Essential pensions news

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1 Financial institutions Energy Infrastructure, mining and commodities Transport Technology and innovation Life sciences and healthcare Essential pensions news Updater December 2014 Contents 01 Introduction 01 Autumn statement 02 Revised HMRC guidance on VAT on services supplied to pension schemes 03 High Court rules that section 75 debts may be assigned: Trustee of the Singer and Friedlander Ltd Pension and Assurance Scheme v Corbett [2014] 05 Pensions Ombudsman: trustee not obliged to warn employer of potential employer debt obligations 06 Contracting-out abolition: DWP publishes guidance leaflets 07 FCA publishes policy statement on retirement reforms and the guidance guarantee 08 Gender Recognition Certificates: DWP guidance on the effect on pension and social security benefits 08 Public sector schemes: TPR publishes administration checklists 09 Murray Report into future regulation of Australian banks and other financial institutions 10 New shared parental leave provisions come into force 11 Draft regulations: DWP consults on options for increasing the PPF administration levy 12 Draft regulations: DWP consults on proposed amendments to simplify the auto-enrolment process Introduction Essential pensions news covers the latest pensions developments each month in an at a glance format. Autumn statement On 3 December 2014, the Chancellor presented his Autumn statement. The highlights, as far as pensions are concerned, were largely as previously announced. It was confirmed that, from April 2015: pension savers will be able to access their defined contribution (DC) funds as they wish at age 55, subject to their marginal rate of income tax, instead of the current 55 per cent charge for full withdrawal individuals will be permitted to pass on their unused DC savings to any nominated beneficiary when they die, instead of paying the 55 per cent tax charge which currently applies. If the individual dies before age 75, the beneficiary will pay no tax on the funds. If they die after age 75, the beneficiary will pay their marginal rate of income tax, or 45 per cent if the funds are taken as a lump sum. From April 2016, lump sum payments will also be taxed at the recipient s marginal rate the Government will introduce a reduced annual allowance of 10,000 for DC pension contributions for individuals who have flexibly accessed a pension from 6 April 2015

2 the Government will continue to allow transfers from funded DB schemes to DC schemes in the context of the new flexibilities the small pots rules for withdrawals from DC pension savings from 6 April 2015 will continue to allow individuals to take up to three small pension pots from nonoccupational schemes, or an unlimited number from occupational schemes, or up to 10,000 as a lump sum without being subject to a reduced annual allowance of 10,000. The age at which an individual can make use of these rules will be lowered from 60 to 55 there will be no change to the age limit at which tax relief can be claimed on pension contributions will remain at age 75 in one additional announcement, beneficiaries of individuals who die under age 75 with a joint life or guaranteed term annuity will be able to receive any future payments from such policies tax free. The tax rules will also be changed to allow joint life annuities to be passed onto any beneficiary. View the Autumn Statement documentation. Revised HMRC guidance on VAT on services supplied to pension schemes Of interest to all schemes is the publication by HMRC, on 25 November 2014, of its revised policy on the circumstances in which supplies of pension fund management services qualify for VAT exemption and the extent to which employers may deduct input VAT incurred on pension fund administration and investment management costs. The policy briefs On 25 November 2014, HMRC published two briefs following the decisions of the Court of Justice of the European Union (CJEU) in the European cases of ATP Pension Services and PPG Holdings. Brief 44 (2014): VAT treatment of pension fund management services confirms that administration, including fund management, services provided to DC schemes are generally exempt from VAT and UK legislation will be amended to reflect this. HMRC accepts that pension funds with the following characteristics are special investment funds (SIFs) under European law: they are solely funded (directly or indirectly) by those that will receive the retirement benefits to be paid (beneficiaries) the beneficiaries bear the investment risk the fund contains the pooled contributions of several beneficiaries the risk borne by beneficiaries is spread over a range of securities. 02 Norton Rose Fulbright December 2014

