Abolition of DC contracting out: consultation on implementing legislation
On 28 July 2010, the DWP published a consultation on draft regulations in connection with the proposed abolition of DC contracting-out. The draft regulations are designed to implement certain consequential amendments to give effect to the abolition provisions contained in both the Pensions Act 2007 and Pensions Act 2008.
- The Government has confirmed that DC contracting-out will be abolished from 6 April 2012.
- The DWP’s latest consultation includes four sets of draft regulations which are designed to amend or revoke existing legislation to enable contracting-out to be ended for all DC schemes.
|6 April 1978||
|6 April 1988||
|6 April 1997||
|6 April 2002||
|30 November 2005||
|25 May 2006||
|26 July 2007||
|26 November 2008||
As DC schemes will no longer be contracted-out from 6 April 2012, the DC contracting-out legislation will be redundant or retained for a transitional period only following abolition.
The consultation therefore includes four sets of draft regulations which are intended to amend or repeal (where appropriate) references in legislation to COMPS and APPs.
Broadly, the draft regulations:
- allow a three-year transitional period so that the current automated rebate and recoveries process between HMRC and DC schemes can continue. Among other things, this will ensure that the final year’s rebate (for the tax year 2011/12) can be paid after 6 April 2012, in order to ease administrative burdens;
- introduce a “de minimis” limit on the amount of rebate required to be paid. This is designed to avoid HMRC having to make a payment if the cost of doing so exceeds the actual amount of the proposed payment;
- apply a 50% contracted-out deduction to survivors’ SERPS in all cases. This is to account for the fact that schemes will no longer be required to track protected rights separately and HMRC will not know whether effect has been given to those rights;
- provide that, where a contracting-out certificate applies to a COMB, it will automatically be valid only for the salary-related section of the scheme; and
- require trustees to provide members with certain minimum information in connection with the abolition of contracting-out.
The consultation closes on 19 October 2010, following which the Government plans to issue its response within three months. This suggests a reasonable lead-in period which, it can be hoped, will allow schemes sufficient time to communicate these changes to members.
1 Please see our Alert: “Pensions Commission comes in from the cold” dated 30 November 2005