Financial institutions Energy Infrastructure, mining and commodities Transport Technology and innovation Life sciences and healthcare Essential pensions news Updater February 2014 Contents 01 Introduction 01 Same sex marriage new legislation confirms scheme power to change benefits 02 DC schemes: Regulator issues trustee tools for governance assessment and annual statement 03 Draft regulations change qualifying criteria for CARE schemes 04 Recovery of VAT paid on services supplied to a pension scheme 04 HMRC publishes Pension Schemes Newsletter no. 60: Fixed Protection 2014 and Individual Protection 2014; Pensions Liberation registration and transfer processes Introduction Essential Pensions News covers the latest pensions developments each month in an at a glance format. Same sex marriage new legislation confirms scheme power to change benefits Of interest to all employers and trustees is the coming into force of the Marriage (Same Sex Couples) Act 2013 on March 13, 2014, permitting same sex weddings from March 29, 2014. The Act also enables civil partners to convert their civil partnership to a marriage, and provides for the scheme benefits paid to surviving civil partners also to apply to surviving same sex spouses. The Marriage (Same Sex Couples) Act 2013 (Consequential Provisions) Order 2014 allows trustees to modify scheme rules by resolution to provide benefits paid to an opposite sex spouse also to be paid to a same sex spouse. Where such benefits exceed those already paid to surviving civil partners, employer consent will be required. The Act provides that references in existing legislation to marriage now include same sex marriage. Legislative references to husband, wife, spouse, widow or widower also include same sex spouses. However, this extension of interpretation does not apply to existing pension scheme documentation, so schemes can still rely on the exemption in the Equality Act 2010 (the Exemption) to restrict benefits relating to pre-5 December 2005 to surviving same sex spouses, as to surviving civil partners.
Where schemes wish to provide to same sex spouses benefits identical to those received by opposite sex spouses, a rule amendment will be needed, specifying the date from which the change applies. This may be achieved by trustee resolution, but where this confers greater rights (for example, by providing benefits relating to pre-5 December 2005 service), employer consent is required. On 18 February 2014, the Employment Appeal Tribunal (EAT) overturned the previous tribunal s decision in Walker v Innospec Ltd that the employer had directly discriminated against Mr Walker, by refusing to provide a pension (in the event of his future death) to his surviving civil partner in respect of pre-5 December 2005 service. The original tribunal held that it was unlawful for a scheme to provide anything other than a full spouse s pension for surviving civil partners, and that the Exemption was incompatible with the Equal Treatment Directive. The EAT stated: [The Exemption] does not prevent a pension scheme adopting the equalisation of benefit for all time past and future as between the spouse and the civil partner, and we are told some have done so: but it permits those who consider they should not do so from being obliged. To interpret the Exemption as incompatible with EU law, the EAT concluded that it would be asked to legislate rather than interpret and that such an approach was not possible. Next steps Schemes will need to decide whether same sex spouses are to receive the same (noncontracted-out) benefits as opposite sex spouses for pre-5 December 2005 service. The contracting-out changes are not overriding and schemes may need to amend their contracting-out provisions, depending on how they are expressed. For the avoidance of doubt, deeds of amendment effective after March 12, 2014 should specifically disapply the interpretation provisions under the Act, unless the intention is for these terms in the scheme s documentation to refer equally to same sex spouses. Scheme booklets should also be checked for accuracy. Our detailed briefing on this topic will be published in March 2014. DC schemes: Regulator issues trustee tools for governance assessment and annual statement The new tools issued by the Pensions Regulator (TPR), following the launch of its DC governance framework last year, will be of interest to all trustees of occupational DC schemes. TPR expects DC schemes to publish a governance statement at the end of each scheme year to confirm the extent of their compliance with the requirements of TPR s Code of practice 13 and Regulatory guidance for DC schemes (both published in November 2013). To assist with this process, TPR has produced a standardised governance statement and a scheme assessment template covering the quality features required. The assessment template may be adapted according to individual scheme needs and used to review systems and controls, monitor risks and prioritise actions for improvement, providing trustees with the information needed to complete their governance statements. 02 Norton Rose Fulbright February 2014
