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Note: As some of these previous “What’s New” items are now not-so-new, the information they contain may have been superseded by more recent events and changes. Check the main content of GPT Online for the latest position.

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UPDATES TO CONTENT

This Update revises content at this site www.gpt-online.com and updated pages are automatically sent to subscribers to the hardcopy Guide for Pension Trustees. To help you locate the most recent changes, see the table: Summary of Main Revisions from this Update at the bottom of this page.

New Pensions Bill

We’re off again! In December 2007 the Government published a Pensions Bill. When enacted (possibly Summer 2008), its provisions will introduce prospective new legal duties for employers to enter ‘Jobholders’ (classed as persons aged between 22 and State Pension Age) in ‘automatic enrolment’ schemes and to pay contributions to such schemes in respect of those persons. The Bill follows the Government’s December 2006 White Paper Personal Accounts: a new way to save and the Pensions Act 2007, which created the Personal Accounts Delivery Authority (PADA) to advise further on the Personal Accounts proposals. The date for the start of the new duties has yet to be set. It depends on the implementation work undertaken by PADA to establish a ‘Pension Scheme’ with its trusteeship in place.

Section 2.10 summarises the main provisions of the Bill. These include new rights for ‘jobholders’ enabling them to:

(i) opt in to or out of personal accounts;

(ii) receive appropriate information about automatic enrolment, opting-in and opting-out and 

(iii) be provided with employment rights (as employees or workers) preventing the employer from being able to end their membership of a personal account without first putting them into another ‘qualifying scheme’. (For the purposes of such employment rights, ‘Jobholder’ is described as an employee, or worker under contract, who is over age 16 and under age 75 and who is receiving ‘qualifying earnings’.)

Persons entered in an ‘automatic enrolment’ scheme will be able to opt out by giving notice in writing. Once opted out, their membership will be cancelled and all contributions paid on their behalf will be refunded (employee’s to member; employer’s to employer). 

Employers will be expected to provide the Pensions Regulator with information about how they are complying (or intend to comply) with their duties and with disclosure of information. The Pensions Regulator will have power to issue compliance notices (on failure of employer duties) or unpaid contribution notices (if default of payment arises), and penalties.

The scheme is to be a trust-based, registered, pension scheme run by trustees. A Corporate Trustee will be formed to act as a trustee of the scheme but other trustees may be appointed. Tax relief will be available on contributions and members may be able to take a tax free lump sum at retirement. The structure of the overall costing and charging basis for running Personal Accounts is currently the subject of consultation.

More to follow on this subject, no doubt.

Finance Act 2007

Although the September 2007 Update to the Guide inserted much of the main detail relating to this Act, we have created a new section [section 2.9] to collect together and summarise this information.

Upper Earnings Limit (UEL) to be replaced

From 6 April 2009, the Upper Earnings Limit (£670 per week in 2007/2008 terms) is to be replaced by a new limit called the Upper Accrual Point (UAP – possibly £770 per week). This is being done to facilitate the introduction of the proposed flat-rate State Second Pension. [Section 1.4.5 (Note) refers.]

Companies Act 2007 – Professional indemnity relating to directors of a corporate trustee

As reported in the Guide’s November 2007 Update, directors of trustee companies may find themselves personally liable for deliberate acts of dishonesty and/or if, in carrying out their business, they neglect to stop breaches of trust occurring. [Section 4.5.4 confirms.] In brief, any company or associate company is allowed to indemnify its directors (or the directors of an associate company) against claims by third parties (e.g. pension scheme members) under arrangements called ‘qualifying third-party indemnity provisions' (QTPIPs). BUT, such action may not necessarily stop the company (i.e. the ‘trust’) from taking its own action to recover losses from its directors or former directors. Further, under QTPIPs arrangements directors are not able to recover regulatory penalties or criminal fines and the existence of QTPIPs must also be disclosed in the annual directors’ report. [4.5.4 (Note) confirms.]

