In this month’s E-Bulletin, we update you on a number of issues, including the Government’s announcement on changes to the auto-enrolment timetable, the pensions’ aspects of the recent Autumn Statement from the Chancellor, and the outcome of the public sector challenge to the change in the statutory basis of pension increases from RPI to CPI. We also look at the Pension Protection Fund’s approach to GMP equalisation and a summary of the key features of the new Pensions Act 2011.

Auto-enrolment: latest developments

Following our October E-Bulletin, in which we provided you with an overview of the auto-enrolment requirements, the Government has announced its intention to delay the requirement to auto-enrol employees into a qualifying pension scheme for employers with less than 50 employees until May 2015 at the earliest (previously to be staged between April 2014 and February 2016). While this is not the complete reprieve from the auto-enrolment requirements that small employers had been hoping for, it will give these employers additional time to prepare and save for the change. It is also likely that the implementation deadline for employers with over 50 but fewer than 3,000 employees will be pushed back. The Government has also announced that the rate of required pension contributions will remain unchanged until all employers have started auto-enrolment, which will be to the benefit of all employers. Further details of the new deadlines are expected early in the New Year.

Chancellor’s Autumn Statement

Delivered on 29 November, the Chancellor’s Autumn Statement contained the following pensions related announcements.

  • State pension age – The increase in state pension age to 67 is to be brought forward to occur between April 2026 and April 2028 (previously due to take place by 2036).
  • Asset-backed pension contributions – The Finance Bill 2012 will introduce, with effect from 29 November 2011, changes to the tax rules to ensure that the tax relief for employers making asset-backed pension contributions (where non-cash assets are used to provide a pension scheme with an income stream) accurately reflects the payments made and does not lead to “excessive relief”.
  • Pension fund investment in infrastructure – The Government has agreed with the NAPF, the PPF and a group representing pension plans and infrastructure fund managers to support significant additional investment in UK infrastructure worth up to £20 billion.

Judgement in public sector challenge of RPI to CPI change

In our September E-Bulletin, we reported on the application being made to the English High Court for judicial review of the Government’s decision to change the basis on which public sector pension increases are determined from the Retail Prices Index (RPI) to the Consumer Prices Index (CPI), which has traditionally been lower than RPI. The High Court handed down its judgement on 2 December, concluding that the switch to CPI was lawful and that the Government had not exceeded its powers in making the change. Permission to appeal in respect of some of the issues raised was granted.

A successful appeal may result in the reversal of the Government’s decision to switch to CPI, which would then have a knock on effect on the revaluation of deferred pensions and the increase of pensions in payment under private pension schemes, if these have been affected by the legislative change from RPI to CPI.

PPF confirms approach to GMP equalisation

Having confirmed previously that it had received legal advice that it has a duty to pay benefits that take account of equalised Guaranteed Minimum Pensions (GMPs), the Pension Protection Fund (PPF) has now published the method it will use to address GMP equalisation in calculating compensation for members of schemes that transfer into it. The method, which will be used to retrospectively equalise all benefits from 1990, will be subject to a six month pilot, before being rolled out to apply to all schemes entering a PPF assessment period.

The PPF will adopt the “underpin” approach whereby members will receive the higher overall pension payable to two members who are equal in all aspects other than sex and provides examples of the practical application of this method.

Legislation from the Government regarding how schemes outwith the PPF should approach GMP equalisation has not been forthcoming but is expected in the near future and we will keep you updated with developments.

Pensions Act 2011

We reported last month on the new definition of “money purchase benefits” introduced by the Pensions Act 2011. In addition to this change, the Pensions Act 2011, which received Royal Assent on 3 November, makes the following key changes.

  • State pension age – State pension age will be equalised at 65 by November 2018, and then reach 66 by October 2020 (instead of April 2020, as originally proposed in the Bill).
  • Auto-enrolment – The Act makes various changes to the legislation on auto-enrolment, most notably the introduction of a grace period allowing an employer to defer the auto-enrolment of an employee for up to three months, an increase in the minimum earnings threshold for an employee to qualify for auto-enrolment to £7,475, and changes to the process by which an employer certifies that its scheme meets the auto-enrolment qualifying requirements.
  • Repayment of surplus funds to employer – Where a scheme’s rules contain power to make repayments to the scheme employer, trustees are required to pass a resolution in order to retain that power. The Act extends the deadline for passing such a resolution from April 2011 to April 2016 and clarifies that it is only surplus payments from an ongoing scheme that are covered by the resolution requirement and not payments to an employer on winding up.
  • RPI/CPI – The Act confirms that schemes will generally not have to provide a CPI underpin where scheme rules provide for RPI to be used as the basis for increases to pension in payment or revaluation of deferred pensions.

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