Whatís Buzzing in Pensions? Mid December 2005
Wow!† What a long year 2005 was.† This is the 123rd and last BeeLine to be published in 2005 and Iíve got a funny feeling that thereíre going to be a hell of a lot more published in 2006.† Pensions stuff is getting a bit like that these days isnít it?
Before I close the year off and go home for my Christmas holiday I thought Iíd just cover off a few of the bits of pension flotsam and jetsam that have crossed my desk or computer screen in the last few days to send you off into the yuletide break with a smile on your face.
First off I have a couple of things to say to fulfil a couple of promises I made.† Firstly,†I want to wish Karl Greenway a Happy Christmas.† In doing that Karl Iím helping your man Nick fulfil his Secret Santa commitments Ė have a good one!† Also, while Iím at it I guess Iíd like to say thanks very much to everyone who has taken the trouble to write in to the BeeHive this year.† We get some great ideas for BeeLines that way and have received so many compliments about the usefulness of the site.† I really appreciate that and am very pleased so many find the site useful and a bit of fun too.† Just because weíre all grown up now and at work it doesnít mean we have to be miserable all the time does it?† Thereís no law against smiling.† Not yet, anywayÖ..
Donít worry about the judges
Just in case any of you were going home over Christmas worried sick about the parlous state of judgesí pensions I can put your minds to rest once and for all on the subject.†
The Secretary of State for Constitutional Affairs and Lord Chancellor (Lord Falconer) put out a written ministerial statement last week that will get judges off the £1.5 million lifetime allowance hook.† In the statement he said:
ďI have concluded that, as administrator of the judicial pension schemes, it would be in the best interests of the members that, for the future, the schemes should not be registered schemes for the purposes of the Finance Act 2004. †
The principal effect will be that lump sum benefits payable from, and members contributions payable to, the schemes will cease to attract tax relief from 6 April 2006. Income tax will, of course, also continue to be payable on pension benefits. Judicial pension benefits will consequentially not be taken into account for the purposes of the registered pension schemes provisions of the Finance Act 2004 as they will not receive the preferential tax treatment afforded to such schemes.
I also propose to make provision for judges to receive a long service award which will become payable when they near retirement. The level of the award, which will be a proportion of the lump sum, will reflect their years of service and their judicial grade and will ensure that their net position is maintained. I will amend judicial terms and conditions to reflect this proposal.
There will be an adjustment to the rate of contributions for dependants' benefits and certain technical changes to the schemes needed to reflect the terms of the Finance Act will be made under powers contained in that Act.
I am satisfied that these proposals are in accordance with the terms of the Finance Act 2004. They serve to maintain but not improve the overall remuneration package for the serving judiciary and to protect the principle of judicial independence in so doing. There will be no net cost to the Exchequer. In these circumstances, it is not necessary for me to introduce separate legislation for judicial pensions and I do not therefore propose to proceed with the Bill which was announced in May this year.Ē† 1
I donít know about you, but Iíll feel a lot more positive about pensions now that I know that judges are OK.† Now all Iíve got to worry about is whether MPs will be able to make do with their final salary pension only being based on 40ths of salaryÖ
A single set of investment rules from A-Day?
Speaking about level playing fields and the same rules applying to all leads me to mention an anomaly that I became aware of†last week while I was hosting a webchat on the Simply Biz website.† The investment rules applying to Self Invested Personal Pensions (SIPPs) and Small Self-Administered Pension Schemes (SSASs) after A-Day look as though they are not going to be the same to me because SIPPS are personal pensions and SSASs are occupational pensions.
Although one of the principle ideas of Pensions Simplification is to establish a single set of investment rules for all registered pension schemes, as it stands, the Finance Act still appears to differentiate between SIPPs and SSASs from A-Day. The rules say thereís a limit on the value of shares held in respect of a 'sponsoring employer' to 5% of a scheme's assets, or if there's more than one sponsoring employer (which includes associated employers), the limit is 20%. The definition of 'sponsoring employer' in the Finance Act means that this restriction appears only to apply to occupational pension schemes (e.g. SSASs).