Protected Rights

The Government is proposing to permit self-invested personal pensions to hold Protected Rights funds, despite the general risk that can arise from self-investment. This change is planned for October 2008. [Sections 1.8 and 1.16.20 refer.]

Money Laundering

On 15 December 2007, the Money Laundering Regulations 2007 came into force. The main points of and types of business supervised under the regulations are now listed in Section 10.5.12.

And of other things to come…(for now)

Flexible Retirement

A new section [10.9.19] contains extracts from the Government’s consultation paper Flexible Retirement Provision. Up to December 2007 the Government sought views on issues raised following the implementation of the Employment Equality (Age) Regulations 2006. Comments released since suggest that many of the fundamental questions needing answers will likely only be settled via the outcome of court cases arising. The Government’s response is awaited.

Statement of Recommended Practice (SORP)

The Pensions Research Accountants Group (PRAG) [see Section 12.9.1 (Note)] revised its SORP in 2007 to bring it in line with new Financial Reporting Standards (FRS 17 included [see 13.7]), the Pensions Act 2004 (scheme-specific funding regime [see 14.7]) and the Pension Regulator’s views expressed in its November 2006 response: A review of the form and content of pension scheme report and accounts. Whilst (for the time being at least) actuarial liabilities continue to be excluded from the net assets statement of Defined Benefit and hybrid schemes, the updated SORP encourages the inclusion of Summary Funding Statements in the trustees’ annual report. [See 14.7.6]. We have incorporated into the Guide the main changes brought in by the revised SORP, particularly in Section 12, a large portion of which has been updated.

The Trustees’ Annual Report and Accounts

A large portion of Section 12 has been updated and expanded to incorporate the main points of the revised SORP. Detail added includes a brief description of the aim of the trustees’ report and includes information about the trustees’ Compliance Statement, disclosure of insurance policies in the financial statements, and the contents of the audited accounts. 

The Occupational Pension Schemes (Winding up, Winding up Notices and Reports, etc) (Amendment) Regulations 2007

Under these regulations, trustees are now permitted to discharge small accrued entitlements to members by way of a winding-up lump sum or by making trivial commutation lump sum payments, even where members concerned may have no existing right to a lump sum under the scheme rules. [New 16.3.4 (Note) refers]. 

Cashing out small pensions (trivial commutation)

Section 24.3.17 sets out the steps to be taken by trustees when considering whether to extinguish small pensions by paying out cash sums: the aim being to avoid any liability for an immediate or subsequent unauthorised payment charge. One suggestion made is, before payment, to seek to obtain a discharge from the member confirming that the member will meet any sanction charge, whenever levied. 

The Purple Book

The Guide’s March 2007 Update reported the introduction of The Purple Book (Pensions Universe Risk Profile). This is a joint study undertaken by the Pensions Regulator, in conjunction with the Pensions Protection Fund, based on scheme returns and focusing on risks faced by Defined Benefit schemes mainly in the private sector. The second edition of the Book is now published and Section 25.1.19 (Note) provides details. The data used for the Book is updated regularly, having been taken from approximately 5,900 returns of PPF-eligible Defined Benefit schemes representing approximately 90% of membership and pension fund liabilities, including nearly all the larger pension schemes.

Relationship between the Pensions Regulator and the Financial Services Authority

The Pensions Regulator and the Financial Services Authority (FSA) are both independent regulators. The Pensions Regulator is the UK regulator of work-based pension schemes. The FSA regulates the UK financial services industry. In general, the Pensions Regulator is likely to take the lead on issues relating to the employer. 

A guide to the regulation of workplace, contract-based pensions has been produced jointly by the FSA and the Pensions Regulator, setting out the respective roles of the two regulators in relation to workplace, contract-based schemes, as both bodies have a regulatory role in this area where they work closely together. [Section 25.1.20 confirms.]

