Bridge regulations postponed
The “Bridge” regulations, that redefine money purchase benefits (see Pensions Bulletin 2014/19), are now not expected to come into force until the end of July rather than early July as previously intended.
This is because the Department for Work and Pensions (DWP) has encountered procedural problems stemming from the fact that some of the regulations need to be debated in Parliament under the “affirmative procedure”.
The regulations are being split in two (the affirmative ones and the negative ones) in order that they can progress through Parliament separately.
This Pensions Bulletin does not constitute advice, nor should it be taken as an authoritative statement of the law. For further help, please contact David Everett at our London office or the partner who normally advises you.
Comment
Because the affirmative regulations need to be debated by both Houses, there is now a small possibility that the DWP will run out of Parliamentary time before Parliament rises for summer. If so, the more restrictive definition of money purchase benefits will not come into force until the autumn.
Pensions Regulator pushes for backdated auto-enrolment for LLP members who are workers with qualifying earnings
The Pensions Regulator has opined on the auto-enrolment implications of the Supreme Court’s ruling that a partner (strictly “member”) of a limited liability partnership (LLP) can be a worker under the Employment Rights Act 1996 (see Pensions Bulletin 2014/22).
In unpublished guidance, the Regulator says that:
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An LLP should assume that the Supreme Court’s decision in Clyde & Co v Bates van Winkelhof is equally applicable to the Pensions Act 2008 for automatic enrolment purposes
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Consequently every LLP will need to assess each of their partners against the definition of worker in the Pensions Act 2008 to determine whether the partner is a worker or is self-employed for automatic enrolment purposes, having regard to the matters mentioned by the Supreme Court
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If the LLP determines that a partner is a worker under the Pensions Act 2008, they should apply the employer duties to the worker in the same way they would for any other worker
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This includes assessing whether qualifying earnings are payable – the payments made to a partner would need analysis to see if they fall within the “dictionary definition” of terms such as salary, bonus and commission
The Regulator goes on to say that as the Supreme Court’s judgment should be considered to have retrospective effect, any partner who is now subject to auto-enrolment (through being a worker with qualifying earnings) may need to have contributions or accrual backdated.
Comment
This analysis is unsurprising. However, we would expect many partners of LLPs judged to be workers not to have qualifying earnings. So whilst they may, as “entitled workers”, be able to join a pension scheme (to which their “employer” does not need to contribute) the LLP should not be under a duty to enrol such partners into an automatic enrolment scheme and pay contributions on their behalf.
For those partners who are subject to auto-enrolment, one risk of any backdating is that carefully constructed Finance Act 2004 tax protections may be undermined.
Europe gets involved in pension transfers
The European Commission has delivered a call for advice to the European Insurance and Occupational Pensions Authority (EIOPA). The terms of reference include an “overview of the existing arrangements for transfers of acquired supplementary pension rights between occupational pension schemes in different Member States, both within the country as well as well for cross border transfers. EIOPA may also wish to flag “good” practices related to the transfers of acquired supplementary pension rights”.
This initiative follows on from the inclusion in the draft IORP2 directive (see Pensions Bulletin 2014/13) of an article conferring a right for pension scheme members to transfer their benefits to a properly constituted pension scheme in another EU member state.
Comment
It is clear that the EU is starting to develop an interest in transfers, both cross-border and otherwise. One of the purposes of this exercise will be to provide evidence for the cross-border proposal in the IORP directive but it is noteworthy that attention may be paid to the domestic transfer regime. We wonder which aspects EIOPA will become interested in.
Pension incentive exercises – research looks at how employers are managing them
The Department for Work and Pensions has published some research on how employers are implementing and complying with the voluntary Code of Good Practice for pension incentive exercises.
The research was carried out last winter and consisted of nine case studies of large employers who had recent experience of incentive exercises, or were considering starting one.
All of the employers who had implemented an incentive exercise reported that they had experienced few difficulties as a result of following the code, and felt that, on balance, the benefits of complying with the code outweigh any challenges and that most felt that they would have incurred many of the costs involved with compliance anyway.
The code has been in place since June 2012. It is voluntary but gives employers clear principles to follow when undertaking incentive exercises. The Government’s intention is that should it be found that the code is not working, other measures will be considered, including legislation, to protect scheme members. This latest research is being fed into the ongoing oversight of the practice by the Incentive Exercises Monitoring Board (IEMB), the industry-led group evaluating how employers run incentive exercises which created the Code.
UK Equity Bank proposal to fund annuities from housing wealth
A recent paper promotes the idea of an “Equity Bank” as a potential solution to the growing challenge of meeting the nation’s retirement income needs, by unlocking some of the estimated £1.4 trillion locked up in the value of the homes of retired people.
The Equity Bank would be a state-run agency empowered to enable retired people to release income from their homes in the form of a lifelong annuity in return for selling a portion of the equity in their homes to the state in which the value of the annuity is recovered on the death of the recipient. The intention would be for it to work alongside existing commercial equity release schemes which, it is argued, are not fulfilling their potential because they can be too costly or complex for potential customers to contemplate.