3 Brief 43 (2014): VAT on pension fund management costs confirms that HMRC now accepts that there is no distinction for VAT purposes between administration and investment management services. HMRC has confirmed the withdrawal of the 70/30 split arrangement, but has extended the transitional period to 31 December However, HMRC stresses that input tax deduction will be available only if the employer is the recipient of the supply and will not accept input tax claims unless the employer is a party to the contract for the services concerned and it has paid for them. Employers that have applied the 70/30 split may make a claim for under-declared input tax subject to a four-year cap. Comment For DB schemes, services agreements between the employer, trustees and the service provider will need to make clear that the employer benefits from, and pays for, the services. The VAT invoice must also be addressed to the employer. The extension until 31 December 2015 of the transitional period for the withdrawal of the 70/30 split appears generous but employers will need this time to allow for the restructure of agreements to ensure they are the recipients of supplies on which they seek to recover VAT. Accordingly, existing agreements may need to be amended and employers should seek advice on how best to optimise their VAT position. For DC schemes, HMRC s acceptance that UK VAT law must be amended to reflect the CJEU s ruling in the ATP case is welcome. However, schemes may require advice in interpreting HMRC s criteria to benefit from the SIF exemption from VAT. In relation to both DC and DB schemes, the circumstances in which backdated claims for overpaid VAT may be made may not always be easily identifiable, and again, schemes should seek tax advice where necessary. The new HMRC guidance will be examined in depth in a future addition of our monthly pension briefing. High Court rules that section 75 debts may be assigned: Trustee of the Singer and Friedlander Ltd Pension and Assurance Scheme v Corbett [2014] In a decision of interest to all schemes which provide defined benefits, the High Court has ruled that a section 75 debt may be assigned by trustees. This decision allows the scheme to be wound up, saving administration costs and providing certainty. Facts of the case The Singer & Friedlander Limited Pensions and Assurance Scheme (the Scheme) was a defined benefit (DB) occupational pension scheme. The scheme s employer, Kaupthing, Singer & Friedlander, was an Icelandic bank which went into administration on 8 October The section 75 debt was certified at 74,652,000, but the trustee accepted a set-off resulting in a reduced section 75 debt of million. To date, the trustee has received million in dividend payments (81.5p in the on the reduced sum of million). The administrators gave an estimate of the final dividend but indicated that the administration would not end before Norton Rose Fulbright December

4 The trustee wanted to wind up the scheme but could not do so while there was a possibility of further dividend payments in respect of the section 75 debt. However, brokers indicated to the trustee that they were interested in acquiring the debt owed by the employer. The trustee took professional advice which confirmed that selling the debt had a number of advantages including saving the scheme running costs and providing certainty. The trustee applied to court for a direction that the section 75 debt due from the employer could be assigned. If so, the trustee sought a declaration that the proposed assignment was one that a reasonable and properly advised trustee could enter into in the exercise of its powers. Mr Corbett, the representative defendant supported the trustee s application for a declaration that the section 75 debt is assignable, and did not appear. The Pensions Regulator (TPR) was asked to consider whether it would seek to be joined to the claim and make representations given the potential issues concerning its avoidance powers, but decided that it did not need to be joined and would not make representations. The judgment Mr Justice Birss held that the section 75 debt could be assigned by the trustees of the Scheme and gave a direction that the assignment was something which a reasonable and properly advised trustee could enter into in the exercise of its powers. In reaching this decision, the judge noted that, if considered before the introduction of the anti-avoidance powers, the section 75 debt would have been assignable. This followed from both the language of the Pensions Act 1995 and as a natural extension of the decision in Bradstock Group Pension Scheme Trustees Ltd v Bradstock Group plc and others [2002] that a section 75 debt could be compromised. The assignment of a section 75 debt was of lesser significance than a compromise, since in a compromise an employer purports to discharge its ongoing liability for a section 75 debt, the employer remains liable for the whole debt where such debt has been assigned. The Court noted that debts are generally capable of assignment and there was no express prohibition on the assignment of a section 75 debt and no apparent public policy reason why it should not be possible. In addition, as in Bradstock, if the assignment secures the largest amount which the trustees reasonably and honestly believe can be secured towards the shortfall, then such a transaction would be furthering the purposes of section 75 and the legislation as a whole. The judge then considered whether the introduction of TPR s anti-avoidance powers affected this conclusion. He noted that there was power under the Pensions Act 2004 (the 2004 Act) for TPR to direct the trustee not to enforce the section 75 debt, and that this seemed inconsistent with the concept that the debt could be assigned, as the trustee could not comply with such a direction where assignment taken place. However, he concluded that this was a potential inconsistency only, it did not arise in the present circumstances and it did not prevent the moral hazard regime as a whole from operating. However, Mr Justice Birss went on to consider whether the fact that under the anti-avoidance powers, a person other than the employer could be made liable to contribute to the scheme s deficiency represented a fundamental change to the nature of the section 75 debt. Specifically, where a contribution notice has been issued to a third party, allowing the debt to be assignable creates the possibility of double recovery by the scheme. The court considered whether this issue might lead to the conclusion that the anti-avoidance powers were drafted on the assumption that the section 75 debt was personal to the trustee. 04 Norton Rose Fulbright December 2014