Further study information 

Lastly, (for now), the following sections have been expanded, in part to assist newly appointed trustees and those studying for pensions examinations: Sections 1.11.1 and Note; 1.15.1 and Note; 1.16.1; 1.16.10; 1.27.5; 3.1.1 (Note); Section 4 – Introduction; 4.1.4 (Note); 4.5; 4.5.6 (Note); 5.2.1 and Note; 6.1.1 (Note); 20.11.1 (Note); 25.2.7 (Note); 25.3.2 and its Note.

Investment issues

Enclosed with this Update is the second in a series of articles on investment issues for pension funds, written by Alistair Blair of the Investors Chronicle, on the real cost of investment management.

SUMMARY OF MAIN REVISIONS FROM THIS UPDATE

The Guide’s regular Updates help keep it up to date with important and topical new items, but changes to pages can also include new technical terms, changes to organisations’ names, new cross-references and a variety of minor revisions, as well as description of legislative, technical and other material, and useful tips or simply interesting additions. Here is a summary of the main changes made by this Update.

This Update widens some of the information contained in the Guide to expand certain points of detail. For example, the information on trustees’ duties [section 3.3] has been widened; section 3.4.4 adds to the information on resolving conflicts of interests; section 14.7.13 (Note) now outlines the priority order of ‘unsecured creditors’ (the classification of defined benefit schemes in the event of debt recovery) and section 17.4.4 clarifies that there is no requirement for trustees to disclose the assumptions used in the calculation of transfer values (though best practice suggests one should). As always, new information has also been included (has there ever been a quiet time in pensions?).

Additional information

The new information added includes:

(i) a ‘heads up’ warning for individuals who are directors of a corporate trustee (a company whose purpose is to act as a trustee): the Companies Act may now require attention to be drawn to existing indemnity and exoneration clauses in scheme rules [see section 6.2.4 (Note)]

(ii) tips about how to record identified risks [see section 8.4.4 (Note)]

(iii) a warning that criminal money could enter pension schemes [section 10.5.12 (Note) refers]

(iv) confirmation of the timeframes for issuing Summary Funding Statements [see section 11.1.8 (m) (Note)]

(v) confirmation of the timeframes for trustees obtaining an actuarial report [section 14.1.6 (Note) and section 15.0 – Comment]

(vi) an explanation of the ‘triggers’ used by the Pensions Regulator in determining which schemes require further consideration after the submission of their funding recovery plans [section 14.7.12] and a reminder of the powers available to the Pensions Regulator if there has been non-compliance with the scheme-specific funding regulations [section 14.7.14 (Note)]

(vii) the tests being applied by the Pensions Regulator when approving ‘withdrawal arrangements’ [section 14.10.4]

(viii) more information on ‘Apportionment Arrangements’ (where an employer is allowed to exit the scheme with its Section 75 debt apportioned between the remaining employers in accordance with the rules of the scheme) [section 14.10.6]

(ix) more information on ‘Clearance Procedures’ for ‘scheme-related events’, based on the Pension Regulator’s consultation document ‘Revised Clearance Guidance’, dated September 2007 [section 16.3.9]: included are the ‘guiding principles’, developed by the Regulator, that trustees and employers should apply when dealing with ‘events’ that might impact adversely on the scheme [section 16.3.10]

(x) confirmation that, after April 2008, the scheme actuary will cease to supply transfer value calculation tables to the scheme’s administrator. Further, it is unlikely that actuarial guidance will be issued to assist with the determination of ‘best estimate’ transfer value assumptions. Reference: DWP consultation on draft regulations for pension transfer values [section 17.4.1]

(xi) wider information relating to insurance policies and in particular, With-Profits policies [section 20.1], and

(xii) a warning from the actuarial profession about members exchanging pension for cash at retirement without having a clear idea of the value of the benefits being given up [section 24.3.16 (Note)],

(xiii) new detail relating to reporting breaches of the law, following guidance issued by the Pensions Regulator, complementing the Code of Practice. [sections 25.8.2 to 25.9.5], 

and more useful website addresses have been added at several points. 

