he added that such a reform is dependent on public finances and is a long-term goal.

Mr Cable was speaking in response to press reports that the government was proposing a non-means-tested, flat-rate state pension of £140 (£280 for a couple), irrespective of how long a person had worked. (Currently, the basic state pension is £97.65 a week and £156.15 for a couple.)

Currently, the basic State pension is supplemented by a means-tested top-up so that the poorest pensioners receive at least £133 a week. The change would negate the need for this. However, if the basic state pension were merged with the state second pension, whilst potentially basing the flat-rate pension on years of residency rather than national insurance contributions, this would have potentially significant implications for occupational schemes (e.g. contracted out defined benefit schemes).

Uniq agrees debt for equity swap with its pension scheme.

Uniq has agreed a debt for equity swap with the trustee of the Uniq final salary pension scheme. Under the arrangement, the trustee will effectively receive 90% of the company's equity in return for giving up its claim on the company. Under the arrangement, the scheme will in effect be transferred to a new company in order to avoid the 5% employer-related investment rule. The company will also offer the scheme a put option to sell a proportion of shares back to Uniq for up to £30 million that will be funded through additional borrowing and the sale of non-UK businesses.

Final details are still be to agreed and Regulator approval has also not been received, although the Regulator has been involved in the process.

New IoM pension arrangement will serve residents and expats.

Tynwald, the Isle of Man's parliament, has approved legislation creating a new type of pension arrangement and it is hoped that the scheme will also meet HMRC's requirements on Qualifying Recognised Overseas Pension Schemes (QROPS).

The new pension scheme can only be provided by registered Isle of Man resident pension providers who are regulated by the Isle of Man's Insurance and Pensions Authority. However, in addition to providing a new retirement savings option for Island-based members, the possibility of QROPS status for pensions approved under this new arrangement gives the Isle of Man's pension sector increased opportunities to market these schemes to British expatriates who have retired outside the UK.

As well as having the ability to utilise pension drawdown applicable to Isle of Man personal pension schemes, a lump sum of up to 30% of the fund is available. Any payment made from the new scheme to a non-Isle of Man resident will be paid gross and will not be subject to Isle of Man income tax.


Draft Occupational and Personal Pension Schemes (Miscellaneous Amendments) Regulations 2011.

The DWP has published, for consultation, draft Occupational and Personal Pension Schemes (Miscellaneous Amendments) Regulations 2011. The draft regulations will make a number of minor amendments to pensions legislation including:

  • Introducing amendments required following the replacement of guidance notes with technical actuarial standards published by the Board for Actuarial Standards.
  • Changing the requirements in relation to "listed changes" in multi-employer schemes so that if a change only affects one employer it does not need to notify the remaining employers.
  • Increasing the maximum fraud compensation levy that the PPF can charge for each scheme member.

National Insurance Contributions Bill 2010 published.

The National Insurance Contributions Bill was introduced in the House of Commons on 14 October 2010. The Bill contains two measures:

  1. Increases in the rates of National Insurance contributions from 6 April 2011. The changes contained include the following: an increase in the main rates of Class 1 National Insurance contributions (paid by employees) and Class 4 National Insurance contributions (paid by the self-employed) by 1 per cent to 12 per cent and 9 per cent respectively; an increase in the Class 1 employer rate of National Insurance contributions by 1 per cent to 13.8 per cent and will also apply to Class 1A and Class 1B National Insurance contributions; and an increase in the additional rates of Class 1 (paid by employees) and Class 4 National Insurance contributions (paid by the self-employed) by 1 per cent to 2 per cent.

  2. A regional employer National Insurance contributions holiday for new businesses. It is intended that during a three year qualifying period, new businesses which start up outside of three excluded areas will get a substantial reduction in their employer National Insurance contributions. Within the qualifying period, these employers will not have to pay the first £5,000 of Class 1 employer National Insurance contributions due in the first twelve months of employment for each of the first ten employees hired in their first year of business. The scheme started on 6 September 2010.



Crown guarantee for BT pension scheme covers post-privatisation new joiners.

The High Court has ruled that a Crown guarantee of British Telecom (BT) pension scheme liabilities, which was given when the organised was privatised in 1984, covers benefits for members who joined the scheme at a later date. The court said the wording in the relevant legislation was wide enough to cover new joiners after 1984 privatisation.

However, post-privatisation service with participating employers other than BT was held not fall within the scope of the guarantee (at least, if an employee was not originally employed by BT).

