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The UK Pensions Act 2011

The UK Pensions Act 2011

During November 2011 the Pensions Bill became the Pensions Act 2011 (the Act).[1] It brings into force several key changes to the UK pensions landscape.

State pension age

The Act will accelerate the increase in the state pension age in two stages. The female state pension will rise to age 65 in 2018, and over the following two years both sexes state pension age will be raised to reach age 66 by 6 October 2020 (rather than 2026). The Government have said that the amendment will mean that the maximum delay before a woman receives her basic state pension will be reduced to 18 months.

In addition, the UK Chancellor announced further plans to bring forward the increase in the state pension age from 66 to 67. The previous UK Government had legislated to increase the state pension age from 66 to 67 between 2034 and 2036 whereas this is now scheduled to occur between April 2026 and April 2028.

Auto enrolment

The Act has made some amendments to the auto-enrolment requirements introduced under the Pensions Act 2008. These include:

– raising the minimum level of earnings for an employee to be auto-enrolled into a pension scheme to £7,475 a year;
– the introduction of a three month grace period, during which the employer can defer enrolling an employee into a pension scheme; and
– a cap on the amount of administration charge that can be levied on active and deferred members of a qualifying scheme.

These amendments are designed to introduce a degree of flexibility for employers; however, the general timetable for implementation of auto-enrolment remains the same. The three month grace period will help those employers who have a high turnover of seasonal or temporary staff.

In addition, the Pensions Minister Steve Webb announced on 28 November 2011 that small firms with 50 or less employees will have their staging dates for auto-enrolment put back at least a year, until after the next election in May 2015. Large firms with more than 3,000 employees will have no change, and will continue to start auto-enrolment between October 2012 and July 2013. Firms with between 50 and 3,000 employees will see smaller delays of up to one year.

Money purchase benefits

A new definition of ‘money purchase benefit’ was included in the Act at the last minute in response to the UK Government losing the Supreme Court decision in Houldsworth and another v Bridge Trustees Ltd and another.

The definition of money purchase benefit has now been narrowed. Benefits which may create a funding deficit may not be classified as money purchase. This change will be retrospective with the main definition of money purchase benefits set out in the Pensions Schemes Act 1993 being amended with effect from 1 January 1997.

However to avoid schemes that have already wound up being required to re-open historic matters, the amendments include a power for the Department of Work and Pensions to make transitional provisions in relation to past decisions that cannot practically be revisited. Consultation on this and other problematic areas is expected.

Change from RPI to CPI

Since 1 January 2011 the statutory order for deferred pension revaluation and pension in payment increases has been based on the Consumer Prices Index (CPI) rather than the (generally higher) Retail Prices Index. The Act deals with the finer points of the switch, including changes to introduce CPI as the measure for calculating increases for Pension Protection Fund compensation.

Comment

As with most pensions legislation, this is not the end of the story. The legislative landscape is far from settled. This year we have already had a commencement order bringing into effect certain sections of the Act from 3 January 2012. We expect many more sets of related regulations during 2012.

Justin McGilloway

 


[1] The Pensions Act 2011 is available at http://lgl.kn/a2396.

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