According to TPR, only the governance statement needs to be published in scheme reports and accounts or on a scheme website, but it expects the assessment information to be made available upon request to employers, members and TPR, to provide more detail about how the scheme is meeting the quality features. Trustees of master trusts will also need to consider the forthcoming independent assurance framework for master trusts, expected to be finalised in spring 2014 after a consultation by the Institute of Chartered Accountants in England and Wales in collaboration with TPR. This will feed into their governance statements, to confirm that the presence of assured features has been independently verified. Links to the governance statement and DC scheme assessment templates may be accessed here via TPR s website. Draft regulations change qualifying criteria for CARE schemes The draft Occupational and Personal Pension Schemes (Automatic Enrolment) (Amendment) Regulations 2014 have been laid before Parliament and will relax the criteria governing whether a career-average revalued earnings (CARE) scheme will count as an auto-enrolment qualifying scheme. The following changes will be made: a CARE scheme will no longer be disqualified from being an auto-enrolment scheme if accrued benefits are revalued at less than a minimum rate, provided that both the scheme s funding and statement of funding principles assume that revaluation will be at or above a minimum rate of the lesser of the annual increase in the CPI, RPI or 2.5 per cent. The DWP states that this should allow schemes that revalue by reference to the increase in earnings to qualify, in addition to those that revalue by price inflation the minimum rate is set at a different rate for certain public service CARE schemes, allowing for an annual increase or decrease in line with a relevant percentage specified in a Treasury Order hybrid schemes will be permitted to phase in employer and total contributions in relation to their money purchase benefits under the transitional provisions for money purchase schemes. Currently, an employer which provides a hybrid pension scheme and certifies the money purchase benefits in the scheme against one of the alternative quality requirements is unable to phase in contributions. It is intended that the regulations will come into force on April 1, 2014. View the regulations and the explanatory memorandum. Norton Rose Fulbright February 2014 03
Recovery of VAT paid on services supplied to a pension scheme In our update for September 2013, we reported on the case of Fiscale eenheid PPG Holdings BV cs te Hoogezand v Inspecteur van de Belastingdienst/Noord/kantoor Gronigen (the PPG case), which concerned input VAT recovery in relation to costs incurred by the employer, PPG, for the benefit of its own pension scheme. In response to the judgment of the Court of Justice of the European Union in the PPG case, HMRC has announced that it will tighten its treatment of VAT deductions on pension fund management costs. The policy change is effective from February 3, 2014, with a six month optional transitional period available in relation to the existing 70/30 split applying to VAT on investment management costs and those relating to VAT on general management. Under HMRC s 70/30 treatment, where a single invoice was received by scheme trustees governing costs for services in relation to the scheme s general management combined with its investment management costs, employers could claim 30 per cent of the VAT relating to general management, and the scheme could claim 70 per cent of the VAT relating to investment management. Under HMRC s new policy, an employer must establish a direct and immediate link between the supply received and the supply made, in order to deduct VAT on the charge made on its own supplies. This means: the general management costs of running a scheme are likely to be VAT deductible, but only where the supplies are made directly to the employer investment management costs will not generally be VAT deductible by the employer, as HMRC s view is that the costs have a direct and immediate link to the investment itself, and not to the general costs of the employer. Although there is a period of grace during the transition period, the change may ultimately make many schemes and/or employers worse off, since the direct link could be difficult to establish and may be less beneficial overall that the 70/30 split. See HMRC s online brief. HMRC publishes Pension Schemes Newsletter no. 60: Fixed Protection 2014 and Individual Protection 2014; Pensions Liberation registration and transfer processes HM Revenue & Customs (HMRC) has issued its latest pension scheme newsletter providing a reminder that the window for applying for Fixed Protection 2014 (FP2014) closes on April 5, 2014. The guidance for Individual Protection 2014 (IP2014) has also been updated. In addition, HMRC has strengthened its existing pension scheme registration and transfer processes as part of its continuing strategy to combat pensions liberation. 04 Norton Rose Fulbright February 2014
