6 April 2009 Reminders
From 6 April 2009 a number of changes are expected to be brought in which will affect the management and administration of occupational pension schemes. In this article we look at a number of the changes to help you check whether the relevant decisions and/or actions are in place
From 6 April 2009 a number of changes are expected to be brought in which will affect the management and administration of occupational pension schemes. In this article we look at a number of the changes to help you check whether the relevant decisions and/or actions are in place.
Deferred Revaluation Cap
Accrued benefits (in excess of the GMP) in respect of pensionable service on or after 6 April 2009 may now be revalued by the Retail Prices Index, capped at a maximum rate of 2.5% p.a. (currently the cap is 5% p.a.). This change will affect active members who leave pensionable service after this date.
Trustees may need to make amendments to their scheme rules to take advantage of this change. Further regulations are expected which will allow trustees to amend the rules by resolution, provided the employer agrees.
This subject was covered in more detail in November 2008:
www.pensions-express.co.uk/News.aspx?NID=159
Upper Accrual Point
From 6 April 2009, an Upper Accrual Point (UAP) will be introduced. The UAP will be fixed at £770 per week from 2009/2010 onwards. This is the same as the Upper Earnings Limit (UEL) for 2008/2009.
The change will have the following effects:
- the UAP will become the new limit for the calculation of the State Second Pension (S2P);
- the calculation of contracted-out rebates will be based on earnings between the lower earnings limit (LEL) and the UAP;
- the calculation of the CEP when calculating a short service refund lump sum will be based on earnings between the LEL and UEL where service includes a period prior to 6 April 2009. For service accrued after this date the calculation will use earnings between the LEL and UAP;
- the Reference Scheme Test will be revised to refer to earnings between the LEL and the UAP, rather than the UEL;
- schemes that have any form of integration with State benefits may want to review their benefit provision; and
- employees and employers will continue to pay full rate National Insurance contributions on earnings between the UAP and UEL. Therefore, an additional column will be included on P11s and P14s.
Amendment to Pension Credits
Changes expected to be introduced from 6 April 2009 will allow a pension credit benefit (PCB) to be paid from the normal minimum pension age of 50 (age 55 from 2010), or earlier where ill health permanently prevents a member from continuing in their occupation. They will also allow for a pension commencement lump sum to be paid from the PCB in line with the current tax rules.
Abolition of Safeguarded Rights
In keeping with the changes to simplify the treatment of pension credit benefits, the concept of safeguarded rights is to be abolished from 6 April 2009. This will mean that all rights shared on divorce will be treated in the same manner.
Amendments to Statutory Money Purchase Illustrations (SMPI)
The assumptions behind SMPI for schemes contracted-out on a Protected Rights basis are to be amended in line with forthcoming changes to contracting-out legislation. The amendments will come into effect on 6 April 2009 for all illustrations issued on or after 1 September 2009. However, the earlier adoption of these changes is encouraged for all illustrations with an effective date of 6 April 2009 or later.
This subject was covered in more detail in last month’s Pensions Express:
www.pensions-express.co.uk/News.aspx?NID=184
Notional Earnings Cap for 2009/10
HMRC has confirmed that the notional earnings cap for 2009/10 will be £123,600.
Applications for Transitional Protection
Scheme members wishing to rely on enhanced and/or primary protection against the Lifetime Allowance Charge must apply to HMRC on or before 6 April 2009. HMRC recommends that applications are made well in advance of the deadline to avoid delays.
Introduction of GMP conversion regulations
It is expected that the GMP conversion regulations will be enacted in April or May. This will provide a facility for the trustees of defined benefit contracted-out occupational pension schemes to convert GMP rights to actuarially equivalent scheme benefits.
Further commentary on GMP conversion can be found in this month’s edition of Pensions Express.
