Time to get your pensions house in order

The pensions world is constantly evolving; never more so than at the current time. There are a number of important issues that trustees and employers of defined benefit (DB) pension schemes should be addressing to ensure their schemes are up to date and important deadlines are not missed.

DC flexibilities

Although the changes introduced in April mostly affect defined contribution (DC) schemes, the trustees of DB schemes also need to give some consideration as to how the changes will impact on their scheme:

Additional voluntary contributions. Trustees have to decide whether they are going to offer the new flexibilities to members in respect of these benefits and whether any amendments are required to the rules. If not offered, the trustees will require to be able to justify their decisions objectively, as members will be expecting to be able to access their AVCs.

Transfers. As the new flexibilities are only available to DC members, there may be more DB members wishing to transfer to DC schemes to access their funds. If the transfer is over £30,000, trustees need to ensure the independent financial advice requirement is met and the transfer process is reviewed to ensure the necessary checks are built into the process to avoid any “mis-selling” claims. The Pensions Regulator has also indicated that it will be monitoring the DB to DC transfer market and will consider intervention if required.

Most schemes seem to be offering non-statutory transfer options, e.g. allowing partial transfer of DB benefits, and transfers within one year of retirement: scheme rules should be reviewed to establish whether they require amendment. Trustees should keep an eye on the number of member transfers, as this may impact on the fund’s cash flow requirements/investment strategy.

New trivial commutation and small lump sum rule changes. Scheme rules should also be reviewed to establish whether they require amendment to reflect these changes.

Member communications. Any retirement packs issued to members at retirement have to comply with the regulations and Pension Regulator’s guidance. Trustees also need to decide how and when the new DC flexibilities should be communicated to members.

Dates to remember

Scheme Reconciliation Service: 5 April 2016
Where a scheme holds guaranteed minimum pensions (GMP), an essential chore of scheme administration is reconciliation, and this is one which should not be put off any longer. HMRC’s Scheme Reconciliation Service (operated on a first come first served basis) allows pension schemes to reconcile their GMP records with those held by HMRC. Any schemes with contracted-out liabilities have to register by 5 April 2016 (or they will not be able to use the service), and resolve any queries with HMRC by December 2018. Trustees/administrators should register as soon as possible if they have not already done so.

Reclaiming VAT: 31 December 2015
As highlighted in the Tax briefing at Journal, July 2015, 30, HMRC has revised its policy on reclaiming VAT on pension scheme administration and investment services. The current regime expires on 31 December; employers should use this time to restructure their arrangements to ensure they fulfil the new HMRC conditions and take advantage of HMRC’s revised policy.

Same sex marriage
If this has not already been addressed, trustees need to decide whether they are going to offer the statutory minimum or award benefits on a more generous basis. Under the legislation, same sex couples have to be offered the same benefits as civil partners, i.e. they have to be given equal benefits in respect of pensionable service after 5 December 2005 for non-contracted-out benefits. Rule amendments may be required. The position is different for contracted-out benefits, and rule amendments are likely to be required for this.

Refund of surplus: 5 April 2016
Any ongoing schemes which have not passed a resolution to allow refunds to employer to continue have to do so by 5 April 2016 or the power will be lost.

Cessation of contracting-out: 6 April 2016
The ability of schemes to contract out of the State Second Pension will end from 6 April 2016 with the introduction of the single tier state pension. For schemes which are still open to accrual this will increase national insurance costs for employers and members, as well as having other significant impact on costs and liabilities. Employers may wish to take action to mitigate these costs.

With various deadlines looming and the introduction of DC flexibilities, there are plenty of pensions issues to keep trustees and employers very busy.