Busy week for pensions
It has been a busy week for the pensions industry, with the Budget making a number of changes and for us, as a pension team, hosting a workshop on compulsory pensions.
First, in the budget the government announced that it will bring forward the introduction of the new flat-rate state pension. This is expected to save approximately £5.5 billion per year. It will also mean that, for those people with contracted out pension schemes, that the abolition of contracting out will come a year earlier - it is the 3.4% National Insurance rebate that these schemes get that gives rise to the £5.5 billion saving. In other words, this is a tax increase for employers with contracted out pension schemes.
As expected, the government confirmed that it was going to give the Pensions Regulator a new statutory objective designed to take into account employer's needs when determining scheme funding. Less expected were the convoluted terms of this objective which are "To support scheme funding arrangements that are compatible with sustainable growth for the sponsoring employer and fully consistent with the 2004 funding legislation." This is far more wordy than the original proposal and suggests that a number of compromises have been made to take into account other people's views. This seems unnecessary and unhelpful, as all the objectives that the Regulator has have to be balanced anyway. It does at least give some credence to what the Regulator was already doing in practice, namely taking employers' interests into account in setting appropriate funding programmes for final salary pension schemes in deficit.
The government has decided not to allow for the smoothing of assets and liability values in pension scheme valuations. This was expected, as the industry had heavily criticised the suggestion that it could be introduced. This was an actuarial technique which was permitted 20 years ago but which was found in practice to give too much room for variation and the ability to hide bad news.
Earlier this week, we hosted our client workshop on compulsory pensions. These have been coming into force since October 2012 and through to 2017, depending on the size of employer. We covered a range of practical situations, including dealing with employees who join mid-month and calculating whether employees with fluctuating earnings need to be automatically enrolled into a compulsory pension scheme. Here are our briefing notes on Auto-enrolment - Using an existing UK defined benefit or hybrid scheme and Auto-enrolment - Using an existing UK money purchase scheme, together with our slides. If you would like further information about compulsory pensions, please do not hesitate to contact me.