The Department of Work & Pensions recently consulted the pensions industry on the proposed new definition of “money purchase”. There has been uncertainty in this area because of the conflicting view of the Courts and the DWP on how money purchase benefits should be defined. The DWP’s view is that a benefit can only be a money purchase benefit if it is calculated solely by reference to assets such that it is not possible for a deficit to arise in respect of the benefit. New regulations (the Pensions Act 2011 (Transitional and Consequential Provisions) Regulations 2014) are being introduced to clarify this. A key part of the consultation is about how past benefits should be treated in pension plans where it has been uncertain whether the benefits should be classed as defined benefit or money purchase. This particularly affects pension plans where defined contribution pots accumulate but with some form of guarantee or underpin and plans where money purchase AVCs are internally annuitised.
As Squire Sanders is a global law firm with a significant pensions presence with one of the largest and most experienced teams of pension lawyers in the UK, we were well placed to respond to the recent DWP consultation and did so.
Key points from our response are:
- The draft regulations should be simplified. In their current form, they introduce four different time periods (pre 6 April 1997; between 6 April 1997 and 27 July 2011; between 28 July 2011 and 5 April 2014; from 6 April 2014 onwards) for trustees to consider. We do not think this level of complexity is necessary or practical.
- There would be no advantage to implementing the regulations in two stages.
- It is not practical to ask former trustees to revisit decisions made in respect of pension plans that have already wound up.
- We have concerns about the introduction of the idea that a section 75 certificate, which was valid at the time it was signed, should be revisited and replaced. The current system relies on the idea that a section 75 certificate gives all parties certainty.
- In the context of these regulations, we think it would be disproportionate to require trustees to revisit and recalculate historic benefits or transfer payments.
As soon as the DWP publishes the outcome of the consultation we will update you on any practical steps you need to take in relation to your pension plan.
For further information please contact any of the partners listed or your usual contact in the pensions team.