Backing some of the above points:

Further guidance on codes of practice – reporting breaches of the law

Code No 1 – Reporting Breaches of the Law has been supported by guidance issued by the Pensions Regulator titled Complying with the duty to report beaches of the law. (The other three codes supported by guidance are: Code No 2 – Notifable Events, Code No 8 – Member-Nominated Trustees and Directors and Code No 9 – Internal Controls.)

The guidance issued on Code No 1 includes an interesting ‘understatement’ and some ‘useful’ clarifications: 

(a) ‘advisers and service providers are expected to be familiar with the detail of legislation around their specific functions. Scheme administrators should “know the disclosure requirements”; scheme auditors should “know the law around auditing scheme accounts” and scheme actuaries should “know the law relating to scheme funding” ’ (understatement!) [section 25.8.2 (Note)];

(b) ‘duty to whistle blow does not extend to advisers appointed to advise the employer. However, should such an adviser alert the employer to a relevant breach, the employer would have a duty to consider reporting it’ [section 25.8.3] (useful);

(c) ‘reporting applies to insolvency practitioners who employ members’ [section 25.8.3 (g)] (useful);

(d) ‘a “breach” would qualify to be in the red category when one or more of the following applies:
      (i) it was caused by dishonesty, poor scheme governance, poor advice or by a deliberate contravention of the law;
      (ii) its effect is significant;
      (iii) inadequate steps are being taken to put matters right; or
      (iv) it has wider implications.’ [section 25.9.3 (Note)] (useful)

(e) ‘the fact that a breach is considered “green” does not mean that no action should be taken to put matters right or to prevent re-occurrence.’ Additionally, a ‘log’ should be kept, to help determine whether a future report may be required. ‘A breach would be in the green category where all of the following apply: 
      (i) it was not caused by dishonesty, poor scheme governance, poor advice or by a deliberate contravention of the law; 
      (ii) its effect is not significant; 
      (iii) proper steps are being taken to put matters right; and 
      (iv) it does not have wider implications.’ [Section 25.9.5] (useful)

Companies Act 2006

This Act came into effect on 1 October 2007. There is the possibility [see section 6.2.4 (Note)] that this Act may limit or negate the extent to which exonerations and indemnities can apply where a corporate trustee (a company or companies acting as a trustee [see section 4.5]) is involved in the management of the scheme. Legal advice may be necessary on clauses affecting exonerations and indemnities and associated rule wordings.

Recovery plans – an initial analysis by the Pensions Regulator

In September 2007, the Pensions Regulator published an analysis of recovery plans submitted to it by defined benefit schemes to the end of July 2007. Its analysis report titled Recovery plans – an initial analysis, September 2007 is a most useful, 17-page, transparent evaluation of scheme recovery plans based on 1,292 valuations whose effective dates fell between September 2005 and April 2006. It is well worth the read and the Regulator anticipates that its analysis will be updated in future. The assumptions used by schemes and revealed in the analysis reflect the ‘economic situation and business climate’ at that time. The Regulator points out that future circumstances may be different. Also it points out that every recovery plan is set on a ‘scheme-specific’ basis and will be considered with that in mind, i.e. the Regulator is not necessarily expecting all recovery plans to be the same, nor will they necessarily set out to employ the same actuarial assumptions.

Revised Clearance Guidance – consultation document issued by the Pensions Regulator

In September 2007, the Pensions Regulator issued a consultation document proposing revised guidance on ‘Clearance Processes’. (To quote: ‘ “Clearance” aims to give assurance, based on the information provided, that the Regulator will not issue a contribution notice or a financial support direction in respect of a particular event, such as a corporate transaction.’) [See section 16.3.8(i) & (ii)] The consultation document also updated the Regulator’s ‘guiding principles’ that employers and trustees should apply when dealing with certain events that could impact adversely on the scheme. [Sections 16.3.9 and 10 refer]. 

