This year has been a busy one for pensions and 2015 looks to be very much the same. Squire Patton Boggs has highlighted 12 key areas for trustees to focus on in 2015.Here's number five to eight.
5. Automatic Transfers and Refund Abolition - On the Blocks
The Government has issued a statement confirming its intention that from October 2015 it will no longer be possible to pay a refund of member contributions (known as a short service refund) from an occupational DC pension plan, where a new joiner has more than 30 days of ‘qualifying service'.
Many pension plan rules reflect the current legislation and provide for a refund of member contributions if a member leaves the pension plan before completing two years' service.
Trustees of DC plans should check that their rules will be consistent with the amended legislation that the Government intends to bring into force from October 2015. If not, a rule amendment may be required. The Government has indicated that it intends to introduce the automatic transfer regime from Autumn 2016. Under the new regime many individuals who change employers will have their DC pension pot automatically transferred to their new employer's pension plan.
6. War on the Scammers - A United Front
Despite the best efforts of industry regulators, Government bodies, criminal investigators and the pensions industry as a whole, pension scammers continue to plague the general public with promises of releasing cash, exploiting loopholes and investing in lucrative new opportunities.
At the end of October the Pensions Ombudsman confirmed that it had received around 140 complaints in relation to pensions scams, of which 90% relate to pension providers not allowing a transfer due to suspicions of fraudulent activity.
The pensions industry needs to remain vigilant as fraudsters come up with new and inventive lines of attack - for example, there is concern that some scammers are referring to the Government's guidance guarantee service to dupe the public into believing that this is what they are offering.
The Pensions Regulator has recently updated its information pack on pension scams and is calling for the help of pension plan trustees to ensure that members receive regular and clear information about the risks.
Trustees should continue to be alert to pension scams, should ensure that their transfer processes remain appropriate, and familiarise themselves with the Pensions Regulator's updated information pack. Legal advice should be sought where fraud is suspected.
7. Holiday Pay Claims - Up in the Air
Employment practice regarding the calculation of holiday pay is currently subject to challenge via a number of claims that collectively consider the impact of overtime, allowances, commission and other
fluctuating emoluments.
The Employment Appeal Tribunal's decision in Bear Scotland Ltd v Fulton & anor concerned the calculation of holiday pay in accordance with the Working Time Directive, in particular whether it should include an amount in respect of "non-guaranteed" overtime (where an employer is not contractually obliged to offer overtime but a worker is contractually obliged to perform it if requested).
The Employment Appeal Tribunal concluded that the "non-guaranteed" overtime should have been taken into account when calculating holiday pay for the purposes of the four weeks' holiday entitlement that derives from the Working Time Directive; but the scope for workers to recover back payments of holiday pay by unlawful deduction from wages claims is limited.
Trustees should liaise with employers regarding the impact of the holiday pay rulings on their businesses and any changes to remuneration policies that may have pensions implications.
8. Abolition of DB Contracting-out - On the Horizon
April 2016 may seem like a long way off right now, but the abolition of contracting-out on the reference scheme test basis is fast approaching. Regulations will allow employers to amend pension plan rules without trustee consent to offset the rise in employer national insurance contributions by increasing member contributions and/or reducing future benefits.
The employer will need to appoint an actuary to certify that the amendment purely reflects the additional cost to the employer. Trustees have a vested interest in the employer's plans and early dialogue with the employer is recommended. Trustees should also ensure that a full audit trail is maintained of the amendment process and that any change is communicated to advisers and administrators as well as pension plan members.
Trustees of DB contracted-out pension plans should also consider signing up to the ‘Scheme Reconciliation Service' which allows Guaranteed Minimum Pension data to be reconciled against HM Revenue & Customs' records in advance of the ending of contracting out.
We recommend that trustees of pension plans that are contracted out on the reference scheme test basis maintain a dialogue with the sponsoring employer regarding its intentions towards amending the pension plan from April 2016.
Trustees should be clear on their own responsibilities in implementing any changes that the employer makes and should seek their own legal advice as necessary.
Trustees should speak to their pension plan administrators regarding the Scheme Reconciliation Service, if this is not already progressing.
