Money purchase short service refunds to be abolished from October 2015
Pensions minister Steve Webb has announced that members who join occupational trust-based money purchase schemes from October 2015 will no longer be able to receive a refund of their contributions if they have more than 30 days’ service.
The measure, which is in the Pensions Act 2014 (see our Guide to the Pensions Act 2014), will mean money purchase scheme members with more than 30 days’ service will keep their benefits within the scheme or transfer elsewhere. Currently, those with less than two years’ service can receive a refund of their contributions. The “run-off” period means that the last refunds for those with more than 30 days’ service will potentially not be paid until October 2017.
This announcement goes hand in hand with the Government’s intention to make pension saving easier by introducing automatic transfers when members change employer – the “pot follows member” legislation also outlined in the Pensions Act 2014.
Personal pension schemes (where immediate vesting has always applied) and defined benefit schemes are not affected.
Comment
As we noted in our Pensions Act 2014 Guide, this may tilt employers’ preferences towards contract-based money purchase schemes. Trust-based schemes will no longer “gain” the employer contribution that was returned to the scheme when a member with more than 30 days’ service took a refund of contributions, and contract-based schemes require less employer involvement.
Progress on the Kay recommendations to reform UK equity markets
The Government has issued a report detailing the progress made in implementing the recommendations of the Kay review (see Pensions Bulletin 2012/31), which set out to combat the perceived short-termism that was impacting the long-term performance of UK companies.
A number of pensions-related measures have already been implemented as a result of the Kay review. These include the Pensions Regulator’s new objective to promote sustainable growth, updates to the scheme funding and trust-based defined contribution Codes of Practice, greater transparency on costs and charges, reforms to the governance of contract-based workplace pension schemes and the updated Stewardship Code published by the Financial Reporting Council (FRC). The NAPF’s new Stewardship Disclosure Framework and the Investor Forum were also noted.
The report also includes the Government’s response to the Law Commission’s findings that trustees should not prioritise short-term gains over long-term risk (see Pensions Bulletin 2014/27). The next steps outlined include:
- During 2015, the Pensions Regulator will incorporate the Law Commission’s recommendations into its investment guidance to trustees. The Regulator will also review its defined contribution (DC) publications to reflect the introduction of its new DC Quality Standards and Charge Controls and supplement the scheme funding code of practice with more detailed guidance on investment strategy and integrated risk management
- The Government is to consult on amending the Occupational Pension Scheme (Investment) Regulations to require pension scheme trustees to state their policy on stewardship in the Statement of Investment Principles. The consultation will also consider how to better reflect the distinction between financial factors and non-financial factors in the context of social, environmental or ethical considerations
The report is accompanied by an independent research paper into the metrics and models used to assess company and investment performance by long-term investors.
Comment
The Kay review has clearly impacted pension schemes, with developments such as the Regulator’s objective to promote sustainable growth and the improvements in DC governance noticeable. It appears that there are more changes promoting long-term investment to come.
MG Rover Group Senior Pension Scheme avoids PPF with £8 million settlement
Members of the MG Rover Group Senior Pension Scheme (MGRGSPS) will receive benefits in excess of Pension Protection Fund (PPF) compensation thanks to an £8.085 million settlement reached with sponsor MGR Capital Limited (Capital).
Capital was set up in 2001 to acquire a book of vehicle finance agreements with former MG Rover Group (MGRG) customers. Following the collapse of MGRG and other group companies in 2005, a Government investigation found that a company within MGRG could have acquired the book of finance agreements for the benefit of the group, but instead MGRG advanced substantial collateral to help Capital obtain them.
In December 2012, the Regulator issued a warning notice in respect of its power to issue a financial support direction (FSD) to Capital to support MGRGSPS. The Pensions Regulator’s discussions with Capital have led to this £8.085 million settlement without an FSD (and the protracted legal proceedings that can entail) actually being issued. As the scheme is winding up outside the PPF, there has been no call on PPF levy payers to fund any of the benefits.
Comment
It appears to be another win for the Regulator - higher than PPF benefits for members without further funding from PPF levy payers, and they didn’t even have to follow through with the FSD. One possible outstanding question is how much Capital would have had to provide to ensure members received their benefits in full.
BT’s crown guarantee – guarantees benefits but not lower PPF levies
The Court of Justice of the European Union has ruled that the BT Pension Scheme (BTPS) should pay full PPF levies without any reduction for the crown guarantee that covers part of the scheme.
BT received the guarantee as part of its privatisation in 1984. The Court upheld previous rulings that had found the BTPS exemption from part of the PPF levy to be “unlawful state aid” which is incompatible with the common market (see Pensions Bulletin 2013/39).
Regulations already exist to allow the PPF to collect levies from schemes with crown guarantees from 2010/11. The Pensions Act 2014 enables the Government to lay regulations to recover payment of the unpaid part of the PPF levies due before this. No regulations have been made under this power yet, but when they are it looks like BT will have to pay the outstanding levies (which, with interest, are thought to amount to around £20 million).
The end of contracting out – 18 months to go!
With just 18 months to go until contracting out ceases from 6 April 2016, HM Revenue & Customs (HMRC) notes that it has received a good number of requests for its Scheme Reconciliation Service (1,889 so far). HMRC’s third Countdown Bulletin does, however, voice concern at the low numbers of people querying the data HMRC provides. As a result, HMRC is urging schemes to engage with it now to reconcile any differences between the scheme’s GMP records and those provided by the reconciliation service.
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.
