A brief guide to the Pensions Act 2008 At a glance The measures contained within the Pensions Act 2008 can be divided into four areas, but the Act will be remembered for the first – extending coverage of pensions. The provisions of the Act and their implementation dates (confirmed where known) are summarised below. Extension of coverage The main thrust of the Pensions Act 2008 is the introduction of the system of auto-enrolment and Personal Accounts which, together with changes to the State pensions system legislated for in the Pensions Act 2007, form the centrepiece of the Government’s current phase of reforms of the pensions landscape. Subject Description Comment Planned implementation Auto-enrolment Imposes a duty on all UK Implementation is fraught with The introduction may be employers to make arrangements uncertainty, not least that a new phased in over perhaps up for their workers to become active government might review to 18 months, starting from members of an “automatic the policy. October 2012. enrolment scheme” and specifies the requirements applicable to For many employers auto- such schemes. enrolment will result in significant (in some cases vastly so) increases Personal Accounts will be one of to their employment costs. The a number of automatic enrolment credit crunch may currently be scheme possibilities for UK keeping auto-enrolment off employers to consider. Others corporate agendas, but between may include schemes that they now and 2012 wholesale reviews currently sponsor – but only of pension strategy may be provided that they meet a required in the light of the potential quality test. costs imposed by auto-enrolment. Personal Puts in place the legal framework The $64,000 question is whether a October 2012 Accounts for the creation of Personal functioning pension scheme for up Accounts – a low cost defined to nine million employees of over a contribution scheme accessible million employers can be built in to all workers. just over three years. Simplification The Act contains a number of welcome deregulatory measures, but no big ideas that could stem the tide of defined benefit scheme closure. Any initiative on risk-sharing schemes will have to wait for another day. Subject Description Comment Planned implementation Safeguarded Abolishes the safeguarded rights A welcome piece of 6th April 2009 - confirmed rights requirements (restrictions in the deregulation. Scheme rules manner in which the pension share may require amendment. to the ex-spouse that derived from the member’s contracted out rights can be applied). Subject Description Comment Planned implementation 2.5% Reduces the cap on revaluation Action will be required by all 6th April 2009 – confirmed for revaluation cap of deferred benefits from 5% to defined benefit trustees and scheme benefits but not PPF 2.5% for accruals from “the 2008 sponsors and will be dictated by compensation. Act commencement date”. the scheme rules. Amendments will be required either where Revaluation of PPF compensation the change is automatic but its is similarly impacted, regardless introduction is not wanted or of whether or not the scheme where it is not automatic and it is. implements the 2.5% cap. The financial savings are unlikely to be very great. Protected rights All protected rights requirements A radical piece of simplification 6th April 2012 are abolished. The Government but there could be unintended says that “schemes will no longer consequences of assuming away have to track protected rights a requirement that has existed for separately and individuals will be over twenty years. able to choose the pension or annuity that best suits their One important aspect which is circumstances.” The Government unclear is the impact on final also does not intend to introduce salary schemes with a protected any further changes in advance rights underpin. of abolition. Stakeholder Removes the requirement for This is logical – it makes no 2012 – should be Pensions employers to provide access to sense to keep the compulsory simultaneous with the a stakeholder pension (ie scheme stakeholder access requirements auto-enrolment requirements. designation, workforce once auto-enrolment is in force. consultation, supplying employees However, member contributions with scheme information, will still have to be deducted supplying information to the through payroll for those pension provider or permitting employees for whom the its representatives access to the employer is so doing when workforce and setting up suitable the access requirements arrangements for the payment are abolished. of contributions). State benefit Individuals’ entitlements from the The Government believes that this From 2011/12 consolidation Graduated Retirement benefit approach will enable individuals to scheme (GRB), State Earnings estimate in a straightforward way Related Pension Scheme (SERPS) what their additional state pension and State Second Pension (S2P) will be at retirement and will also up to and including the 2011/2012 permit considerable cost savings tax year are “converted into a as civil servants will no longer cash valuation” which is revalued need a detailed knowledge of the in line with earnings until the complex rules of these schemes. individual retires. A bold idea but not enough Only applicable to individuals details are available yet to reaching State Pension Age on assess its viability/impact on or after 5th April 2020. private pensions. The Government is separately pursuing a number of other deregulatory measures – including minor amendments to the Employer Debt regime, a review of the conditions governing surplus repayments to employers and an examination of employee consultation when employers propose changes to future benefits. Guarding the pension promise The Act contains some important extensions to the powers of the Pensions Regulator designed to assist it in protecting accrued rights in defined benefit schemes. Subject Description Comment Planned implementation Moral Extension of the Pensions Although the legislation has Spring 2009 for powers hazard II Regulator’s anti-avoidance powers potentially broad application, linked to the new material in relation to Contribution Notices the intention is that a Code of detriment test. 26th and Financial Support Directions. Practice will limit its application – November 2008 (confirmed) The key change is that the in particular to certain types of for other powers. Pensions Regulator will also be non-insured buyout. The measures able to issue a Contribution will be backdated – in most cases Notice if an act or failure to act to 14th April 2008. has “detrimentally affected in a material way the likelihood of the accrued scheme benefits being received” . Appointment The Pensions Regulator becomes Another incremental increase in 26th January 2009 - of trustees able to appoint trustees in certain the Regulator’s powers. confirmed circumstances where it is reasonable to do so, instead of necessary. It will also be able to appoint trustees in order to protect the interests of the generality of scheme members. Scheme funding The Regulator’s existing power This could influence scheme 26th January 2009 - to intervene and fix the actuarial funding negotiations as the confirmed assumptions for the calculation Regulator will now have explicit of technical provisions is intervention powers where it is extended to where the actuarial unhappy with the technical assumptions and method chosen provisions, but there has been by the trustees do not appear to no other failure in the scheme be prudent. funding process. Compensation and assistance Finally, the Act contains some amendments to the operation of the Pension Protection Fund and the Financial Assistance Scheme. Subject Description Comment Planned implementation Financial Makes permanent the temporary Merely maintains the status quo, 26th November 2008 - Assistance ban on purchasing annuities by preparing the ground for residual confirmed Scheme (FAS) trustees of occupational pension scheme assets to be transferred to schemes that intend to seek the FAS. assistance from the FAS. PPF PPF compensation will be capable A sensible reform – should have 6th April 2010 compensation of being directly shareable little if any impact on PPF-eligible on divorce between the member and ex- occupational schemes. spouse following divorce. PPF Amendments include enabling These are technical changes which 6th April 2009 compensation compensation to be delayed in can only be delivered through an the interests of the member and Act of Parliament. They should to ease PPF administration have little if any impact on (and be actuarially uplifted); occupational schemes. clarifying the “normal pension age” at which PPF compensation commences and the admissible rules used to define the level of compensation paid. Late payment Provision to charge interest on late The rate will be set out in 6th April 2009 of levies payment of the pension protection regulations on which the levy, the fraud compensation levy, Government intends to consult. the pension protection fund Trustees should be aware of the administration levy, the pension potential for punitive interest protection fund ombudsman levy applying to late payments. and the general levy. This guide is designed for the information of readers and should not be relied upon for detailed advice. While every effort has been made to ensure accuracy, information contained in this document may not be comprehensive and recipients should not act upon it without first seeking professional