5 The court considered that the approach of David Richards J in Re Storm Funding Ltd [2013] to the provisions of the 2004 Act and that his consideration of the different characteristics of section 75 debts and contribution notices was directly relevant. In that case, David Richards J held that, whereas section 75 imposes an ascertainable debt in certain circumstances, the 2004 Act creates a scheme whereby obligations are imposed by the exercise of discretionary powers by a statutory body, or on a reference, by a judicial body. Further, the additional obligations created by the 2004 Act do not create the same debt as the debt owed pursuant to section 75. These are two separate obligations. The purpose of the provision in the 2004 Act (under which any sum paid under a contribution notice is treated as reducing the amount of debt due under section 75) was to reduce the burden on the employer. Mr Justice Birss considered that these conclusions in Storm Funding also apply to the relevant provisions of the 2004 Act, and undermine the idea that the existence of those provisions could be taken to have altered the nature of the section 75 debt itself. He also concluded that the relationship between the anti-avoidance powers and section 75 was complex and give[s] rise to potential anomalies whichever way they are looked at. That is important because it undermines any attempt to construe the legislation in such a way as to avoid an anomalous result. It is unreal to find in [the relevant sections] of the [the 2004 Act] any manifestation of an intention by Parliament to alter the debt created by section 75 and accordingly, the section 75 debt could be assigned by the Scheme s trustees. Comment This decision represents a welcome development for the Scheme s trustees, as the Court has approved its winding-up before the conclusion of the employer s administration process. This means the costs of the winding-up will be reduced, resulting in more certainty regarding the eventual amount to be recovered. Such cost savings are an issue trustees can take into account in seeking to achieve the best outcome for their scheme members. Other schemes may now follow suit and trade the section 75 debt where the employer has gone bust, as the Court has held such debts are assignable. In turn, the potential future marketability of section 75 debts could change the dynamic of negotiations in future restructuring exercises. View the judgment. Pensions Ombudsman: trustee not obliged to warn employer of potential employer debt obligations This decision will be of interest to all employers providing defined benefits. The Pensions Ombudsman (PO) has determined that the pension scheme s trustees had no duty to warn the scheme sponsor of its potential employer debt obligation and were not responsible for liability on the employer arising from an employment-cessation event. The Baptist Union of Great Britain (the Union) and the trustees of the Baptist Ministers Pension Fund (the Trustees) had no duty to warn a church of its potential employer debt obligation and were not responsible for the liability on the church arising from an employment-cessation event. Norton Rose Fulbright December