This case is important in terms of the amount of the PPF levy payable by BT.

Member not entitled to additional benefits following abolition of pre A-Day limits.

In this case (Greenhalgh, 16295/3), the Pensions Ombudsman dismissed a member's claim that the continuation of Revenue limits by his scheme after 6 April 2006, when the single tax regime was introduced, was invalid.

The member complained, unsuccessfully, that that his existing rights were detrimentally affected because of an A-Day rule change which inserted scheme specific limits equivalent to the pre A-Day limits that applied before 6 April 2006.

The Ombudsman held that section 67 of the Pensions Act 1995 was not contravened, as the member's rights stayed the same after the rule amendment because the 'old' Revenue limits were incorporated by reference into the scheme up to 6 April 2006 and then continued to apply under the Finance Act 2004's transitional arrangements until the scheme rules were updated.

Scheme administrators mis-interpretation of trivial commutation rules was maladministration.

In this case (Roberts, 78673/2), the Ombudsman made a finding of maladministration where a pensions provider incorrectly informed a policyholder that he had lost the opportunity to commute his benefits on grounds of triviality (where the value of his benefits was below 1% of the lifetime allowance but had grown to exceed 1% of within three months of the valuation date).

The Ombudsman relied on the HMRC registered pension scheme manual which provides that there is a three-month window from the nomination date for triviality within which investment growth could be included in the trivial commutation lump sum.


ONS publishes latest occupational pensions scheme survey.

In the private sector, active (employee) membership of defined benefit (DB) occupational pension schemes fell from 2.6 million in 2008 to 2.4 million in 2009, according to figures just released by the Office for National Statistics.

The analysis, from the 2009 Occupational Pension Schemes Survey (OPSS), also shows that although DB schemes are traditionally referred to as ‘final salary' schemes, 23 per cent of active members of such schemes were in ‘career average' schemes in 2009.

Active membership of defined contribution (DC) occupational pension schemes in the private sector - also known as money purchase schemes - remained stable at 1.0 million in 2009. Most active members of DC schemes (92 per cent) were in open schemes, while only 44 per cent of active members of private sector DB schemes were in open schemes.

Further information is available at -


Pensions Regulator publishes latest research into defined contribution pensions.

The Pensions Regulator has published 'DC Trust: A presentation of scheme return data', which offers a snapshot of the trust-based DC pensions landscape and demonstrates the wide range of DC provision in the current market.

This is the regulator's second analysis of DC trust-based schemes. It complements the forthcoming Purple Book on DB schemes to provide an extensive view of the trust-based pensions landscape, and is available on the regulator's website. Key findings are as follows:

  • 2.5m people in total have savings in DC trust-based schemes, despite a 15% decline in the number of schemes since 2009's analysis (from 55,000 to 48,000).
  • One million active members are contributing to DC trust-based schemes, compared with 2.3m contributing to private sector DB pensions.
  • Annual contributions to schemes with 12 or more members amount to approximately £2.2bn, or £4,200 per active member. 75% of these contributions come from the employer.
  • Around half of DC trust-based memberships are concentrated in 130 large schemes.
  • There are relatively few providers operating a DC ‘master trust' multi-employer scheme, and memberships are currently relatively low. However, 75% of the 82,000 employers which offer staff membership of a DC trust-based scheme do so via a master trust.
  • Most DC trust-based schemes (44,000) are very small, with less than 12 members, but these account for just 5% of memberships.
  • 84% of the 650 schemes which entered wind up between 2005 and 2008 inclusive are now wound up. Only 70% of the 450 schemes which entered wind up between 1997 and 2004 are now wound up. This suggests that schemes which entered wind up more recently are winding up more quickly.

Attitudes to Pensions: The 2009 Survey.

On 28 October 2010, research was published by the Department for Work and Pensions (DWP) which presents the findings from a quantitative survey that explores people's attitudes towards pensions and their expectations for retirement, as well as examining views on associated topics such as saving, risk and financial decision-making.

