7 days

7 Days is a weekly round up of developments in pensions, normally published on Monday afternoons. We collate this information from key industry sources, such as the DWP, HMRC and TPR.

In this 7 Days

The Pensions Act 2014 (Commencement No.8) Order 2016 published

The Pensions Act 2014 (Commencement No.8) Order 2015 was made on 22 February 2016. The eighth Commencement Order made under the Pensions Act 2014, the Order brings into force provisions relating to the new state pension for people reaching pensionable age on or after 6 April 2016.

It enables Regulations to be made that set the full rate of the new state pension, and brings provisions into force which enable the state pension provisions in The State Pension and Occupational Pension Schemes (Miscellaneous Amendments) Regulations 2016 (see below) to be made.

The Pensions Act 2014 (Consequential and Supplementary Amendments) Order 2016

The Pensions Act 2014 (Consequential and Supplementary Amendments) Order 2016 was made on 22 February 2016, and comes into force on 6 April 2016.

It makes consequential and supplementary amendments to primary legislation in connection with the introduction of the new state pension. The most significant of these relate to the calculation of state pension under the pre-2016 scheme for widows / widowers who reached pensionable age before 6 April 2016 but whose deceased spouse or civil partner is in the new state pension.

The Order also extends a permitted exception to the principle of equality between the sexes in occupational pension schemes to include the new state pension. This exception relates to bridging pensions and applies where a man and a woman are eligible to receive different amounts of pension, and this difference is only attributable to differences between men and women in their state pension entitlement.

The State Pension and Occupational Pension Schemes (Miscellaneous Amendments) Regulations 2016

The State Pension and Occupational Pension Schemes (Miscellaneous Amendments) Regulations 2016 were made on 22 February 2016, correcting a number of procedural errors in The Occupational Pension Schemes (Schemes that were Contracted-out) Regulations 2015. For further detail as to the errors, see our 7 Days of 21 September 2015.

The new regulations also implement further details of the new state pension scheme. In particular, they:

  • set out how the pension increase earned through deferring the new state pension is to be calculated where the rate of pension changes during the deferral period
  • contain transitional arrangements for inheriting Graduated Retirement Benefit (an early form of earnings related pension) where a person’s deceased spouse or civil partner reached state pension age or died before 6 April 2016 and
  • provide that a person who is an “overseas resident” is not entitled to uprating increases, including such increases that came into effect while the person was deferring their new state pension.

The regulations also amend regulations dealing with contracted-out occupational pension schemes to make provision in respect of survivor benefits where a GMP is converted into ordinary scheme benefits.

The various provisions in the regulations come into force on different dates over the next few weeks; they will be fully in force by 6 April 2016.

The State Pension (Amendment) Regulations 2016

The State Pension (Amendment) Regulations 2016 were made on 24 February 2016, and come into force on 6 April 2016.

They set the full rate of the new State Pension (£155.65 per week) by amending the State Pension Regulations 2015. The full rate of the new state pension will apply to those who reach SPA on or after 6 April 2016.

DWP guidance on state pensions updated

On 29 February 2016, the DWP published an updated version of its document “Your State Pension explained”. The guide is designed to help people understand the changes to the state pension scheme from 6 April 2016 and includes sample questions and answers.

The latest version contains added information about the effect of other benefits on deferral of the state pension. Similar amendments have been made throughout the state pension toolkit. Minor changes have also been made throughout to reflect the reduction in the age at which someone may apply for a state pension statement, from age 55, to 50 or over.

HMRC issues latest “Countdown bulletin” on the abolition of DB contracting-out

On 26 February 2016, HMRC published issue 14 of its contracting out Countdown Bulletin, which provides further guidance for pension scheme administrators ahead of the end of contracting-out on 5 April 2016.

Amongst other things, this bulletin provides:

  • a reminder on the deadline for applications for the Scheme Reconciliation Service (registration must be completed before 5 April 2016)
  • information on the new Guaranteed Minimum Pension Calculation Service
  • some popular questions raised through the state pension mailbox service
  • information for employers with contracted-out schemes on communications and reporting requirements.

PASA releases the second tranche of guidance on GMP reconciliation

PASA released its second tranche of guidance on GMP reconciliations on 29 February 2016, following the first tranche which was published in January 2016.  The guidance aims to help schemes as they seek to develop appropriate scheme specific strategies in relation to GMPs before the end of DB contracting-out from 6 April 2016.

Geraldine Brassett, Chair of the PASA GMP Working Party, said: “This latest phase of guidance starts with the link between reconciliation and rectification, and what support and information trustees should expect from their administrator. It is likely that, for many schemes, the reconciliation process will reveal cases where benefits have been overpaid or underpaid and it will be difficult for trustees to know how to approach the correction of errors […] The Guidance will help them establish an informed, proportionate and pragmatic approach to navigating this complex web of issues.”

A separate guidance note covers complex cases, for example, where a member has died, transferred out or commuted their benefits, or where a pension sharing order applies.

The Working Party will continue to monitor issues in relation to GMP reconciliation and rectification and will publish further guidance on new developments or specific issues when relevant.

Hughes v The Royal London Mutual Insurance Society Limited – 19 February 2016

The High Court has overturned a decision of the PO which had allowed a scheme’s trustees to decline a member’s transfer request where there were concerns about the possibility of a pensions scam. The court disagreed with the PO’s interpretation of the relevant legislation.

This decision clarifies the position for trustees and administrators on the parameters for paying a CETV and has been welcomed by the PO for the instruction it provides. The PO notes that “it seems likely that most transferring members will meet [the earnings] requirement so, beyond verification of earnings and the provision of risk warnings, trustees and administrators will be conscious that under current legislation they cannot refuse such a transfer – even if they have significant concerns that it may be for the purposes of pension liberation”.

The important thing for trustees and administrators remains the duty to carry out appropriate due diligence and to communicate any concerns with the individual who has requested the transfer.

For more information on the considerations for trustees and administrators, as well as other sources of guidance (including TPR and Action Fraud), please see our Alerts on recent PO transfer request rulings and the Pension Liberation Industry Group’s Code of Good Practice on Combating Pension Scams.

For further details, please see our case report.

Muller v The County Tyre Group of Companies (PO) – 12 January 2016

The PO held that a Company had “unjustifiably” stopped a member’s pension payments.

For further details, please see our case report.

Layfield v Johnson Controls Ltd and the Trustees of the Johnson Controls UK Pension Scheme (PO) – 22 January 2016

In this decision on whether a member had correctly been refused an unreduced early retirement pension, the Deputy PO examined the employer’s implied duty of good faith.

The determination made clear that employers may take their own interests into account when making discretionary decisions. Financial interests are encompassed by this, and wishing to avoid a funding strain is therefore a legitimate consideration.

For further details, please see our case report.