FP2014 is available to individuals who, by April 6, 2014, do not have any of the existing lifetime allowance (LTA) protections that is, primary, enhanced or fixed protection 2012. Individuals with one of these protections should check that the particular protection they have remains valid. If the existing protection is lost before April 6, 2014, then an application for FP2014 may still be made, providing a LTA of 1.5 million from 2014-15 onwards. There is an online tool to help individuals decide whether they should apply for FP2014, together with an online form for the application itself. As well as FP2014, a separate form of personalised protection will be introduced from April 6, 2014 for individuals with rights in excess of 1.25 million on April 5, 2014. Individual Protection 2014 (IP2014) permits a personalised LTA equal to the value of the individual s pension savings on April 5, 2014, subject to an overall maximum lifetime allowance of 1.5 million. Unlike FP2014, IP2014 will not prohibit further accruals or contributions. There is a three-year period to claim IP2014, with the deadline for a claim falling on April 5, 2017. The guidance for IP2014 was updated on February 7, 2014, and is available on HMRC s website. HMRC continues to deter pensions liberation by making a number of changes to the processes relating to pension scheme registration and pension transfers. Further details are available in the newsletter. View newsletter no. 60. Norton Rose Fulbright February 2014 05
nortonrosefulbright.com Contacts If you would like further information please contact: Peter Ford Partner, London Norton Rose Fulbright LLP Tel +44 20 7444 2711 peter.ford@nortonrosefulbright.com Lesley Browning Partner, London Norton Rose Fulbright LLP Tel +44 20 7444 2448 lesley.browning@nortonrosefulbright.com Lesley Harrold Senior knowledge lawyer Norton Rose Fulbright LLP Tel +44 20 7444 5271 lesley.harrold@nortonrosefulbright.com Norton Rose Fulbright Norton Rose Fulbright is a global legal practice. We provide the world s pre-eminent corporations and financial institutions with a full business law service. We have more than 3800 lawyers based in over 50 cities across Europe, the United States, Canada, Latin America, Asia, Australia, Africa, the Middle East and Central Asia. Recognized for our industry focus, we are strong across all the key industry sectors: financial institutions; energy; infrastructure, mining and commodities; transport; technology and innovation; and life sciences and healthcare. Wherever we are, we operate in accordance with our global business principles of quality, unity and integrity. We aim to provide the highest possible standard of legal service in each of our offices and to maintain that level of quality at every point of contact. Norton Rose Fulbright LLP, Norton Rose Fulbright Australia, Norton Rose Fulbright Canada LLP, Norton Rose Fulbright South Africa (incorporated as Deneys Reitz Inc) and Fulbright & Jaworski LLP, each of which is a separate legal entity, are members ( the Norton Rose Fulbright members ) of Norton Rose Fulbright Verein, a Swiss Verein. Norton Rose Fulbright Verein helps coordinate the activities of the Norton Rose Fulbright members but does not itself provide legal services to clients. References to Norton Rose Fulbright, the law firm, and legal practice are to one or more of the Norton Rose Fulbright members or to one of their respective affiliates (together Norton Rose Fulbright entity/entities ). No individual who is a member, partner, shareholder, director, employee or consultant of, in or to any Norton Rose Fulbright entity (whether or not such individual is described as a partner ) accepts or assumes responsibility, or has any liability, to any person in respect of this communication. Any reference to a partner or director is to a member, employee or consultant with equivalent standing and qualifications of the relevant Norton Rose Fulbright entity. The purpose of this communication is to provide information as to developments in the law. It does not contain a full analysis of the law nor does it constitute an opinion of any Norton Rose Fulbright entity on the points of law discussed. You must take specific legal advice on any particular matter which concerns you. If you require any advice or further information, please speak to your usual contact at Norton Rose Fulbright. Norton Rose Fulbright LLP NRF18003 02/14 (UK) Extracts may be copied provided their source is acknowledged.