6 The employer debt is triggered where an employment-cessation event occurs. An employmentcessation event is deemed to occur on the date when an employer no longer employs at least one person who is an active member of the scheme, if at least one other participating employer in the same scheme is continuing to employ at least one active member. The PO dismissed a complaint by a Baptist church which, in 2007, appointed a part-time minister who resigned 11 months later, leaving the church with no active members in the scheme, which is an employment-cessation event for the purposes of the employer debt legislation. The PO held that in treating the church as an employer for employer debt purposes, the Trustees had correctly interpreted the relevant legislation in the light of the 2010 High Court judgment in the Pilots case, following which they had received legal advice that each church was its minister s employer in relation to the scheme. However, the Trustees had reached an agreement with the Pensions Regulator (TPR) and the Pension Protection Fund where genuine and non-genuine employment-cessation events were distinguished and the church could be offered the alternative of paying deficiency contributions in some situations. One such situation was where a church might participate in respect of a future minister, and the Trustees were satisfied about the arrangements to pay shortfall contributions in relation to the leaving minister. The PO found that the Trustees had provided a pragmatic solution. In reaching his decision, the PO took into account that: the minister s decision to join the scheme was outside the church s control neither the Union nor the Trustees had any duty to warn the church what its employer debt obligations were, and that those obligations were legally uncertain before the 2010 Pilots judgment neither respondent was responsible for the liability that arose on the church. Comment PO determinations covering the employer debt regime are rare. Trustees will be relieved that the PO found that they are not obliged to warn employers about the potentially adverse consequences of the section 75 minefield. The determination also highlights the scope for trustees to adopt a flexible approach to resolving employer debt questions and suggests that in the right circumstances TPR will refrain from challenging such an approach. View the determination. Contracting-out abolition: DWP publishes guidance leaflets The Department for Work and Pensions (DWP) and HM Revenue & Customs (HMRC s) have published guidance for employers and trustees of open defined benefit (DB) schemes facing the end of contracting-out from 6 April The guidance consists of various fact sheets aimed at the following audiences: 06 Norton Rose Fulbright December 2014

7 Sponsoring employers This highlights which employers are affected and how. For example, employers and employees will pay the standard rate (class 1) national insurance contributions (NICs) instead of the lower, contracted-out rate from April There is a recommendation that employers should seek advice without delay on the possibility of amending their scheme rules to offset the future increase in the rate of the employer s NICs. Employees The impact on individuals is set out and there is a basic explanation of the statutory override which will permit employers to amend scheme rules (without trustee consent) to reduce scheme costs in order to offset the increase in NICs when contracting-out ends. Trustees In addition to explaining the statutory override, the broader impact on members benefits is set out. The leaflet also confirms that HMRC will no longer track which schemes hold GMPs and other contracted-out rights for individual members. It states that with effect from December 2018, HMRC will provide members with details of their contracted-out scheme memberships. It recommends that schemes make use of HMRC s reconciliation service. The DWP has previously consulted on detailed draft regulations in relation to the abolition of DB contracting-out. The consultation ended on 2 July 2014 and the DWP s response and final regulations are still awaited. View the guidance leaflets. FCA publishes policy statement on retirement reforms and the guidance guarantee Of interest to all schemes and members considering flexible access to DC benefits is the publication on 27 November 2014 of the Financial Conduct Authority s (FCAs) policy statement on retirement reforms and the guidance guarantee. The proposed standards and rules for the guidance providers are expected in their final form soon after the Pension Schemes Bill receives Royal Assent in early The policy statement reports on the main issues arising out of the FCA s July 2014 consultation and sets out near final standards for designated guidance providers and rules for firms delivering the guidance guarantee. It also contains information on the FCA s monitoring role relating to the standards and the further work it intends to undertake as a result of the wider pensions reforms. The majority of respondents to the FCA s consultation broadly agreed with the proposed standards and rules. The standards that received the most specific comments were professional standards and content of the session where respondents asked for more detail and prescription. Although the FCA has made changes and provided clarification in some areas, overall the policy intention remains broadly the same. The FCA has prepared the near final standard and rule instruments on the basis that the Pension Schemes Bill , which is currently going through Parliament and to which the standard and rules are linked, receives Royal Asset in its current form. The FCA proposes to make the instruments as soon as possible after the Bill receives Royal Assent which is expected in the first quarter of Norton Rose Fulbright December

