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Home > Europe Home > Business Issues > The new pensions framework > Administration | |
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Business Issues
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AdministrationThe Pensions and Finance Acts 2004 will have a significant effect on the administration of occupational pension schemes. This section sets out our understanding of the provisions of the Acts to help employers and trustees consider the issues. It covers, amongst other things, the new procedures that employers and trustees will have to follow before making certain changes to their pension schemes and changes to the existing contracting-out and limited price indexation requirements. It also covers changes to the conditions for payment of benefits under the new tax regime for pensions and the transitional measures available to members to enable them to protect their benefits accrued under the current regime from the new tax charges. The different sections included are:Authorised benefits: an overviewUpdated to set out the limit on dependant’s pensions on death on or after age
75, introduced by the Finance Act 2005, and to reflect our current understanding
in relation to paying out a lump sum representing the remaining pension
instalments on death during a guaranteed period. Authorised benefits: death benefitsThe Finance Act will remove the current restrictions on the level of lump sum death in service benefits that may be paid. Such lump sums may be paid tax-free to the extent that they do not exceed the Lifetime Allowance (LTA). Furthermore, unlimited dependant's pensions may be paid on death in service, which will not be tested against the LTA. However, the Government intends to restrict the amount of survivor's pension paid on the death of a pensioner. Authorised benefits: lump sumsAmended primarily to reflect the provision in the Finance Act 2005 permitting
the aggregate tax-free lump sum from a scheme to be paid from any arrangement
within that scheme. Authorised benefits: pensionUpdated primarily to ap further circumstances under which a scheme pension
in payment may be reduced and to provide details of an anti-avoidance provision to deter
schemes from artificially inflating initial pensions to increase the tax-free lump sum
available. These changes were included in the Finance Act 2005. Benefits on divorceUpdated to reflect our current understanding of how changes to the Limited
Price Indexation provisions affect contracted-out rights that are shared
following a pension sharing order. Business transfers (TUPE)Under the Pensions Act 2004, employers who acquire a business and offer a replacement defined benefit scheme to their transferring employees will be required to provide benefits that are at least equivalent to those required to satisfy the reference scheme test or to an alternative defined benefit 'equivalence' test. Early leavers - new entitlement to transferMembers who leave a pension scheme with less than two years' but more than three months' pensionable
service will be entitled to a transfer as an alternative to a refund of their
own contributions (if any). MiscellaneousAmended to reflect the uncertainty revolving around whether Equivalent
Pension Benefits may be trivially commuted at any age and to incorporate the
proposed timescale within which employers will be required to provide
contribution details to personal pension providers. Non-registered schemesUpdated to incorporate an anti-avoidance provision introduced by the Finance
Act 2005 in relation to the interaction of registered and non-registered pension
schemes. Registration of pension schemesThe Finance Act 2004 replaces the concept of tax approval for pension schemes with that of registration. New schemes wishing to register on or after 6 April 2006 will need to self-certify their entitlement to tax privileges, in accordance with the Act. Existing approved schemes on 6 April 2006 will become registered automatically, unless the scheme administrator notifies the Inland Revenue in advance that the scheme is not to be registered. Scheme changesAmended to incorporate the Government’s proposals on how the employee
consultation procedure will operate under the Pensions Act 2004. State benefitsThe Pensions Act 2004 brings forward to 6 April 2005 the previously announced change to the late retirement increase from 1/7% to 1/5% for each week by which an individual defers receipt of the State pension. (The increase for deferring Guaranteed Minimum Pensions remains unchanged.) The current maximum deferral period of five years will be abolished and the minimum period of deferral will be reduced from seven to five weeks. Transitional protection: an overviewUpdated to incorporate easements in relation to retained benefits when calculating Transitional protection: pension and death benefitsUpdated to reflect the easements in relation to retained benefits referred to above, and to set out further circumstances under which enhanced protection will be lost, reflecting provisions introduced by the Finance Act 2005. The document now also includes an explanation of the interaction of lump sum death benefits and enhanced protection. Transitional protection: tax-free lump sumsAmended to confirm that where enhanced protection applies in respect of a tax-free lump sum, the aggregate lump sum under the scheme may be paid from any arrangement within that scheme. The document also highlights what appears to be an anomaly in relation to the calculation of maximum tax-free cash where scheme-specific protection applies. This note gives a broad outline of the provisions. Action should not be taken on the basis of the
information provided without seeking specific advice. Please note that some provisions may be amended in the Finance Act 2005. Global News
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