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Issue 47

February 2014

complicated, covering subjects such as winding up, employer debt, revaluation, indexation, preservation, transfer values, refund of surplus, scheme actuary appointment, the PPF, the Financial Assistance Scheme (FAS), scheme funding, sex equality, pensions on divorce, European Union cross-border schemes, disclosure of information, underpin benefits and scheme modification. In some cases, the outcome depends on whether events have occurred before or after the DWP put the industry on notice about the impending change, with its 27 July 2011 announcement.

In very broad summary, the proposals will mean that (amongst other things): l in general, decisions made prior to 28 July 2011 on the basis that benefits were money purchase will not have to be revisited l a decision made in the period from 28 July 2011 to 5 April 2014 to treat benefits as money purchase may not have to be revisited if the benefits were satisfied in full, or if reversing the decision would not in practice increase members’ benefits or the scheme’s assets l pre-28 July 2011 scheme apportionment and withdrawal arrangements are unaffected, but arrangements made subsequently may have to be re-opened if benefits were treated as money purchase contrary to the revised definition l pensions put into payment before 6 April 2014 on the basis that they are money purchase, so that statutory indexation is not required, can continue to be paid on that basis l transfer values for members who leave service after 5 April 2014, with cash balance benefits that are not linked to final salary, will be based on the members’ accrued funds (somewhat like money purchase transfers, but taking account of notional returns and other guarantees in the benefit formula), but may be reduced if the scheme is underfunded l where trustees have treated cash balance benefits as money purchase for pre-6 April 2014 leavers, transfer values can continue to be paid on that basis l the trustees of a scheme that was considered to be exempt from the requirement for a scheme actuary because it was thought to be money purchase will have until 6 July 2014 to make the appointment

...valiant effort to cover all of the areas in which the revised definition of money purchase benefits will have an effect...

l a scheme that meets the PPF eligibility criteria for the first time as a result of the revised definition will have to submit a ‘section 179’ actuarial valuation by 31 March 2015 (with an effective date falling in the preceding three-month period), and will become eligible for the PPF (and liable for its levies) on 1 April 2015 l various valuations and decisions made in connection with schemes that began to be assessed for PPF takeover before 6 April 2014 remain valid l if trustees have since 27 July 2011 treated as money purchase any benefits that do not meet the revised definition, they will have to inform the Pensions Regulator and, where the scheme is already eligible for the PPF, provide any information required for the calculation of levies l section 179 valuations with effective dates before 6 April 2014, and levy calculations for years prior to 1 April 2015, remain valid l the PPF will be able to require the trustees to provide an out-of-cycle section 179 valuation for the 2015/16, 2016/17 or 2017/18 levy year and, if necessary, recalculate the scheme’s levies for those years l PPF compensation rules will be modified to cope better with cash balance schemes l the statutory funding obligation will not apply prior to 6 April 2015 to a scheme that ceases to be considered

money purchase as a result of the revised definition, the deadlines for scheme funding documentation will be determined as if the scheme was newly established on that date, and the scheme’s schedule of payments will remain in effect until the first schedule of contributions is put in place l the revised definition will not affect the validity of funding documentation produced in the past for schemes that were already subject to the statutory funding obligation l transfer value quotations provided for divorce purposes prior to 6 April 2014 remain valid and, if those valuations lead to a pension sharing order, it may be implemented on the basis that any cash balance benefits and scheme pensions in payment that were treated as money purchase benefits in the quotation continue to be treated as money purchase benefits l schemes that were authorised to operate cross-border in Europe on the basis that they were money purchase under the ‘old’ definition will have until 5 April 2015 to re-apply for authorisation, and l a member with cash balance benefits will be entitled to an illustration of the pension that is likely to be secured at normal pension age, within two months of request (similar to statutory money purchase illustrations).

Consultation responses had to be submitted by 12 December 2013. The DWP has made a valiant effort to cover all of the areas in which the revised definition of money purchase benefits will have an effect, and to minimise the resulting upheaval. Its policy seems sensible, although there may be some concerns about the details of the proposed changes.

The magazine of The Pensions Faculty produced in association with Hymans Robertson LLP

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