Archive for the ‘Legislation’ Category
Multi employer pension schemes – no storm in a tea cup!
In all of the latest gender related nonsense from Europe you’d have been forgiven for missing the latest tale of woe from the world of multi-employer pension schemes.
We’re grateful to Jennie Kreser of Silverman Sherliker for publishing an excellent article on the fate that has befallen the Wedgwood Museum – home of all that is great and good in the world of the eponymous pottery. Have a read of the article here – it’s well worth looking at. Jennie has a great style and brings complex issues to life in a clear and understandable way. You can subscribe to Jennie’s blog here.
We work with a number of employers in the Third Sector who are members of multi-employer pension schemes. Many of them will recognise this tale of woe. It is one that has befallen some charities who have found themselves having to close due to the imposition of huge (relative to their reserves) pension debts.
The Section 75 Debt regulations were primarily designed to avoid employers dumping pension liabilities by restructuring the business or group. The Law of Unintended Consequences means that not only are we seeing perfectly viable charitable organisations in danger of closing but also the possible loss of part of our national heritage.
The government are currently consulting on a change to these regulations but as far as we are aware no mention has been made of relaxing the regulations in situations like this. Clearly, something needs to be done.
Meanwhile, if you are in Staffordshire you may want to pop along to the museum before the shelves are bare!
For whom the Scheme Pays? Final Salary Schemes and High Earners
As we mentioned in our last post we were worried when we started the blog whether there would be enough to write about! We certainly needn’t have worried.
This article is really focused on employers who run final salary schemes and are likely to have members of their scheme who are long-serving and who probably earn over about £60,000. Equally it will apply to you if you are one of those members. Otherwise you may want to click away or speed read this post.
This month the Government will publish a piece of legislation that is rather bizarrely called “scheme pays”. Well why not – someone has to pay after all!
Scheme pays relates to will make it much easier for individuals to pay annual allowance charges that they may face. Great news for members facing a big tax bill but employers need to keep an eye on the cost implications for the scheme. The charge results from the annual allowance for pensions tax relief being reduced from its current level of £255,000 to £50,000.
The problem is that most employers thought that faced with the prospect of a big tax bill most members would opt for a cash payment rather the increased benefits. Now there’s likely to be a fly in that particular ointment. Scheme pays will make it possible for members to make the pension scheme pay most of the tax bill for them. Other than in exceptional circumstances can the scheme refuse.
Scheme pays will take much of the sting out of the annual allowance charge by reducing the cash flow strain on the individual. The current approach that most employers are adopting of offering affected people, particularly in final salary schemes, a choice of whether to maintain their full pension and pay the tax (stay-and-pay) or take a restricted benefit with a cash top-up, will find that for their people stay-and-pay is the better choice.
This is bad news for employers. This is because the cost of providing the benefits and the cost of administrating scheme pays will be significant. Draft legislation has already been published that means a scheme must provide the member with a Pensions Savings Statement. This will calculate the pension amounts for that tax year, and the three preceding years. Coupled with the difficulties of an annual ‘scheme pays’ event, the administration costs could well be thousands of pounds a year for each individual member involved.
Employers may well need a Plan B or even C to cope with all this. Plan B may be to loo at any offer you have made members to make it more attractive if the cash being offered is not enough to make this worthwhile for the member.
Plan C will apply to those employers who want to reduce costs and is simply to remove the choice altogether. Given current economic conditions employers may well look at introducing a system that makes sure that benefits granted each year are not more than the annual allowance.
Coupled with the reduction in the Lifetime Allowance that we wrote about in our earlier post Pension Snakes & Ladders this all means if you are running a final salary scheme and have higher earners you need to be looking at all this to make sure that you understand the implications.
If you would like some help with this, or if your existing consultant hasn’t highlighted this yet, 44 Financial would love to assist. Drop us a line at talk2us@44financial.co.uk.
Pension Snakes & Ladders – are you protected?
You may remember, back in the days when we thought that Pension Simplification would be just that, the government introduced a limit on the amount of money you could build up in registered pension schemes. This is known as the lifetime allowance. It started off at £1.5m in 2006 and has gradually grown to £1.8m in this tax year.
If you were affected by this limit, or thought you might be in the future, you could apply for protection. Not the type of protection you get from guys with sharp suits, wide lapels and violin cases but protection from the nasty tax charges that bite when you exceed the lifetime allowance.
In th
is new era of financial austerity high earners are bearing their share of the financial pain. The Finance Bill 2011 will introduce a new lifetime allowance of £1.5m from 2012. It’s the Treasury’s version of pension snakes and ladders.
So basically we are back where we started? No, not quite. The government have said that a new type of protection will be introduced. They’ve called it Fixed Protection. It will allow individuals to take advantage of the current £1.8 million lifetime allowance so long as they build up any further benefits. If you’ve claimed protection under the 2006 rules you can still have up to the £1.8m limit.
If you employ high earners with substantial pension benefits it’s worth looking at those whose pension values are between £1.5m and £1.8m
If you are an employee and you think that you may be affected you really should get some specialist advice.
Well there you have it. Pensions Simplification? As if!
The Devil is in the Detail – Retirement Age Regulations Published
You’ll probably remember that we wrote in our blog recently about the removal of the Default Retirement Age from April. The post is here.
Just a short post today to keep you up to speed. As you know we aim to trawl through all the information slushing about online to bring you stuff that’s relevant, fresh and that we think you’ll find interesting. If you are not one of our clients we’re sure that your advisers will be doing the same for you, won’t they?
Those all round good eggs at DLA Piper LLP have issued an update on the new regulations that have been issued by the government regarding the removal of the Default Retirement Age. In the old days the ink would still have been wet it’s the information is so fresh!
You can click through to the article here. There’s some really good stuff in there on Group Insured Benefits and the Transitional Arrangements as well as an excellent summary under Implications. I must say that the stuff that DLA Piper issue is really good like that in giving a good clear summary.
The insured benefit stuff isn’t quite as we were led to believe. In the previous post we wondered whether the government would “walk the talk”. Well the good news is that it has – almost.
The exemption only applies to employees who are the older of 65 or State Pensionable Age. At the moment that’s not a problem as they are broadly the same – younger for women. The government are planning to move us all to a State Pensionable Age of 68 in the future. That means you could be looking at covering employees up to 68.
Employers will need to give some thought to whether they still want to provide benefits like life assurance, income protection and critical illness to employees over State Pensionable Age.
As if you didn’t have enough on your plate to think about!
A couple of bits of background reading
As ever nothing stays the same. Just a short post to include a couple of links to some good material that I have been sent by the very nice people at Herbert Smith LLP and DLA Piper LLP. We thought we’d include the links and a little bit of background to save you the time. We try to scour the web for this sort of thing so our clients don’t have to!
Herbert Smith – Round up of pensions developments
Click here a good overview of everything that’s going on in the world of pensions. If your organisation participates in a final salary multi-employer pension scheme there’s a good write up of a Scottish case. It involves an insolvent employer and a £20m debt. We won’t say any more it’ll only spoil the ending!
There’s also a good article on a TUPE case where some employees ended up getting taxed on a compensation payment for loss of benefits on a TUPE transfer. Buyer beware is the motto for TUPE transactions.
DLA Piper LLP – Be Aware
Click here for the February edition of the DLA Piper Employment Law publication Be Aware.
There’s some good stuff on the removal of the Default Retirement Age and what you can and can’t do. There’s also a good round up of what’s on the horizon legislation wise. Finally, the At a Glance section is a good overview of the various pay rates, maximum awards etc.