On the other hand, with SIPPs, as there is no sponsoring employer - even if the employer is paying into the SIPP - the 5% restriction simply does not seem to apply.
So from A-Day, SSASs (and other occupational schemes) will only be able to have up to 5% of the scheme assets invested in a sponsoring employer's shares but SIPPs look like they can have 100% of the assets invested in shares of the member's employer.
According to HMRC, it will be up to the SIPP provider to restrict (or not) the amount that can be invested in employer's shares. It should also be remembered that any shares will have to be bought at an open market value to make sure tax charges do not apply.
And, of course, I have to say that this is based on our current understanding of what the Finance Act says and, as weíve lately found out, that doesnít necessarily mean we can rely on it!† Itís an interesting one though, isnít it?
SIPPs debate in Parliament
The well-informed and highly technical debate on SIPPs rumbles on in the mother of all Parliaments youíll be pleased to hear.† The following extract from the Hansard record of proceedings for 15th December is interesting.† It is not so much a debate, but rather a brief exchange I guess between MPs Mike Weir and Jeff Hoon and went like this:
Mr. Mike Weir
"May we have a debate on the amount of Government money that is wasted on preparing for self-invested personal pension schemes on residential property prior to the Chancellor's welcome U-turn in the Budget?"
"I am delighted that financial advisers have someone who is prepared to speak on their behalf in the House. Indeed, there now appear to be two people who are willing to do that. I emphasise that decisions about ensuring proper provision for pensions are difficult. My right hon. Friend the Chancellor takes into account the overall financial consequences of the decisions and decides accordingly. " 2
Ouch!† So thatís that then.† Still itís nice to see financial advisers mentioned in the rarified atmosphere of Westminster isnít it?
The Pensions Protection Fund (PPF)
If you blinked recently you might have missed it, but the Pension Protection Fund (PPF) levy that was estimated at around the £300 million a year level just almost doubled up to £575 million.† This bombshell was dropped as the PPF published its proposals of how the levy will work.
This levy, as I know you know, is a call on money from all final salary pension schemes to insure the pension benefits of members of failed schemes where employers go bust.† The levy is risk based and no levy at all will be required from schemes that are over 125% funded on the PPF basis.† Thereís also a cap to the levy to protect weaker schemes.† The cap will be at the level of 0.5% of a schemeís PPF liabilities.
Also it was announced that contingent assets can be included in the 2006/7 levy calculation.† I think that means that schemes will be able to use things like the corporate premises rather than just cash to pay the bill. 3
Mind you, the way the levy idea works is that it is the scheme that has to pay up every year, not the employer, although schemes that run low on funds will have to be topped up by employers anyway so itís hard to see the difference.† But a £600 million a year drain on pension schemes still seems a bit of an odd way to me to make them safer, but I was never that good at maths I suppose.
Anyone who wants to read the full SP on all this can get some technical stuff and worked examples of how to calculate the levy from the PPFís website.† A link to that follows here:
Well, Iíve just been on the Department for Work and Pensions (DWP) and Her Majestyís Revenue & Customs (HMRC) websites to see whatís going down and itís literally raining regulations at the moment.† Thereís so much new stuff there right now that Iíll be here till New Yearís Eve if I try and read it all, let alone translate it into English.† Iím just going to leave that right now and get on with enjoying Christmas.† Itíll give me something to do when I get back after the break anyway.† Something to look forward to I suppose, although goodness only knows what I did in a previous life to have deserved this.† Itís some kind of weird karma thatís for sure.
That said I do hope you have a good break with your friends and families.† See you in the new year.
20 December 2005
1. UK Parliament, Hansard, 15 December 2005, Column 161WS
2. UK Parliament, Hansard, 15 December 2005, Column 1458
3. Pension Protection Fund Press Release, 16 December 2005 -†"Pension Protection Fund Publishes Risk Based Levy Proposals"
Parliamentary material is reproduced with the permission of the Controller of HMSO on behalf of Parliament.
This information is based on our current understanding of the Finance Act 2004.
Any research and analysis included has been provided by us for our own purposes and the results of it are being made available only incidentally.