Also featured in this Update…

Financial Assistance Scheme (FAS)

To update on the plight of members whose schemes wound up in deficit between 1 January 1997 and 5 April 2005 (before Pension Protection Fund days), a review led by Andrew Young of the Government Actuary’s Department revealed that the assets under management in schemes that qualify for assistance from the FAS amount to approximately £1.7 billion (up from an earlier estimated £1 billion). One immediate outcome of the review is that the Government has brought in regulations, effective 26 September 2007, barring schemes that have qualified for assistance from buying annuities for their members, for a period of nine months. This pause will grant the Government time to evaluate whether there is a better use for the scheme’s assets. The feeling is that for the trustees to purchase annuities for their members at retirement may not be the best use of their scheme’s assets in the context of the overall assets of the FAS. Future options include the bulk buying of annuities or the pooling of all the available assets in the FAS fund. New considerations include allowing all members of qualifying schemes to be eligible for assistance (regardless of proximity to retirement) and extending the level of payments to 80% of ‘core pension rights’ (subject to a higher cap [of £26,000] with no minimum threshold).

And of other things to come…(for now)

Deregulatory review – the Government’s response

The story so far: the pensions reform White Paper Security in retirement: towards a new pension system, published in May 2006, proposed the establishment of a rolling deregulatory review to ‘make the private pensions regulatory framework simpler and less burdensome’. Two external reviewers were appointed to direct the ongoing work of the review and a consultation document from them followed (closing date 6 April 2007). In response to the findings of the independent review, the Government has issued a consultation paper, dated 22 October 2007, containing its proposals for change. Once the response to the Government’s proposals becomes known, the detail will be reported in the Guide.

SUMMARY OF MAIN REVISIONS FROM THIS UPDATE

The Guide’s regular Updates help keep it up to date with important and topical new items, but changes to pages can also include new technical terms, changes to organisations’ names, new cross-references and a variety of minor revisions, as well as description of legislative, technical and other material, and useful tips or simply interesting additions. Here is a summary of the main changes made by this Update.

This latest Update revises content at this site www.gpt-online.com and updated pages are automatically sent to subscribers to the hardcopy Guide for Pension Trustees. To help you locate the most recent changes, see the table: Summary of Main Revisions from this Update at the bottom of this page.

The new information to report since the Guide’s last update in June 2007 is the detail from the Pensions Act 2007, which received Royal Assent on 26 July 2007. This Act brings in major reform affecting the State pension system in years to come, and changes to the immediate future of Occupational and Personal Pensions.

This Update confirms the key information and updates the Guide with the relevant detail, including changes brought in by the Finance Act 2007.

Pensions Act 2007

The major reforms set out in the Government’s White Paper of May 2006 titled Security in Retirement: towards a new pensions system have now been placed on the statute book, having been brought in by the Pensions Act 2007. [See section 2.8]

Most of the changes, particularly those to be made to the State pension system, will not be triggered for several years. Ahead of them, compulsory Pension Accounts (primarily for individuals not already in pension schemes) are to be introduced by further primary legislation due later in 2007. 

The heartening news is that only a few of the changes will really affect the ‘core’ of occupational pension schemes unlike the changes brought in over the last two years under the Pensions and Finance Acts 2004. Have your feet touched the ground yet?

Here is an outline of the latest statutory changes and the detail is now in your Guide.

Major changes to occupational and personal pension schemes

(i) From 2012 at the earliest, the statutory requirement to provide Protected Rights will cease to apply and Protected Rights funds from that time will not be treated differently from other pension rights, nor recorded separately on members’ records. [See section 1.8.1 (Note)]
(ii) From 2012 at the earliest, contracting out on a money-purchase basis is to be abolished, for both occupational and personal pension schemes. [See section 1.8.1 (Note)]
(iii) From April 2012 at the earliest, all contracting-out certificates for contracted-out money purchase schemes (COMPS) and appropriate personal pension schemes (APPs), including stakeholder schemes set up as appropriate personal pensions, will be automatically cancelled; their members will be contracted back into the State Second Pension Scheme (S2P) with no more contracting-out Protected Rights rebates being available. [See section 1.8.1 (Note)]
(iv) Trustees of contracted-out defined benefit schemes may now decide (with the approval of the sponsoring employer) whether to allow GMP rights under their scheme to be converted into ‘ordinary’ pension rights, calculated under their own rules. [See section 1.7.6 (Note)]

