Pensions forecast 2010

15 January 2010

“Pensions forecast 2010” is our annual assessment of some of the future changes in law affecting pension schemes. We have selected and provided a brief commentary on some of the more salient changes that are likely to occur in 2010.

Minimum Retirement Age and early retirement implications

The Minimum Retirement Age (“MRA”, also known as the normal minimum pension age) is the earliest age at which pensions and lump sums may normally be taken as authorised payments under a registered pension scheme. The current MRA of 50 rises to 55 from 6 April 2010. Her Majesty’s Revenue and Customs (“HMRC”) state that if a scheme member starts to take benefits after reaching the MRA age of 50 before 6 April 2010 but they are not yet aged 55 by 6 April 2010 those benefits can continue to be paid as authorised payments. If they want to crystallise further benefits (if any) after 5 April 2010, to be authorised payments the scheme member must have reached the normal minimum pension age of 55.

Default Retirement Age

The Employment Equality (Age) Regulations, which came into force on 1 October 2006, provide for a default retirement age (“DRA”) of 65. Employees have a right to request to work after this age. However, employers can rely on the DRA to force the retirement of employees aged 65 or over, if they refuse the employee’s request to continue working after this age. The Government is committed to reviewing the DRA in 2010. It is envisaged that the DRA will be increased to take into account the increasing longevity of workers or abolished altogether. It is unlikely that any changes to the DRA will be made until 2011.

Equality Bill

If Parliamentary time before the General Election allows the passing of this Act, it will have far-reaching implications for pension schemes, particularly concerning age discrimination. The General Election may intervene and lead to this Bill being dropped or significantly altered if there is a change of Government.

Employer debt regulations

The Department for Work and Pensions (“DWP”) is likely to issue a further consultation paper on changes to these regulations. The Occupational Pension Schemes (Employer Debt) Regulations 2005 will be amended to create further exemptions over what are considered to be "employment-cessation events" involving corporate restructuring in a multi-employer scheme. Changes are likely to take effect in April 2010, subject to the outcome of the consultation.

“Listed change” regarding employer consultation

Employers must consult affected members before they change in part or in full the definition of pensionable earnings, if such a change is proposed to an occupational pension scheme. For example, excluding bonuses from being pensionable pay would now be a “listed change” if the scheme concerned had included bonuses as pensionable pay before hand. The change will take effect on 6 April 2010.

Personal accounts

The Government is committed to Personal Accounts and the first tranche of employer duties will be staged from October 2012. However, the Government is adjusting some of the details of how the duties will be implemented and will announce details of that in late 2010. The personal accounts scheme will launch in part in 2011 and will be ready for the onset of employer duties from October 2012.

Financial Support Directions

From 6 April 2010, the “lookback” period for Financial Service Directions (“FSD”) will increase from 12 to 24 months. This means that the Regulator will be able to issue an FSD for the period beginning with the date which is 24 months before the FSD is issued.

Restricting pensions tax relief for high earners

HMRC state that the lifetime allowance will be fixed from 2010/11 to 2015/16 at £1.8 million and the annual allowance will be set at £255,000 for the same period.

If you would like advice or information on any of the changes, please contact Andrew AshleyTaylor or one of our Pensions Team. Our contact details are set out below.