Recently implemented changes

Tax simplification

One set of rules has applied to all forms of tax-approved arrangements from April 2006, with the previous HMRC limits being replaced by a universal lifetime allowance on the aggregate value of tax favoured benefits, with a universal maximum accrual/contribution in any year.

The lifetime allowance in 2008/09 is £1.65m rising to £1.8m by 2010.

The annual allowance in 2008/09 is £235,000 rising to £255,000 by 2010.

The Finance Act 2004 contains the main tax simplification provisions, with many of the administrative details contained in supplementary regulations. Revisions and amendments to certain provisions are contained in the subsequent Finance Acts included in this year’s Finance Act, which received Royal Assent on 21 July.

HMRC guidance on the Post A-day regime (the Registered Pension Schemes Manual) is on its website. The guidance is divided into pages for employers, scheme administrators and members, as well as technical pages and is available at:

http://www.hmrc.gov.uk/manuals/rpsmmanual/index.htm 

Government action on age discrimination

Regulations that implement the age discrimination elements of the European Employment Directive came into effect of 1 October 2006. Amongst other things, these outlaw compulsory retirement ages below 65 unless an employer can prove an objective justification and also create a right for employees to request working beyond any compulsory retirement age, which employers have a duty to consider.

The default compulsory retirement age of 65 contained in the regulations has been the subject of a legal challenge through the European Court. Although the final judgment is still awaited, the Advocate General’s opinion has sided with the regulations as they currently stand.

While the pensions-related provisions of the regulations were not implemented until 1 December 2006, many outstanding issues and questions still remain. To date, Government guidance has not been as comprehensive as might have been hoped and inevitably many issues are only likely to be resolved through legal cases.

Towards the end of 2007, the DWP consulted with the industry to seek feedback on the perceived problems between the age discrimination legislation and provisions on retirement flexibility introduced by the Finance Act 2004. This is a particular area where many questions have still to be answered. In December 2008 the DWP belatedly followed up the earlier consultation with another round, focusing in particular on two possible options for mitigating any disincentive effect of retirement flexibility in light of the age discrimination legislation. However, as they both seem to relate only to members over state pension age, they seem to raise more questions than they answer. This latest period of consultation runs until 10 March 2009.

It is very important that trustees and employers review their scheme rules to ascertain whether any provisions require amendment to comply with the new legislation; they may need to seek legal advice on any issues raised.

Employer debt regulations

Under legislation, where an employer ceases to participate in a multi-employer scheme that provides defined benefits, that employer will owe a debt to the scheme equal to a share of any buy-out deficit.

The legislation is very complicated and deficient, so the DWP have published amending regulations that seek to clarify the practical operation of the legislation, as well as making some other amendments designed to prevent misuse.

The key provisions are as follows:

• Confirmation that money purchase assets and liabilities are to be disregarded when assets and liabilities are valued to calculate any debt arising

• An employer will be treated as ceasing to participate in a multi-employer scheme when it ceases to have any active members, although a 12-month period of grace is permitted if the employer notifies the trustees it intends to have active members again within that period

• Where all the employers in a multi-employer defined benefit scheme cease accrual at the same time, the exit debt is postponed until the scheme commences wind-up or an employer enters insolvency. However, the regulations now provide for employers to trigger the debt at an earlier date, if they so wish

• The debt due will be based on the departing employer’s share of the liabilities, unless a prescribed alternative applies

• New requirements intended to prevent the alternatives being used to facilitate employers ‘abandoning’ their liabilities to the scheme

The amending regulations came into force on 6 April 2008. Guidance from the Regulator on the amending regulations is awaited.

This is an area of legislation that is subject to constant scrutiny and it is believed that the Government is intending to conduct consultation on the workability of the regulations within the next few months. In fact, the Government has just announced that in light of the present economic circumstances, they are informally consulting on possible relaxations to avoid unnecessary hurdles being placed in the way of company reorganisations. A formal period of consultation is expected to follow early in 2009.