8 In the first half of 2015, the FCA also plans to: consult on its policy for making recommendations to designated guidance providers and HM Treasury as part of its monitoring approach develop its monitoring approach in liaison with HM Treasury and designated guidance providers conduct a wider review of its rules in the pensions and retirement area. In the second half of 2015, the FCA plans a full review of designated guidance providers compliance with the standards. The FCA has also published for consultation by 2 February 2015 its proposed changes to its fee and levy regimes. This forms part of its annual cycle of fees consultation. View the policy statement. View the fees consultation paper. Gender Recognition Certificates: DWP guidance on the effect on pension and social security benefits Of general interest is the DWP s publication of guidance explaining how getting a full Gender Recognition Certificate can affect an individual s company or personal pension schemes and social security benefits. The guidance will apply to those individuals who make a successful application to the Gender Recognition Panel and are awarded a full Gender Recognition Certificate. It explains how obtaining such a Certificate may affect an individual s NICs, tax liability and current and future pension benefits for both the transgender person and any spouse or civil partner they may have. View the guidance. Public sector schemes: TPR publishes administration checklists Those involved in the administration of public sector schemes will be interested to note that the Pensions Regulator (TPR) is to be responsible for setting governance and administration standards in such schemes from 1 April TPR will have extended regulatory oversight of public sector schemes following an expansion in its role by the Public Service Pensions Act As part of its extended role, TPR has published a series of checklists to assist those administering such schemes in assessing the effectiveness of their procedures. The checklists cover internal dispute resolution procedures, how effectively a scheme manages its contributions, and the evaluation of the scheme s internal controls. Key elements are set out in each area of administration and basic guidance is provided, together with a compliance record for completion. View the checklists. 08 Norton Rose Fulbright December 2014

9 Murray Report into future regulation of Australian banks and other financial institutions Of general interest is the new report published in Australia on 14 December 2014, as a result of an inquiry launched in 2013 by Treasurer Joe Hockey, and charged with examining how the financial system could be positioned to support Australia s economic growth and to better survive global financial crises. The 320-page Murray Report was produced by the former chief executive officer of the Commonwealth Bank of Australia, David Murray, and makes 44 recommendations relating to the Australian financial system, including advising on the level of capital banks should hold, minimum standards of education for financial advisers and the level of fees imposed by pension (superannuation) funds. It found that: taxation and regulatory settings distort the flow of funding to the real economy; it remains susceptible to financial shocks; superannuation is not delivering retirement incomes efficiently; unfair consumer outcomes remain prevalent; and policy settings do not focus on the benefits of competition and innovation. As a result, the system is prone to calls for more regulation. New style regulation The Report recommends the establishment of a permanent public private sector collaborative committee, the Innovation Collaboration, to facilitate financial system innovation. This is similar to the Innovation Hub initiative by the UK s Financial Conduct Authority (FCA), indicating that a close monitoring of UK developments will provide valuable insights into the future of regulation in Australia. The Report s explicit and implicit endorsement of the UK approach also extends to its recommendation to introduce the UK FCA-style product intervention powers into the Australian regulator s toolkit. By making issuers and distributors of financial products more accountable for design and distribution, the Report believes that such conduct regulation will lead to positive consumer outcomes and strengthen consumer confidence and trust in the system. These powers include bans on specific products, product terms, distribution channels, mandated warnings and product labelling. Intervention powers of this sort could mean a new era of conduct regulation in Australia, where the focus of regulation will shift from enforcement action to preventative action by the Australian Securities and Investments Commission (ASIC). The report makes several observations in relation to pensions ( super ) funds and these are summarised below: Borrowing prohibition The proposal to remove the exception to the borrowing prohibition may have the unintended consequence of closing down the market for instalment warrants and other structured products that involve in-built forms of leverage, as well as closing down the residential property asset class for self-managed super funds Improving efficiency Murray clearly has reservations about the effectiveness of the Stronger Super reforms to bring down fees. While recognising that those reforms should be allowed to run their course, the Report recommends that a Parliamentary Committee inquiry should commence as early Norton Rose Fulbright December