Some related facts about the conversion of GMP: 
(a) each member’s ‘post-conversion’ benefit must be at least as ‘actuarially valuable’ as their rights immediately prior to conversion
(b) converting GMP may help the scheme to adopt a more ‘unified and streamlined’ benefit structure and could help members understand their pension rights better, particularly when transferring benefits, and 
(c) administrative savings might also result BUT converting GMP may not lead to a reduction of pension in payment, and ‘converted benefits’ may not include money purchase benefits. 
Overall, this opportunity may well have advantages for some schemes.

Pension Accounts

The Government plans to include the detail of how these will work in a Pensions Bill due later in 2007. Under the Pensions Act 2007 a ‘Personal Accounts Delivery Authority’ has already been set up to advise further on the proposals. 

‘Personal Accounts’ is the name of a scheme set up to help low and medium earners build up private savings with contributions from employers, employees and the state (via tax relief). It is expected to be a low-cost arrangement, based on the approach outlined by the Pensions Commission [see section 1.27 (Note)] and administered in the same way as a large, multi-employer, trust-based, occupational pension scheme. Its trustees (some of whom will be nominated by a member panel) will largely be appointed from experts. [A new section, 1.27.6, outlines some of the detail. More will be provided as it becomes available].

Major changes to the State pension arrangements

(i) From April 2010, only 30 qualifying contributory years will be needed to gain a full Basic State Pension (previously 44 years for a man and 39 years for a woman). [See section 1.1.7 (Note)]
(ii) Also from April 2010, for those with caring responsibilities (spending 20 hours or more per week caring for someone), caring for children, or with long-term disabilities, a new National Insurance credit system will provide Additional Pension under the State Second Pension (S2P) Scheme. This introduction will enable the persons involved to build up their own pension, and also gain entitlement to basic State Pension without having to make a minimum level of contributions. [See section 1.4.4 (Note)]
(iii) From 2012, the annual increase in the Basic State Pension is to be linked to increases in earnings (i.e. National Average Earnings index) rather than prices as at present. This introduction is to be subject to affordability and the general fiscal situation. [See section 1.1.3 (Note)]
(iv) From around 2012, the amount of earnings-related pension accrued annually under S2P is going to be reduced. The first step will see Band 2 (currently 10% accrual) and Band 3 (currently 20% accrual) merged, so that all earnings above the Low Earnings Threshold (Band 2 – currently £13,000) and up to the Upper Earnings Limit (Band 3 – currently £34,840) will fall into Band 2 at 10% accrual. Following on, by 2030, the whole of the Additional Pension under S2P is expected to gradually become a ‘simple flat-rate weekly top-up to the Basic State Pension’. In total, these two changes will mean that S2P will quickly start to become even less meaningful for medium to higher earners and without necessarily any guarantee of any compensating reduction in National Insurance contributions. [See section 1.4.5 (Note)]
(v) From 2024, State Pension Age is to be increased gradually to 68 for men and women, to be fully in place by 2046. [See section 1.2.5 (Note)]

Finance Act 2007

This Act does not major on pension matters although it has its moments: 
(i) it is no longer possible to claim tax relief on premiums paid towards term assurance to provide death benefits under registered schemes [section 24.2.6 refers] 
(ii) scope now exists to reduce or even stop an ill-health pension [section 24.3.27 refers] 
(iii) all lump sum death benefits may now be distributed at discretion within two years of ‘notification of death’ or ‘from when the scheme could reasonably have been aware of the death’, rather than within two years of the member’s death as before
(iv) lower minimum and higher maximum pension withdrawal limits now apply to Alternatively Secured Pension [see section 1.14.6].

