Pensions Act 2014: more change ahead

Pensions Act 2014: more change ahead


Author: Suzanne Burrell

The Pensions Act 2014 received Royal Assent on 14 May 2014 introducing important changes to the regulations for pensions. One key change is the abolition of contracting-out. We will cover this in a separate update. Other key changes are summarised below.

Rise in State pension age

The phased increase in State pension age from 66 to 67 was originally proposed for 2034-2036. This has now been brought forward to 2026-2028. It will therefore affect those born after 5 April 1960.

The Act also provides that the Government will regularly review (on a five yearly basis) the State pension age to ensure that future increases are in line with potential increases in life expectancy and also the principle that people should spend a given proportion of their lives receiving a State pension.

It is thought that this could potentially bring forward the planned increases up to ages 68 and 69. The Government intends to give at least ten years' notice of any future increases.

The Act sets out a general framework for reviewing State pension age including the requirement for reports from the Government Actuary's Department and independent panel. Details of methodology used will be announced in advance of the first review which is required to take place before 7 May 2017.

New TPR Statutory Objective

From July 2014, the Pensions Regulator is to have an additional Statutory objective, which is "to minimise any adverse impact on the sustainable growth of an employer" when it is applying its scheme funding powers.

When it was first introduced, Steve Webb, Minister for Pensions, said that "the best guarantee of a pension scheme keeping its promises is to make sure that the sponsoring employer prospers".

The intention of this new objective is to help ensure that trustees and employers have flexibility to deal with pension scheme deficits and benefit both scheme members and firms, for example by agreeing reduced contributions in order to allow an employer to reinvest money into the business in order to enhance its covenant.

When interpreting the objective, the Government has indicated that 'sustainable growth' should be interpreted widely.

Automatic transfer schemes

The ability to take short service refunds from occupational pension schemes will be abolished from 2015. Currently, an employee who moves to a new employer and who has less than two year's pensionable service with his old employer may elect to receive a refund of his contributions.

From 2015 employees' accumulated pension funds in a workplace scheme, whether a trust-based scheme or contract-based, will be transferred to their new scheme if they fall under a prescribed limit. It is expected that this limit will initially be set at £10,000 although this limit will be required to be reviewed at five yearly intervals.

The Trustee or manager of an automatic transfer scheme will be obliged to find out if a member has transferable benefits under another scheme. If a member does, the trustees of that scheme will be required to issue a cash equivalent transfer notice so that a transfer to the new scheme can then take place.

The Act allows for regulations to specify quality standards which must be satisfied by an automatic transfer scheme and this could cover governance and administration as well as prohibiting administration charges.

Individuals will have the right to opt out of the transfer process; or alternatively, it will be possible to include a requirement for individual consent to be given before the transfer is made.

DC Charges and monitoring

There has been much discussion in the pensions industry for some time now about fairness in charging structures, both across different categories of pension scheme members and more generally. The Office of Fair Trading's report on this issue was critical of the charging levels imposed. The Act contains a power which will allow the Government to impose a cap with a view to protecting members from unduly high charges.

In addition, a power to impose governance and administration requirements on schemes is also introduced by the Act. This links with the quality standards which are likely be a requirement for automatic transfer schemes.

The detail of how these powers will be used is not yet know, however, the Government previously said (March 2014) that it would introduce a default fund charge cap of 0.75% of the value of a member's fund in an automatic enrolment qualifying scheme from April 2015.

Further details, along with details of the Pensions Regulator's ability to issue compliance notices, and possibly penalty notices for such matters are expected to follow fairly shortly.

About the author

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Suzanne Burrell


03700 86 8902

Suzanne is an experienced pensions lawyer advising both trustees and employers. Her experience encompasses all pensions issues including: auto-enrolment, pension scheme mergers and bulk transfers, pensions regulatory change, contingent assets for pension schemes and pensions funding. She has particular experience advising both charities and co-operative sector clients.

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