Pensions snapshot - August 2015

This edition of snapSHot summarises some of the key legal and regulatory developments that occurred during July 2015 in relation to occupational pension schemes. The topics covered in this edition are:

• Budget announcement
• Abolition of DB contracting-out
• Pensions Regulator issues auto-enrolment guidance for small employers
• High Court considers the effect of an amendment power restriction for "benefits accrued due"
• Discrimination and ill-health pensions
• Kenworthy: trustees can defer equalisation of GMPs

Budget announcement

On 8 July 2015, the Chancellor announced the Summer Budget. Changes will be made in the Summer Finance Bill 2015, already introduced, and the Finance Bill 2016.

The annual allowance will be reduced for individuals earning over £150,000 tapering to a cap of £10,000 for individuals earning £210,000 or more. Also, from 6 April 2016, the lifetime allowance will reduce from £1.25 million to £1 million. Transitional protection will be introduced for individuals who already have pension savings of over £1 million.

Pension input periods (PIPs) will be aligned with the tax year from 2016/17. All PIPs open on the day of the budget announcement close with immediate effect and transitional provisions will apply.  From 6 April 2016, lump sum death benefits paid from the pension of someone who dies age 75 and over will generally be taxed at the recipient's marginal rate rather than at the current rate of 45%.

Proposals to develop a secondary annuity market are to go ahead but not until 2017, with the Government setting out further plans to introduce these measures in the Autumn.

The Government also announced plans to consult on reforming pensions tax relief to encourage saving into pensions in the longer term and options for making transfers between schemes quicker and smoother (with a particular focus on excessive early exit penalties).  On 30 July 2015, HM Treasury published a consultation paper on transfers and exit penalties. 

Abolition of DB contracting-out

The Occupational Pension Schemes (Schemes that were Contracted-out) Regulations 2015 (SI 2015/1452) have been laid before Parliament, which set out requirements for schemes following the abolition of defined benefit contracting-out from 6 April 2016. These regulations revoke many provisions of the Occupational Pension Schemes (Contracting-out) Regulations 1996 (SI 1996/1172) from 6 April 2016 with some remaining for a transitional period until 2019 where they relate to the issue, variation and surrender of contracting-out certificates.

Certain provisions of the Pension Schemes Act 1993 which were due to be repealed from 6 April 2016 will now remain in force for longer under the Pensions Act 2014 (Savings) Order 2015 (SI 2015/1502).

Pensions Regulator issues auto-enrolment guidance for small employers 

The Pensions Regulator has issued new and updated auto-enrolment guidance for small and micro businesses, i.e. with less than 50 employees, including information on sourcing a good quality pension scheme and publishing a list of master trusts. The Regulator hopes this will assist the (approximately) 1.3 million employers approaching their auto-enrolment staging dates throughout 2015, 2016 and 2017. 

High Court considers the effect of an amendment power restriction for "benefits accrued due"

On 3 July 2015, the High Court gave an ex tempore judgment in the case of Sterling Insurance Trustees Limited v Sterling Insurance Group Limited on the meaning of a restriction in the amendment power relating to "benefits accrued due". The construction of the restriction was relevant to whether a deed of amendment purporting to sever the link to final salary was effective.

The Judge followed the previous cases of In re Courage Group's Pension Schemes [1987] 1 WLR 495 and Briggs and others v Gleeds and others [2014] EWHC 1178 (Ch) and concluded that the reference to "benefits accrued" did not permit an amendment to the scheme severing the final salary link. Following Chartbrook Ltd and Persimmon Homes Ltd [2009] UKHL 38, the Judge considered that the inclusion of the word "due" was a mistake and the restriction should be construed as if "due" were not there.

Stephenson Harwood advised the Trustee.

Discrimination and ill-health pensions 

In The Trustees of Swansea University Pension & Assurance Scheme and another v Williams (UKEAT/0415/14), the Employment Appeal Tribunal considered whether payment of an ill-health pension based on an employee's reduced, part-time hours amounted to disability discrimination. The Employer had previously reduced the employee's full-time hours to adjust for his disability. The employee complained that his pension should be based on his full-time hours i.e. prior to the adjustment.

The Employment Appeal Tribunal concluded that basing the ill-health pension on the employee's part-time hours was not disability discrimination and did not constitute "unfavourable" treatment - it was advantageous to the member even though it could have been more advantageous. To be "unfavourable" the employee would need to have shown that he was in a less favourable position to others generally, which was not the case here. 

Kenworthy: trustees can defer equalisation of GMPs

In Kenworthy (PO-4579), a member brought a complaint against the trustee and administrator of the Campden R.A. Pension Scheme on the basis that his pension was not calculated correctly in accordance with sex equality legislation.

The Ombudsman did not uphold the complaint and stated that it was reasonable for the trustees to defer taking action to equalise GMPs whilst the position remains unresolved. Further comment on the matter is expected from the Department for Work and Pensions.