10 as next year to test the design features for a new competitive tender process for the super industry. The successful bidders will be a smaller number of super funds (with no hint as to the number) that will receive the super guarantee contributions of new entrants. The catch is that those funds must also offer the same fees and other features to their existing members. This recommendation could result in massive industry consolidation as funds seek to gain the necessary scale in order to compete on fees and brings Australia more in line with compulsory pension regimes overseas. Retirement phase of super Tilting the retirement product bias away from account-based pensions towards a default income stream chosen by trustees will be welcome by the super industry. However, as many of the submissions pushed for some element of compulsion, it is arguable that the Report does not go far enough. Rather, the Report encourages the development of retirement income products with pooled longevity risk protection and the removal of tax and other barriers to the development of such products. While these recommendations are welcome, it is unclear whether they will change consumer behaviour as consumers will continue to be able to choose to take their super benefits as lump sums, and then fall back on the age pension. Majority of independent directors The Inquiry is strongly supportive of a governance model of a majority of independent directors for public offer super funds as well as introducing civil and criminal penalties for director misconduct and recommends that equal representation (the current model) be restricted to defined benefit funds where employers bear the investment risk. Taxation of super The Report dodges the bullet on tax reform and leaves it to the Tax White Paper to recommend changes to the taxation of super. In its sights will be the concessional contribution caps and the taxation of earnings in the retirement phase (which are currently tax free) as well as the taxation of high super balances. Should you need more information on the proposed Australian reforms, please contact the pensions team. New shared parental leave provisions come into force The new shared parental leave and pay provisions will be of general interest, but pension scheme rules should be reviewed so that they reflect the new regulations which came into force on 1 December The new provisions apply in relation to children whose expected week of birth starts on or after 5 April 2015, or who are placed for adoption on or after that date. The new provisions are set out in the Shared Parental Leave Regulations 2014 and the Statutory Shared Parental Pay (General) Regulations 2014, both of which came into force on 1 December There are complex conditions which need to be satisfied for an employee to have an entitlement to shared parental leave and pay but, broadly, the new regime allows parents to share the maternity leave and pay which previously applied to the mother. Pension rights during shared parental leave apply in a similar way to those which apply for other periods of paid family leave, in that: 10 Norton Rose Fulbright December 2014

11 the employer pays pension contributions as a percentage of normal pensionable salary the employee pays contributions on the basis of the amount of pay actually received benefits continue to accrue during the period of paid shared parental leave service is continuous but it is possible to exclude any period of unpaid shared parental leave. The entitlement to additional paternity leave is repealed on the introduction of these new, shared rights. Comment Trustees of DB schemes should conduct a review of their rules and make any necessary amendments to reflect the new shared parental rights. Draft regulations: DWP consults on options for increasing the PPF administration levy Of interest to all schemes providing defined benefits is the DWP s consultation on various options for setting the portion of the Pension Protection Fund (PPF) levy relating to day-today scheme administration for 2015/16 onwards. The consultation on the draft Occupational Pension Schemes (Levies) (Amendment) Regulations 2015 runs until 9 January This part of the levy funds the PPF s administration costs, is paid by eligible schemes, and is calculated according to the number of scheme members. The DWP s estimate is that by the end of the 2014/15 levy year, there will be a 5.1 million shortfall in the amount of the levy collected as against the PPF s administration costs, although it estimates the deficit will reduce in later years due to the new Experian levy risk scoring system. The consultation document sets out four possible alternatives to address this issue: No change. This would lead to an increase in the costs/levy deficit. Unsurprisingly, the DWP is not attracted to this option. Immediate increase by 72 per cent although this option would eliminate the funding gap immediately, the DWP acknowledges that schemes would have no time to prepare for such a change. It does not propose to follow this option. Eliminate the deficit by 31 March 2020 rates would increase by 43 per cent which would eliminate the deficit over the five year levy period from 2015/16 to 2019/20. Eliminate the deficit by 31 March 2022 the levy rate would increase by 15 per cent in 2015/16, with identical increases in 2016/17 and 2017/18. This is the Government s preferred approach. The DWP is seeking comments on the proposals, particularly on the suitability of the fourth option. View the draft regulations and consultation paper. Norton Rose Fulbright December

