Wyn Derbyshire

PRACTICE NOTES

Abolition of money purchase (DC) contracting-out from 6 April 2012: protected rights removal, scheme rule changes, underpins, transfers and disclosure obligations

ARCHIVED: This archived Practice Note centres on the abolition of contracting-out on a money purchase (or protected rights) basis, taking effect from 6 April 2012. It is not maintained and remains archived. For general information concerning the meaning of contracting-out, see the Practice Note entitled: What does ‘contracting-out’ mean for pension lawyers? Contracting-out on a money purchase basis before 6 April 2012 Contracting-out was the route by which an individual (whether employed or self-employed) could choose to waive accrual of the part of the State pension which, before 6 April 2016, was called the additional State pension (or Second State Pension (S2P)). Contracting-out on a money purchase basis (also known as DC contracting-out) first became possible in April 1988. A money purchase form of contracting-out required the relevant contracted-out pension scheme to grant members ‘protected rights’ in lieu of the state benefits forgone as a consequence of contracting-out. Schemes contracted-out on a money purchase basis Before 6 April 2012, protected rights could be provided through the following contracted-out schemes: contracted-out money purchase (COMP) schemes. ...

Pensions

PRACTICE NOTES

Archived: UK drawdown pensions (6 April 2011 to 5 April 2015): capped and flexible drawdown, short-term annuities, lifetime allowance testing, eligibility and annual allowance impacts

THIS PRACTICE NOTE RELATES TO DRAWDOWN PENSIONS COMMENCING BETWEEN 6 APRIL 2011 AND 5 APRIL 2015 (INCLUSIVE) ARCHIVED: This archived Practice Note outlines the legal framework that applied to drawdown arrangements begun on or after 6 April 2011 and before 6 April 2015, whether by way of income withdrawal or a short-term annuity. It is no longer maintained. For details of the regime for drawdown arrangements starting on or after 6 April 2015, see Practice Notes: Drawdown from 6 April 2015 and Drawdown and death benefits from 6 April 2015. What is a drawdown pension? The term ‘drawdown pension’ replaced the earlier labels ‘unsecured pension’ and ‘alternatively secured pension’ used before 6 April 2011. Up to 5 April 2015, drawdown pension described the process for paying pension which enabled members who were: already receiving benefits from a pension arrangement (either a pension paid by the scheme or an annuity purchased with the member’s scheme funds), and entitled to benefits in other pension arrangements, being money purchase or cash balance arrangements, to choose, within set limits, the annual level of pension they wished to receive...

Pensions

PRACTICE NOTES

Auto-enrolment in workplace pensions: categorising workers and jobholders, territorial scope, qualifying earnings, pay reference periods, exceptions and contractual enrolment (England and Wales)

FORTHCOMING DEVELOPMENT : The Pensions (Extension of Automatic Enrolment) (No. 2) Bill secured Royal Assent on 18 September 2023, becoming the Pensions (Extension of Automatic Enrolment) Act 2023 (the Act), and was published on 19 September 2023. The Act confers powers on the Secretary of State for Work and Pensions to make regulations to: lower the minimum age at which otherwise eligible employees must be automatically enrolled and re-enrolled into a pension scheme by their employers; remove the Lower Earnings Limit from the qualifying earnings band so that contributions are calculated from the first pound of earnings; and revise the requirements for the annual review of the qualifying earnings band. Adjustments to automatic enrolment eligibility will proceed following a consultation on the detailed implementation method and timing. The commencement of section 1 of the Act is set to be ‘on such day or days as the Secretary of State may by regulations appoint’. For further information, see: DWP press release, Work and Pensions Committee welcomes Royal Assent for legislation on expanding pensions auto-enrolment, LNB News 19/09/2023 32 and LNB News 21/09/2023 6...

Pensions

PRACTICE NOTES

Auto-enrolment pension schemes in England and Wales: qualifying and automatic enrolment criteria, DB/DC/hybrid quality tests (including reg 32M/32L), EEA restrictions post-Brexit, contributions, and certification

THIS PRACTICE NOTE APPLIES ONLY TO PENSION SCHEMES IN ENGLAND AND WALES Under the statutory auto-enrolment framework, employers must: automatically enrol any eligible jobholders into an 'automatic enrolment scheme', unless they are already an active member of a 'qualifying scheme' with that employer enrol any non-eligible jobholders who submit an opt-in notice into an 'automatic enrolment scheme', unless they are already an active member of a 'qualifying scheme' with that employer Qualifying schemes must at least satisfy minimum standards. For a defined contribution (DC) arrangement, this includes compulsory employer and worker contributions at no less than the minimum rates. An automatic enrolment scheme is a qualifying scheme that also fulfils additional conditions. This is outlined further below. Employers should confirm that any scheme selected to meet auto-enrolment duties achieves the minimum standards. The Pensions Regulator has issued comprehensive guidance to support employers in complying with the auto-enrolment regime ('TPR Auto-enrolment Guidance'), including the criteria a scheme must meet to be a qualifying scheme. For more on the auto-enrolment regime, see Practice Note: Auto-enrolment—an introduction. For information on worker categories, see Practice Note: Auto-enrolment—who needs to be enrolled?...