New from the Pensions Regulator

Now included among the documents published by the Pensions Regulator on its website www.thepensionregulator.gov.uk are:
(i) guidance for trustees outlining ‘some of the wide-ranging responsibilities placed on trustees and some of the powers trustees have in order to carry out their duties’. This document is well worth the read [section 5.1.10 refers]. 
(ii) Further guidance on the abandonment of defined benefit schemes, this time on how trustees should deal with proposals for change made by employers. [See section 14.10.8]

Combined Pension Forecasts

Due to the changes being introduced to the State pension system, the DWP has decided it is unable to provide Combined Pension Forecasts until its IT systems have been reprogrammed to reflect the new legislation. This process is likely to take around twelve to eighteen months from July 2007. [Section 11.4.5 confirms]

Report filing with the HMRC

From 16 October 2007, the scheme Administrator [see section 24.6] will be expected to submit the following information electronically to HMRC:
(i) applications to register a pension scheme
(ii) Registered Pension Scheme Returns
(iii) Accounting for Tax returns
(iv) Scheme Administrator’s Declarations
(v) Event Reports
(vi) Notifications of the winding up of a registered pension scheme 
(vii) Notifications of a scheme Administrator terminating their appointment.
It will not be mandatory to file electronically any form or return not listed above.

The Pensions Regulator and the Pension Protection Fund

An independent report A Review of Pension Institutions, written by Paul Thornton and published in June 2007, recommended a package of provisions to ensure a ‘closer and more effective’ working relationship between the Pensions Regulator and the Pension Protection Fund (PPF). Whilst the report concluded that no evidence was found to ‘suggest the current arrangements were not fit for purpose’, several initiatives were proposed:
● shared non-executive board directors 
● an invitation for both Chief Executives to attend each others’ board meetings
● a joint policy statement, setting out the principles of data collection, sharing and information gathering
● a joint statement of policy relating to the application of Clearance Statements, where the PPF is involved.
[See section 25.1.19]

The same report also recommended that, where areas of mutual interest existed between the Pensions Regulator and the Financial Services Authority (mainly the regulation of contract-based workplace personal pensions and group personal pensions), there should be jointly managed projects through the establishment of a formal forum and a practitioner consumer panel or group. [Section 25.5.2 (Note) refers]

The Pensions Ombudsman

The Thornton review also recommended that the Pensions Ombudsman’s Office should be integrated with the Financial Ombudsman’s Service (FOS) [see section 25.6.11] to form a separate pensions jurisdiction within the FOS (but not known as the Pensions Ombudsman). The report concluded that the Pensions Ombudsman’s ‘workflow and case management process’ would benefit from being part of the larger organisation, and that some cost savings could also arise. [Section 25.4.11 refers]

Dispute Resolution Procedures

Among the first drafts issued for consultation in 2004 was a code of practice titled Dispute resolution – reasonable periods. In outcome, legislation did not require a code on the resolution of disputes. Now, under the Pensions Act 2007, trustees may choose whether to operate a one-stage or two-stage procedure. Under the one-stage process, all decisions for all cases processed would be taken by the trustees. 

Lastly, as before, quite a few sections of the Guide have been supplemented to assist those trustees and pension personnel who use the Guide to study for the PMI Awards examination.

SUMMARY OF MAIN REVISIONS FROM THIS UPDATE

The Guide’s regular Updates help keep it up to date with important and topical new items, but changes to pages can also include new technical terms, changes to organisations’ names, new cross-references and a variety of minor revisions, as well as description of legislative, technical and other material, and useful tips or simply interesting additions. Here is a summary of the main changes made by this Update.

HIGHLIGHTS FROM THE JUNE 2007 UPDATE

This latest Update revises content at this site www.gpt-online.com and updated pages are automatically sent to subscribers to the hardcopy Guide for Pension Trustees. To help you locate the most recent changes, see the table: Summary of Main Revisions from this Update at the bottom of this page.

On this occasion several items have been sourced from information now included in the HMRC Registered Pensions Scheme Manual (RSPM). Other changes and additions include updated annual statistics issued by the DWP and not least from feedback received from candidates for the PMI Awards examinations. Long may the latter last!

