Consultation on changes to the Financial Assistance Scheme (“FAS”)
The Department for Work and Pensions (“DWP”) has released a consultation document on proposed changes to the FAS, which are being introduced to implement an extension announced in the Chancellor's recent budget statement and which provide for other changes to the operation of the scheme.
The changes will ensure that around 125,000 individuals who lost pensions when their schemes collapsed between 1 January 1997 and 5 April 2005 will receive at least 80% of their expected benefits, subject to an increased cap of £26,000. The regulations also scrap the minimum payment rule which currently prevents FAS payments being made to anyone entitled to less than £520 per year.
The extension will mean that the Government’s total long-term cash expenditure on the scheme will increase from £2.3 billion to £8 billion. However, pensions action group campaigners continue to press for FAS compensation to be increased to Pension Protection Fund levels. The consultation document is available at the Department’s website at: http://www.dwp.gov.uk/consultations/2007
New regulations place ban on trustees buying annuities in relation to FAS
In more FAS news, the DWP has issued regulations which bar trustees of collapsed pension schemes eligible for the FAS from buying annuities on behalf of members for nine months from the effective date of the regulations, except in specified circumstances. The Financial Assistance Scheme (Halting Annuitisation) Regulations came into force on 26 September 2007. Although trustees can still apply to the FAS Scheme Manager for permission to purchase annuities, the nine-month embargo follows a recommendation by government actuary Andrew Young in July that buying annuities is not necessarily the best use of assets for such schemes.
The DWP has also issued guidance to trustees explaining the implications of the new regulations. The regulations, guidance and related press release are available at http://www.dwp.gov.uk/fas
DWP releases consultation on age discrimination and flexible retirement
The DWP has published a consultation document, seeking views on key issues that have been raised by the pensions industry since the implementation of the pensions-related aspects of the age discrimination legislation which came into force back in December 2006.
Since the implementation of the Age Regulations, a number of issues continue to arise for employers, trustees and the pensions industry, in relation to:
- the interaction between the regulations and the increasing desire to allow older workers some flexibility in how they work as they approach retirement; and
- the provision of death benefits beyond a scheme’s normal pension age.
In the consultation document, the DWP says that ‘it is not possible for Government to offer any solutions or exemptions at this time … without a fuller understanding’ of the problems schemes are experiencing as a result of the age legislation and related guidance. The DWP is therefore asking the pensions industry to bring to its attention examples of areas where the age legislation is causing concern, both in relation to defined benefit and defined contribution schemes. There is a limited consultation period, running from 1 October to 7 December 2007, at the end of which the DWP ‘will consider all responses and what further action, if any, will be taken by DWP as a result’.
The consultation paper appears on the DWP website at www.dwp.gov.uk/consultations/2007
Pensions Regulator issues draft Clearance Guidance
10 September saw the Pensions Regulator issue draft revised guidance on clearance, clarifying which events would give rise to clearance and how the Regulator will treat mergers and acquisitions. The new guidance is aimed at employers, trustees, and professional advisors involved in corporate transactions.
The new guidance has adopted a principles-based approach to determine which events can be considered for clearance. The main aims of the guidance are to simplify the classification of events requiring clearance, give greater focus to scheme-related events which have previously been overlooked for the purposes of clearance, and emphasise the need for trustees to seek compensation where an event would otherwise undermine the financial health of the scheme. To this end, the Regulator has abolished Type B and C events, and provided greater detail on what constitutes Type A events, as well as providing more guidance in relation to section 179 and technical provisions.
The deadline for responses to the consultation is 2 November 2007. The draft guidance is available at: http://www.thepensionsregulator.gov.uk/pdf/clearanceRevisedGuidanceConsultation.pdf
HMRC publishes Tax Simplification Newsletter No. 29
HMRC Newsletter 29 is now available, and it contains a summary of the pensions aspects of the Finance Act 2007. Amongst other things, the 2007 Act makes changes to the regime for alternatively secured pensions, and alters some of the tax rules relating to pension commencement lump sums and ill health pensions. It also amends the rule relating to payment of lump sum death benefits, such that a lump sum must now be paid within two years from the date the trustees knew of the member’s death rather than from the date of death itself (unless the trustees should reasonably have known about the member’s death at an earlier date, in which case the death benefits must be paid within two years of that earlier date).
The Newsletter also contains a reminder that Scheme Administrators must file information electronically with HMRC as from 16 October 2007, and it advises that HMRC have published a free guide to the Pension Schemes Online system.
The newsletter can be viewed here: http://www.hmrc.gov.uk/pensionschemes/newsletter29.htm
Pensions Regulator publishes analysis of recovery plans
On 26 September, the Pensions Regulator published its first analysis of recovery plans submitted to the Regulator up to the end of July of this year. According to the Regulator, the analysis revealed several trends, namely that 30% of plans did not trigger further action by the Regulator, and a significant proportion of those schemes that did only required further information or clarification by trustees. Another statistic to come to light is that 80% of schemes are producing plans of no more than 10 years’ duration, and that mortality assumptions are based on the medium cohort.
The most significant finding according to the Pensions Regulator is that, as it feared, schemes are using the four “triggers” as targets – a use for which they were not intended. The Regulator has stressed that recovery plans should be designed to be scheme-specific, and that this is the way in which the Regulator assesses them. The Regulator also highlighted some concerns that longevity assumptions are failing to reflect current industry debate on what may be considered prudent.
The analysis can be found at http://www.thepensionsregulator.gov.uk/whatsNew/pn07-14.aspx
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