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Occupational Pensions
| | THE POSITION OF OCCUPATIONAL PENSION SCHEMES POST ADAY
There are a number of other important changes introduced in the Pensions Act 2004 relating to Occupational Pension Plans, which came into effect from Aday and need to be brought to the attention of both trustees and members of these schemes.
Trustee Knowledge & Understanding
From the 6th April, 2006 trustees of all occupational pension schemes will be required to have adequate knowledge and understanding of pensions generally and their scheme in particular, so that they can carry out their role.
If the trustee of a scheme is a company, then the company must ensure that anyone who carries out a trustee function for them meets these requirements. The new requirement applies to all individuals who are trustees. When an individual is first appointed as a trustee they have six months to meet the requirements. This gives them time to gain the necessary knowledge and understanding of the role.
However, the following must comply immediately:
? individuals who promote themselves as being experts in the law relating to pensions and trusts or the principles of funding and investment of pension scheme assets, or
? independent trustees. (An independent trustee is one who is required to be in place where an insolvency practitioner or the official receiver is involved with the employers business).
There are four areas that each trustee must know and understand in relation to the scheme, namely:
1. The trust deed and rules
2. Any statement of investment principals
3. The statement of funding principals in a defined benefit scheme
4. Any other document used by the trustee to manage the scheme
In addition, each trustee must also know and understand:
5. The law relating to pensions and trusts generally, and
6. The principals relating to the funding and investment of pension scheme assets.
At this point you are probably asking what level of knowledge and understanding is required?
The trustees will need to have sufficient knowledge and understanding to enable them to carry out their role properly. It is not expected that trustees will be experts in these areas, but will be able to call on experts to advise them when necessary. There is no requirement for trustees to demonstrate that they have reached a particular level of knowledge or understanding by sitting and passing a test. However, the pensions regulator has a Code of Practise on their website: www.thepensionsregulator.co.uk, which sets out the requirements in more detail.
Member Nominated Trustees & Directors
The Pensions Act 2004 replaced previous requirements relating to Member Nominated Trustees (MNTs) and Member Nominated Directors (MNDs).
New requirements apply to occupational pension schemes set up under trust with the exception of:
? Schemes with only one member
? Schemes with fewer than 12 members where all members are trustees and where all investment decisions are made by unanimous decision of all trustees.
The definition of ‘member’ includes members who are currently making payments, members who are no longer making payments but still have benefits in the scheme and pensioners of the scheme.
With effect from Aday, trustees of all affected schemes must put in place arrangements that allow for one third of the trustees to be chosen by a process involving the scheme members. For schemes with a Corporate Trustee, the members have the right to appoint one third of the directors of the Corporate Trustee Company.
Scheme Administrator post Aday
Every registered pension scheme will be required to have a pension scheme administrator who will be responsible for registering each of the following:
? Accessing the HMRC online reporting system
? A new scheme
? To operate relief at source and claim tax relief
? Accounting for and paying tax
? Making returns of information to HMRC
? Providing certain information to scheme members and others.
Default scheme administrator will be the trustees, however another person or persons can be appointed instead.
The penalties on the scheme administrator for non-compliance are significant. Failure to submit a pension scheme return when required incurs an immediate penalty of £100, plus £60 a day until it is submitted. Any kind of return which is inaccurate because of the scheme administrator’s fraudulent or negligent behaviour can incur a penalty of up to £3,000. Similarly a failure to keep proper records can incur a fine of up to £3,000. A variety of other penalties exist for different kinds of shortcomings by the scheme administrator.
Alternative Pension Wrappers for your clients consideration
Option 1:
The trustees wind up the scheme. Members can then transfer to either a Section ‘32 buyout’, a Personal Pension, a SIPP or a Stakeholder Pension. However, care must be taken if the tax free cash sum exceeds 25% of the pot, in these circumstances the plan can be transferred into a Section 32 after wind up of the parent scheme, in order to protect this benefit. In addition, the trustees will need to follow the ‘wind up’ procedures of the ceding scheme.
Option 2:
The Block or Multi Member Transfer or better know as the ‘Buddy Up’ route. This requires a minimum of two members to transfer their pension plans, in a single transaction to a Personal Pension, a SIPP or Stakeholder Pension with the same provider, with the proviso that this registered scheme has not been set up more than 12 months before the transfer has been completed. This route can protect a tax free lump sum in excess of 25%, which has been accrued prior to Aday.
Option 3:
For smaller funds not exceeding 1% of the Statutory Lifetime Allowance a trivial commutation may be available from age 60. For this option the member must be under age 75 and must extinguish all his member’s entitlement under the scheme being wound up, providing all or part of the member’s Lifetime Allowance is available. In addition, the employer must not be contributing to another registered scheme for that member and must undertake not to contribute for 12 months after the lump sum has been paid. Providing all these requirements can be fulfilled, the member can take 25% of the fund as tax free, with the residue being subject to Income Tax. |
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