Cash Balance Arrangement

Section 1.11.13 now defines a ‘cash balance’ arrangement. Whilst this type of arrangement is not entirely new, its prominence in the UK is increasing in connection with ‘Enhanced Protection’ [section 24.7.2 (b) relates].

A cash balance arrangement is a money purchase arrangement where the member’s ‘pension pot’ is linked to the promise of a specified amount being available in the ‘pot’ at retirement date, rather than pension benefits being calculated solely by reference to contributions and investment return. For example, this could be the promise of a ‘pot’ sufficient, say, to provide a pension of £2,000 p.a. for each year of service, or amounting to x% of salary with a lump sum included at retirement (or not).

One reason this type of arrangement is becoming more useful is because, after registering for Enhanced Protection, contributions towards defined benefit and ‘cash balance’ benefits may continue, but not for ordinary money purchase schemes.

Combined Pension Forecasts

One day it will be a requirement that pension schemes will have to issue combined forecasts of scheme and state benefits. Section 11.4.5 outlines the use of ‘Combined Pension Forecasts’ and 11.4.5 (Note) confirms how such forecasts can be obtained by employers and schemes.

Individual transfer values – further change due [in 2008]

In 2005, the actuarial profession issued guidance on how individual transfer values, known as ‘cash equivalent transfer values’ (CETVs), should be calculated. The Government has announced that the principles behind the calculation of CETVs should be placed in legislation rather than in guidance. 

When this new legislation is in place, DB scheme trustees can expect to be responsible for setting the assumptions to be used in the calculation of CETVs. Section 17.4.1 outlines the detail. As before, subject to scheme rules, trustees will be able to continue to choose to reduce CETVs to reflect under-funding, and added flexibility will allow trustees also to deduct from the transfer value reasonable administration costs incurred. Draft regulations are expected later in 2007 for implementation in 2008.

Event Reports

Annual reports to 6 April each year are required to be sent to HMRC by the employer and/or the scheme Administrator (see section 24.6) in respect of ‘Reportable Events’ [section 11.6.2 refers]. Where there is an item needing to be reported (generally speaking most schemes will find that they have nothing to report) then reports to 6 April each year have to be filed by 31 January the following year. The end of the first reporting period to 6 April 2007 is 31 January 2008. Whilst this date is still some way in the future, work is best started now to clarify whether any report is needed.

Moving everything overseas?

The HMRC is prepared to endorse the transfer of pension rights from a UK registered scheme to an overseas scheme provided the overseas scheme is a ‘Qualifying Recognised Overseas Pension Scheme’ (QROPS). The HMRC has published a list of QROPS (section 17.2.9 refers) to help individuals know whether the overseas company they work for runs a QROPS. If it does, then that scheme may receive a transfer from a UK registered scheme. If it does not have a QROPS but has a scheme, then it may be possible for the scheme to gain recognition to receive UK transfers, subject to its provisions.

Pensions Bill 2006

As reported in the last Update, detail is awaited on the Government’s latest measures (a) to reform the State Pension, (b) to introduce a ‘delivery authority’ for administering ‘personal pension accounts’ and (c) to simplify further certain aspects of pension provision (contracting out included).

To recap, changes affecting the State Pension include (i) improving it by restoring the link with earnings, (ii) increasing the number of people entitled to the full old age pension at State Pension Age by reducing the number of NI qualifying years to 30 (from 40), (iii) making it easier for parents and carers to build a State Pension, (iv) raising State Pension Age to 68 over time starting from 2024, i.e. extending people’s working lives as mortality continues to improve and (v) making it easier for people to save for retirement by ‘streamlining the regulation of private pensions’ and by introducing personal pension accounts. 

Comments observed on the Government’s proposals suggest a lukewarm reaction to the proposals and that more could/should be done by the Government to alleviate poverty in retirement.

Budget 2007

One item underlines the Government’s intention of not loosening the noose on tax relief. Legislation has been included in the Finance Bill 2007 to restrict the provision of member’s and dependants’ pensions funded from ‘alternatively secured’ pension funds after age 75 [see section 1.14.6]. T