12 Draft regulations: DWP consults on proposed amendments to simplify the auto-enrolment process Of interest to all schemes is the DWP s publication of the draft Occupational and Personal Pension Schemes (Automatic Enrolment) (Amendment) Regulations 2015, which will simplify the process for automatic enrolment into workplace pensions. The consultation closes on 9 January 2015 and the DWP expects the regulations to come into force on 6 April These proposed technical changes and are intended to: introduce an alternative quality requirement for DB schemes; simplify employers provision of information requirements; and create certain exceptions to the employer duty to auto-enrol. The draft amending regulations published by the DWP for consultation will make a series of technical changes to the auto-enrolment regime, with a view to easing the administrative burden on small and micro employers due to reach their staging dates in 2015 and beyond. The main changes are intended to: Provide an alternative quality requirement for DB schemes The Pensions Act 2008 currently provides for an alternative quality test for DB schemes, which is satisfied if the cost of providing benefits for members would require contributions equal to at least a prescribed percentage (which cannot be less than 8 per cent) of relevant earnings over a relevant period. The draft regulations set out percentages for required contributions of between 9 per cent and 11 per cent of relevant earnings, depending on the definition of relevant earnings used. The prescribed definitions of relevant earnings follow those currently available for DC schemes. Where the scheme provides dependants benefits on death, the percentage of relevant earnings is reduced by 1 per cent in each case. The relevant period will be either that currently used by the scheme (as shown in its actuarial report), or 12 months. Broadly speaking, future accruals in a particular scheme must require total contributions of at least 10 per cent of DB members qualifying earnings or 9 per cent if no dependants pensions are available. The new test will be useful for employers with schemes currently contracted out of the state second pension in view of the abolition of contracting-out in April Reduce the complexity of the provision-of-information requirements It is proposed that the minimum key information which employers must give to employees will be reduced, for example by: simplifying the information that must be given when an employer uses a postponement period the amount of information given to jobholders on auto-enrolment will also be reduced the requirement to provide certain information to jobholders who are contractually enrolled in their employer s qualifying scheme ahead of their auto-enrolment date will be revoked. Exempt individuals in four specific categories from the requirement to be auto-enrolled The employer can choose not to auto-enrol the employees who have: resigned, been dismissed or who are about to retire opted out after being contractually enrolled in the 12 months before being auto-enrolled 12 Norton Rose Fulbright December 2014

13 received a winding-up lump sum and are re-employed by the same employer in the succeeding 12 months accrued savings above the lifetime allowance and taken out enhanced or fixed protection. In both the latter two cases, there could be potentially significant HMRC tax penalties if the employee is auto-enrolled. Comment The reduction of required information will be welcome to smaller employers, as will the exceptions to the duty to auto-enrol. The alternative quality test is intended to assist employers with contracted out schemes when they cease contracting out in April The intention is that the requirements should not cause extra work, be too complex, and be helpful to employers who have to implement auto-enrolment. Norton Rose Fulbright December

14 Contacts If you would like further information please contact: Peter Ford Partner, London Norton Rose Fulbright LLP Tel Lesley Browning Partner, London Norton Rose Fulbright LLP Tel Lesley Harrold Senior knowledge lawyer Norton Rose Fulbright LLP Tel Norton Rose Fulbright December 2014

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