Pensions

PRACTICE NOTES

Auto-enrolment under the Pensions Act 2008: employer duties, eligibility, qualifying schemes, postponement, re-enrolment, TUPE, information, record-keeping, enforcement and recent reforms (England and Wales)

FORTHCOMING DEVELOPMENT : The Pensions (Extension of Automatic Enrolment) (No. 2) Bill secured Royal Assent on 18 September 2023, becoming the Pensions (Extension of Automatic Enrolment) Act 2023 (the Act), and it was published on 19 September 2023. The Act empowers the Secretary of State for Work and Pensions to make regulations to: lower the minimum age at which otherwise eligible workers must be automatically enrolled and re-enrolled by their employers into a pension scheme; remove the Lower Earnings Limit from the qualifying earnings band so that contributions are calculated from the first pound of pay; adjust the requirements for the annual review of the qualifying earnings band. Changes to eligibility for automatic enrolment will be introduced following consultation on the detailed method of implementation and timing. The commencement of section 1 of the Act will be “on such day or days as the Secretary of State may by regulations appoint”. For further information, see: DWP press release, Work and Pensions Committee welcomes Royal Assent for legislation on expanding pensions auto-enrolment, LNB News 19/09/2023 32 and LNB News 21/09/2023 6...

Pensions

PRACTICE NOTES

Automatic enrolment: employer duty commencement, staging (including special rules), postponement and minimum DC contribution phasing (England and Wales)

FORTHCOMING DEVELOPMENT : The Pensions (Extension of Automatic Enrolment) (No. 2) Bill secured Royal Assent on 18 September 2023, becoming the Pensions (Extension of Automatic Enrolment) Act 2023, and was published on 19 September 2023. The Act enables the Secretary of State for Work and Pensions to set regulations to: lower the minimum age at which otherwise eligible staff must be automatically enrolled and re-enrolled into a workplace pension; remove the Lower Earnings Limit from the qualifying earnings band so contributions are calculated from the first pound of pay; vary the framework for the annual review of the qualifying earnings band. Alterations to eligibility for automatic enrolment will follow a consultation on the detailed method and timetable for implementation. The commencement of section 1 of the Act will be “on such day or days as the Secretary of State may by regulations appoint”. For further details, see: DWP press release; Work and Pensions Committee welcomes Royal Assent for legislation on expanding pensions auto-enrolment; LNB News 19/09/2023 32 and LNB News 21/09/2023 6...

Pensions

PRACTICE NOTES

Block transfers: retaining protected pension age and scheme‑specific lump sum protection; NMPA 57 changes, transitional relaxations and scheme wind‑up annuity conditions

FORTHCOMING DEVELOPMENT : Section 10 of the Finance Act 2022 will lift the normal minimum pension age (NMPA) from 55 to 57 on 6 April 2028, with members of the firefighters, police and armed forces public service pension schemes excluded. The Act also preserves access before age 57 for members of registered schemes who, on or before 4 November 2021, either already held an ‘unqualified right’ to draw benefits, or were part-way through a substantive transfer to a scheme conferring an unqualified right to a protected pension age below 57 by that date. To rely on this 2028 protection, the scheme’s rules must, as at 11 February 2021, have contained an unqualified right to take scheme benefits before 57. For more detail, see Practice Note: Increasing the normal minimum pension age (NMPA) to 57—pensions impact. As a general position, members of registered pension schemes can commence taking pension benefits from age 55 (from age 50 before 6 April 2010), unless they meet the ill-health condition...

Pensions

PRACTICE NOTES

Bridging pensions: operation, equal treatment case law, SPA increases, trustees’ section 68 powers, Equality Act age exceptions, and Finance Act tax rules (single-tier state pension)

This Practice Note cites case law of the Court of Justice of the European Union. For guidance on whether EU judgments are binding on UK courts, see Practice Note: Assimilated law — Assimilated case law. What are bridging pensions? Bridging pensions are a type of pension provided by some, though not all, defined benefit occupational schemes when a member’s scheme pension begins before state pension age (SPA). As the name implies, they function as a temporary top-up designed to bridge the gap between the point the member’s normal scheme pension is paid and a later date—typically the member’s SPA—when their state pension starts. Unequal SPAs for men and women and bridging pensions—how they interact Until plans were considered by the government to equalise the SPAs for men and women in 1993, men continued to have an SPA of 65 and women 60. Bridging pensions are commonly used in an effort to ensure male and female members with different SPAs receive broadly comparable overall retirement income from the relevant pension scheme(s) and the state pension system, despite the SPA difference...