This survey updates and expands on the first "Attitudes to Pensions" survey that was carried out in 2006, and the findings make an important contribution to a wider body of evidence on public attitudes to savings for retirement and to pension reform. The findings of the report confirm DWP understanding of people's low level of pensions knowledge and awareness, but findings of particular note are:

  • Conflicting views in relation to early access to pension savings.
  • Importance of the State Pension-The State Pension was identified by the largest proportion of respondents (55%) as being their first or second likely main source of retirement income.
  • Interest in working beyond State Pension Age-Two fifths of those aged 50 years or over indicate that they would like to continue working in the same job after 65. Nearly nine tenths of respondents yet to retire would consider working after State Pension Age if this meant a better standard of living.
  • Possible unreliable expectations for retirement income-Despite the majority of respondents yet to retire having no or only a basic idea about their likely retirement income, 78% expect to have enough retirement income to cover basic costs, although just 34% expect to have enough to "live comfortably".

Spend More Today: Using Behavioural Economics to Improve Retirement Expenditure Decisions, by David Blake and Tom Boardman.

This paper examines how behavioural economics can be used to improve the expenditure decisions of retirees. It identifies how accumulated assets can be used optimally throughout retirement to produce life-long income when required, to make provision for contingencies - such as unanticipated spikes in expenditure - and to optimize the size and timing of bequests. The slogan ‘spend more today' utilizes hyperbolic discounting to satisfy the human trait of wanting jam today and to reinforce the idea that ‘buying an annuity is a smart thing to do'. The paper is accompanied by a presentation given l by Tom Boardman as his Inaugural Lecture as a Visiting Professor at the Pensions Institute.

See - http://pensions-institute.org/workingpapers/wp1014.pdf and



HMRC: Draft guidance on reduction of the Annual Allowance.

This draft guidance contains information on changes to the annual allowance for tax relief on pension savings announced on 14 October 2010 (i.e. a reduction from £255,000 to £50,000 from 6 April 2011) and is based on draft legislation published on the same date for inclusion in a future Finance Bill. It is subject to change depending on the final legislation. See -


Responses to Consultation on Statutory Money Purchase Illustration Rules.

The Board for Actuarial Standards (BAS) has published an analysis of responses to the consultation on possible changes to the rules governing how money purchase pension scheme projections of future fund values are calculated. Having considered the responses the BAS has decided to make no immediate changes to the rules, and to engage in further discussion with providers and other stakeholders. Further details can be found at:


Institute of Chartered Accounts in Scotland questions hidden deficits related to multi-employer pension plans.

ICAS has issued a consultation document which it believes highlights apparent deficiencies in the accounting and disclosure of membership of ‘multi-employer plans'. ICAS states that the scale of pension deficits at hundreds of UK employers is hidden because of the way the schemes to which they belong account for their pension liabilities. Further details can be found at: www.icas.org.uk/site/cms/contentviewarticle.asp?article=7108.

New Actuarial Standard on Pensions.

The Financial Report Council's (FRC's) Board for Actuarial Standards has published its standard for pensions work. The new standard aims to ensure that trustees and sponsors of pension schemes can rely on the actuarial information supplied by their advisors, and understand its implications for their decisions. It requires actuarial advisors to justify their assumptions and explain the uncertainty around any results. The information supplied will have to be understandable to users, and - in the case of the Scheme Funding reports - to pension scheme members. Further details can be found at: www.frc.org.uk/bas/press/pub2406.html.

ISA Bulletin 26 - subscription limits for 2011-12.

This Bulletin contains an article on ISA subscription limits for 2011-12.

In the June 2010 Budget, the government confirmed that from 6 April 2011 the annual Individual Savings Account (ISA) subscription limits would increase in line with the Retail Prices Index (RPI). Indexation of the ISA limits will have effect on and after 6 April of each year. The new annual limits will be rounded to the nearest multiple of 120, so that individuals who save monthly will be able to calculate their monthly savings more easily.

The new limit is calculated by reference to RPI figure for the September before the start of the new tax year. The RPI for September 2010 was 4.6 per cent so the 2011-12 limits (suitably rounded) will be an overall ISA subscription limit of £10,680 of which up to £5,340 can be subscribed to a cash ISA.

Treasury announces new tax-free savings account for children.

Financial Secretary to the Treasury, Mark Hoban, has announced that the Government will create a new tax free children's savings account. The new account, described as a 'Junior ISA', will offer parents a simple and tax free way to save for their child's future.

The Government will now work closely with stakeholders to finalise the structure of the accounts, and intends for the new accounts to be available by autumn 2011.

The new account will have the following key features:

  • All returns will be tax free
  • Funds placed in the account will be owned by the child and would be locked in until the child reaches adulthood
  • Investments will be available in cash or stocks and shares
  • Annual contributions will be capped
  • There will be no Government contributions into the account

See -




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