Individual Protection 2014 registration window opens
HM Revenue & Customs (HMRC) has updated its Individual Protection 2014 (IP 2014) guidance to coincide with the opening of the window for registration on 18 August 2014.
The IP 2014 registration window is open until 5 April 2017 for members to apply if they qualify (ie if the value of benefits they have built up in UK tax privileged schemes as at 5 April 2014 exceeded £1.25m).
The information required for registration is the total valuation of a person’s pension savings, with a breakdown as per the legislation (broadly, pension started before 5 April 2006; total amount of benefits crystallised between 6 April 2006 and 5 April 2014; total amount of uncrystallised benefits in registered UK schemes; total uncrystallised benefits in relevant overseas scheme – all these four items are to be valued as at 5 April 2014; and information about any pension debits following a divorce).
There is a point to note for individuals who have Enhanced Protection (EP) or Fixed Protection (FP) or Fixed Protection 2014 (FP 2014). Such individuals can, if they qualify, apply for IP 2014 which is held dormant until the other protection is lost or given up; but HMRC will not issue an “IP certificate dormant at 6 April 2014” immediately on application – HMRC will instead wait to issue a certificate until the other protection is lost or given up. So it will be very important for the member to retain his application form and acknowledgement in order to keep a record of the IP 2014 number that he has registered for (which may be very important in future decision making).
With the window now open, trustees should expect requests for quotations. We would expect most trustees to choose to provide the valuation for their scheme benefit; but they should be careful how they calculate the numbers as these are not always straightforward or intuitive.
As noted before, trustees might want to bank the right to 5 April 2014 DC valuations for all members if those might be difficult to acquire later (see Pensions Bulletin 2014/18 regarding the ABI protocol for valuing certain DC benefits) because queries could come in for another three years.
HMRC has also published pension schemes newsletter 64 rounding up recent events including IP 2014 and other matters such as the publication of the Taxation of Pensions Bill (see Pensions Bulletin 2014/32) and the Annual Allowance Charge (Amendment) Order (see Pensions Bulletin 2014/31).
Comment
In the December 2013 consultation on IP 2014 HMRC thought that up to 120,000 individuals could potentially apply for it. The required information for registration is perhaps more detailed than the man on the street might have hoped for. Individuals may well, of course, have benefits in several schemes split across the different categories outlined above. They will, therefore, have the challenge of bringing all the information together in order to calculate if they do qualify.
We also think it is rather a pity that HMRC will not issue an “IP certificate dormant at 6 April 2014” immediately on application.
Clarification of new UK accounting rules
The Accounting Standards Board has released an Exposure Draft proposing an amendment to the pension rules in FRS102. This is the new UK accounting standard replacing current accounting standards, including FRS17, for accounting years beginning on or after 1 January 2015 (see Pensions Bulletin 2013/14).
The pension rules in FRS102 are a simplified version of the rules in the international standard IAS19. IAS19 includes some complex rules, in “IFRIC Interpretation 14”, that require companies to show extra pension liabilities in some situations. FRS102, as originally published, did not make it clear whether these complex rules should also apply to the simplified FRS102 standard. The new exposure draft proposes to clarify that they do not.
Comments on the Exposure Draft are invited before 21 November 2014.
Comment
The proposal clarifies an important area of uncertainty in the pension rules in FRS102, and keeps FRS102 simple. However, in doing so, it proposes introducing a significant difference between the simple pension rules in FRS102 and the more complex rules in IAS19. This could mean that companies that produce figures under both standards have to deal with different sets of figures under each standard – an unwelcome complication.
Regulator secures big win for Lehman Brothers pension scheme members
Nearly six years after the collapse of Lehman Brothers, the Pensions Regulator has announced that an agreement worth around £184 million has been reached to buy out the full pension rights of Lehman Brothers employees with an insurer.
The long and winding legal road to reach this settlement has incorporated several legal wins for the scheme trustees and the Pensions Regulator:
- Financial Support Directions (FSDs) can be effective against companies in administration (see Pensions Bulletin 2013/31)
- Trustees are “Directly Affected Parties” for the purposes of Upper Tribunal proceedings. This in turn enabled them to apply for another 38 companies to be issued with an FSD, even though the Determinations Panel of the Regulator had decided against it, and the original time limit for the Regulator issuing a determination had expired (see Pensions Bulletin 2012/28)
- The Regulator can issue Contribution Notices for more than the value of the initial section 75 debt on the employer in cases where multiple Contribution Notices are to be issued and it is reasonable to do so (see Pensions Bulletin 2013/53). Had this judgement gone the other way, the Regulator could have collected no more than the original outstanding employer debt of £119 million
The settlement means that what is “reasonable” for the Regulator to seek to collect via Contribution Notices will not need to be tested in this case either in the Upper Tribunal or in Court, but this will clearly be an important consideration for other similar cases.
Companies within the Lehman Brothers group will now pay the trustees of the pension scheme an amount which is expected to buy out in full the scheme’s liabilities to its defined benefit members. A final payment under this settlement will be made just before the benefits are bought out with a third party insurer.
Comment
This case has demonstrated the scope of the Regulator’s powers and its determination to use these powers to their maximum.
This is clearly great news for the 2,466 pension scheme members affected, as £184 million works out at an average of roughly £75,000 per person. But it is also good news for other pension schemes, as the Lehman Brothers scheme being kept out of the Pension Protection Fund means that the deficit will now not be required to be covered through the PPF levies. The Regulator should be congratulated on protecting pension scheme members’ benefits and also the PPF.
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.
