In this June edition of the Pensions E-Bulletin we consider a number of issues including the settlement of the sum due under the contribution notice issued by the Pensions Regulator in the Bonas case, further guidance issued by the Pensions Regulator on auto-enrolment and potential issues caused by the abolition of the default retirement age.
Pensions Regulator settles Bonas case

On 9 June 2011 the Regulator announced that it had issued a contribution notice following settlement of the ongoing dispute with Michel Van de Wiele NV (VdW), the Belgian parent company of Bonas UK Ltd.

In April 2010 the Determinations Panel recommended issuing a contribution notice exceeding £5 million. VdW appealed this determination and, although this application was unsuccessful, the judge who heard the appeal suggested that the amount was excessive as it should only compensate the scheme for the detriment suffered.

Although the appeal was unsuccessful, a contribution notice has been issued for the considerably lesser sum of £60,000. The Regulator's report confirms the compromise reached but:

  • rejects the appeal judge's analysis of how the amount specified in a contribution notice should be calculated;
  • notes that the decision should be taken in the context of the Bonas case and should therefore not be relied on in future cases; and
  • comments that in its opinion the amount of a contribution notice should not necessarily be restricted to the detriment suffered by the scheme and that this is not the approach the Regulator will take going forward.

It will be interesting to see the Regulator's approach when assessing the value of a contribution notice the next time this issue arises.

Pensions Regulator issues further guidance on auto-enrolment

In previous editions of the Pensions E-Bulletin we have looked at various issues around the introduction of a requirement for employers to auto-enrol "workers" into a pension scheme. In May and June this year, the Pensions Regulator issued new guidance to employers and trustees (and their advisers) reminding them of their duties and outlining the steps they should take in implementing auto-enrolment.

Adviser and employer guidance
Nine separate detailed guidance notes have been issued which are aimed at employers with in-house pension teams (and their advisers) including such topics as who will count as a "worker" for the purpose of the new duties, how to process 'opt-outs' from workers who want to leave the scheme and the rules on employers using their existing schemes to meet the new duties.

The Regulator has also started writing letters to the UK's largest companies warning them to start making preparations for their staging dates (which, for the largest employers, begin in 2012). Smaller companies will be contacted as their staging dates approach.

Trustee guidance
The Regulator has issued a checklist which provides existing occupational scheme trustees with an overview of what they might need to do to ensure that their scheme is ready if it is to be used by the employer for automatic enrolment. The five steps for trustees are:

  • know when you need to act;
  • start planning the process;
  • consider the impact on your existing scheme;
  • mobilise an implementation team; and
  • communicate the changes to all members.

Although it is anticipated that most schemes will be capable of being adapted without substantial alteration, consideration will have to be given, in particular, to rules on joining the scheme, and their inter-relationship with auto-enrolment opt in and opt out rules.

Employers should be starting to prepare now for the changes they will need to make to existing schemes if they are to be used as the pensions vehicle and also to payroll administration.

Abolition of the Default Retirement Age - potential issues

In the February edition of the E-Bulletin we highlighted the Government's plans to abolish the default retirement age from 1 October 2011. One of the points discussed was an exemption to the principle of equal treatment on grounds of age for insured benefits.

Under this exemption, employers will be able to stop providing insured benefits, including life assurance, from age 65 or, if later, the state pension age.

This may seem like good news for employers however, as death in service benefits can be provided either directly by an employer or by a pension scheme, there are two issues which trustees need to be aware of in the way in which the legislation is drafted:

  • there is uncertainty as to whether the exemption extends to trustees of an occupational pension scheme or only to employers; and
  • the exemption does not apply if insured benefits are stopped at any age other than 65 (or, if later, state pension age).

If the exemption does not extend to trustees then they will need to consider whether they can objectively justify stopping insured benefits at 65. This may be difficult given that life cover is now widely available in the market up until age 75.

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