The Occupational and Personal Pension Schemes (Disclosure of Information) Regulations 2013 come into force on 6 April 2014.
Other regulatory changes relating to TUPE, auto-enrolment and changes in the tax regime for pensions also come into force on that day.
The disclosure regulations set out what information must be disclosed by occupational and personal pension schemes. This includes certain information that must be provided to a member on joining a scheme, information to be provided annually, and information that members can access on request.
The requirements for occupational and personal pension schemes are currently contained in separate sets of regulations, which are revoked and replaced by the new regulations from 6 April. The existing regulations for stakeholder schemes are not revoked but are amended by the new regulations, to align methods for giving information across all types of schemes.
Following the DWP consultation on proposals to 'consolidate, harmonise and simplify' the existing disclosure regime, the new regulations re-order provisions and simplify the structure and language of existing requirements. They also clarify the way in which schemes can give information electronically, opening up the possibility for schemes to provide more information by email or via a website (albeit with safeguards in place for members, who may choose to 'opt out' of receiving electronic communications).
The new regulations were laid before Parliament last October and come into force on 6 April. We set out below a reminder of the key points:
- Information on lifestyling: where a scheme provides money purchase benefits and contains provisions for lifestyling, members must be told what lifestyling is and given an explanation of its advantages and disadvantages, along with whether it has been (or will be) adopted by the scheme. The information must be given twice, firstly, as part of the basic scheme information provided to individuals on joining the scheme, and again between 5 and 15 years before the member's retirement date.
- Investment report: the annual investment report for defined benefit schemes will need to include a statement of any policy adopted by the trustees concerning rights (including voting rights) attaching to investments as well as the extent to which social, environmental or ethical considerations are taken into account in investment decisions.
- Timing for notification of 'material alterations': where a 'material alteration' is made to any of the basic scheme information provided to a member, this must now be communicated 'before or as soon as possible after' the date the change takes effect. Previously, the requirement was to provide information before the change took effect 'where practicable'.
- Basic scheme information: some of the current elements of the basic scheme information to be provided are combined and simplified whilst some of the more complex information need now only be given on a member's request.
- Statutory Money Purchase Illustrations (SMPIs): the rules have been simplified so that SMPIs can now be tailored to personal circumstances, with trustees able to choose what assumptions to include. To tie in with auto-enrolment, there is no longer a requirement to provide an SMPI in the first year of an individual's scheme membership if no contributions have been credited for that member and the member has the right to opt out of the scheme.
- Benefit statements (defined benefit): these can now use an assumed retirement date which does not have to be the scheme's normal retirement age.
- Transfers out: the required information is simplified but must state that more detailed information is available on request.
Auto-enrolment, TUPE transfer and pensions tax changes coming into force on 6 April 2014
- Auto-enrolment: the scheme joining window is extended from one month to six weeks, with the timeframe for an employer registering with the pensions regulator after reaching its staging date extended from four to five months. The earnings thresholds for auto enrolment are increasing for the 2014/2015 tax year. The earnings trigger rises to £10,000, with the upper and lower ends of the qualifying earnings band increasing to £41,865 and £5,772 respectively.
- TUPE transfers: a TUPE employer will be able to satisfy the minimum requirements to provide future pension benefits for transferring employees either by paying contributions that match the employee's contributions up to a maximum of 6% of pay or (where the transferor employer paid contributions to a defined contribution scheme) by paying contributions that are not less than those paid by the transferor employer immediately prior to the transfer. This means that TUPE employers will be able to pay the minimum 1% currently required under auto-enrolment rules if that was what was being paid by the old employer.
- Pensions tax: the lifetime allowance reduces to £1.25 million (from £1.5 million) and the annual allowance reduces to £40,000 (from £50,000). Anyone wishing to register with HMRC for fixed protection 2014 must have submitted their claim on or before 5 April. Application forms to register for 'individual protection 2014' are expected to be available from August, with a deadline of 6 April 2017 for submitting a claim.
Following the 2014 Budget, the limit for a trivial commutation lump sum has risen to £30,000 (from £18,000) and for a small lump sum to £10,000 (up from £2,000), both with effect from 27 March 2014. Depending on how scheme rules are drafted, it should be possible to pay trivial benefits up to the new limits without any rule amendments. Scheme rules should be checked carefully to see if this is the case.
The Budget has also paved the way for greater flexibility over how members of defined contribution schemes take their benefits. From April 2015 there will no longer be a requirement to buy an annuity, and members may choose to take their benefits as a lump sum, purchase an annuity or draw down benefits as they wish. As a transitional measure, with effect from 27 March 2014, the minimum income requirement for flexible drawdown is reduced to £12,000 (from £20,000) and the capped drawdown limit increases to 150% (from 120%) of an equivalent annuity. Draft legislation on how the April 2015 changes will operate is awaited.