A fistful of regulations
It’s coming thick and fast now. We’ve had a whole load of Regulations issued by the Government this week to keep us busy with the pensions thing right up to Christmas by the looks of it. They just won’t let it lie will they?
Anyway I’ve only been able to read some of them so far what with all the talks and motorway driving I’ve had to do this week and everything so I’ll summarise a batch of them here and come back with the gumpf on the rest next week some time.
For today I’ll stick to covering the draft regulations on TUPE and Indexation, or to give them their correct titles: The Transfer of Employment (Pension Protection) Regulations 2005, and: The Personal and Occupational Pension Schemes (Indexation and Disclosure of Information) (Amendment) Regulations 2005.
The Transfer of Employment (Pension Protection) Regulations 2005
Strictly speaking, this is another consultation on the draft Regulations, with a response date of 21st January 2005. What this is all about is the bit that's been added into pensions law (Sections 257 and 258 of the Pensions Act 2004 if you really want to know) that provides some protection in situations where the Transfer of Undertakings (Protection of Employment) Regulations 1981 apply – the so-called TUPE rules. Section 258 said what it was going to do, but didn’t say how things would work in practice. The consultation on these draft regulations is intended to fill in the missing details.
In a nutshell, Section 258 says that where a company takes over another company and the TUPE Regulations apply, which they don’t always do, (and the employees had access to a company pension scheme with employer contributions) the new employer must offer the employees membership of either:
- A Defined Benefit occupational pension scheme which meets certain requirements (set out in the Reference Scheme Test) or an alternative requirement that will be set out in the Regulations.
- A Defined Contribution occupational pension scheme to which the employer must make what are referred to as ‘relevant contributions’.
- A Stakeholder Pension arrangement, again to which the employer will be required to make ‘relevant contributions’.
The level of the ‘relevant contributions’ is one of the things up for grabs as is exactly what the ‘alternative requirements’ might be. It’s all aimed at providing members who get caught up in company take-overs with pension benefits that are broadly equivalent to what they were getting from their old employer, but without putting the new employer in too much of a straightjacket. The suggestion made in these draft Regulations as far as ‘relevant contributions’ are concerned is that employers should be required to match employees’ contributions up to the level of 6% of basic pay. As this particular provision of the recent Pensions Act is expected to come into force in April 2005 (the Pensions Act is going to come in bit by bit if you remember) the legislator types have obviously got to get a bit of a move on with it all. I reckon we’ll get the full SP on this in January. We’ll keep an eye on it for you and let you know how it all turns out.
I actually wrote a BeeLine on all this back in June 2003 when it was still in the discussion stage. The BeeLine was called ‘TUPE or not TUPE? That is still the question.’, predictably I know, but it’s stood the test of time and if you’d like to read a bit more on this fascinating subject you can re-read that one by clicking here if you like. If nothing else, it underlines just how little progress has been made on this issue in the last year and a half, not that anyone will be a bit surprised by that I suppose.
The Personal and Occupational Pension Schemes (Indexation and Disclosure of Information) (Amendment) Regulations 2005
Again, this is another part of the Pensions Act that is due to come into force in April 2005, so the Gov Guys have had to get their skates on with this too what with having left it so long and all. They are hoping to publish a response to this consultation by 28th February 2005, which means the whole thing will be a just-in-time job by the looks of it.
What it’s all to do with is that the Government has decided to do away with the requirement laid on money-purchase schemes to index pensions in payment. I’ve actually written at length on this before (you can re-read by clicking here), but basically the Pensions Act said that money-purchase schemes would not be forced to provide index-linking to parts of the pension people are offered when retiring. Instead, employees will be free to choose the level and type of annuity that suits them. The Government has always said that this would need to come with some requirements at least on the schemes to provide employees with specific information to enable them to make informed choices on such annuity purchases. That, in effect, is what this consultation is mainly about.
Let’s hope, though, that before any decisions are made as to the form of generic advice on annuities that schemes will be asked to give out, the implications of two of my recent BeeLines are factored in and taken into account. I’m referring, of course, to ‘Nightmare on Tax-Free Cash Street – Volumes 1 and 2’ which you can re-read by clicking both here and here. But, hey, you should really have read them already.
10 December 2004
This information is based on our current understanding of draft Regulations published by the Department for Work and Pensions and may be subject to change.