Pensions

PRACTICE NOTES

Changing occupational pension terms via employment contracts: extrinsic contract doctrine, section 67 restrictions, case law and practical guidance for employers and trustees

Employees’ pensions rights under an occupational pension scheme can be categorised as: entitlements that flow from the trusts governing the particular, relevant pension scheme contractual provisions contained in employees’ contracts of employment, whether express or implied For more detail, see Practice Note: Pensions and the employment contract. Understanding both sources matters when changes to future pension entitlements are considered. Appreciating this twin character is crucial, particularly where adjustments to staff members’ prospective pension benefits are on the table. As a rule, altering employees’ pension provisions within an occupational scheme requires use of the scheme’s power of amendment (and the sponsoring employer may need to consult the workforce about the proposals). Nevertheless, because pension rights sit in both spheres, employers will frequently also look to secure employees’ explicit agreement to the changes (typically after any consultation has closed) to reduce the risk of a successful claim by employees under their employment contracts or other applicable contractual materials (eg employee handbooks or collective agreements). For guidance on employer consultation, see Practice Note: Pension consultation requirements...

Pensions

PRACTICE NOTES

Closing DB occupational pension schemes to future accrual: employers’ legal routes, contract variation, trust and confidence, section 75 debt, consultation and auto‑enrolment compliance

THIS PRACTICE NOTE APPLIES TO DEFINED BENEFIT OCCUPATIONAL PENSION SCHEMES Numerous employers running defined benefit (DB) occupational pension schemes have opted to halt future accrual, substituting them with a defined contribution (DC) solution, often — though not invariably — by way of a group personal pension (GPP) arrangement. At times, the impetus for such a shift follows the acquisition of the employer(s) by a new owner keen to curb future pension expenditure and/or to standardise pension provision across the corporate group that the relevant employer(s) has joined. In other situations, the driver for change arises in the ordinary course of the employer(s)’ business operations and is typically propelled by cost pressures and affordability. In any case, a proposal to close a DB scheme to future accrual will generally be regarded as a deterioration in the benefits package for the employees concerned...

Pensions

PRACTICE NOTES

Compromise of Occupational Pension Scheme Disputes in England and Wales: ADR, Section 91 Pensions Act 1995, Trustee Powers, Representative Beneficiaries and Court Approval

This Practice Note mainly concerns the settlement of disputes involving occupational pension schemes in England and Wales. It does not cover the compromise of debts under section 75 of the Pensions Act 1995 (often called Bradstock agreements); for that, see Practice Note: Compromising section 75 debts—Bradstock agreements. Why compromise? When a commercial conflict arises between two or more parties, it is usual to pursue resolution by agreement rather than only seeking a court determination; the same holds within the pensions sphere as across wider commerce. A well‑judged compromise can deliver key benefits for everyone involved, including: cost savings time savings confidentiality greater flexibility and informality for affected parties, and avoiding the risk of an unfavourable court outcome Compromising a dispute demands that the parties reach consensus on how to address the issues raised and, ideally, how similar matters should be handled or, with luck, prevented in future. Frequently, settlement discussions occur against the backdrop of legal proceedings...

Pensions

PRACTICE NOTES

Compromising section 75 employer debts: Bradstock agreements, PPF+ compromises, criminal offences, contribution notices, PPF eligibility and notifiable events

Employer debt legislation Section 75 (and 75A) of the Pensions Act 1995 (PA 1995), together with the underlying legislation, collectively comprise what is commonly called the ‘employer debt legislation’. In broad terms, these provisions state that a statutory (non-priority) debt arises in respect of an employer (or employers) participating in a registered defined benefit occupational pension scheme when the scheme is in deficit on a buy-out basis and one of three trigger events occurs: the scheme entering wind-up an insolvency event (as defined for the purposes of the legislation) in relation to a participating employer in a multi-employer scheme, a participating employer ceasing to employ active members while at least one other employer continues to do so (an ‘employment cessation event’) The statutory debt created under PA 1995, s 75 (a ‘section 75 debt’ or ‘employer debt’) is owed by the relevant employer to the pension scheme, and is determined by reference to that employer’s proportion of the pension scheme’s deficit assessed on the buy-out basis...

Pensions

PRACTICE NOTES

Connected persons, associates and control in pensions: Insolvency Act 1986 definitions and practical applications (moral hazard, employer-related investments, notifiable events, TUPE, DC governance, LLPs)

Use of terms ‘connected’ and ‘associate’ in pensions Although initially coined within the insolvency/bankruptcy regime set out in the Insolvency Act 1986 and underlying regulations, the notions of ‘association’ and ‘connection’—together with the allied idea of ‘control’—have, over time, been adopted and applied across various parts of the UK’s pensions legislation framework for practical purposes in appropriate cases. Examples include: Moral hazard powers — the terms are employed in the moral hazard provisions of the Pensions Act 2004, in practice to assess the degree of distance or proximity of entities from sponsoring employers of occupational pension schemes, and whether such entities might be susceptible to the Pensions Regulator’s moral hazard powers, for example the issue of financial support directions and contribution notices — for further information, see Practice Notes: Contribution notices and Financial support directions Employer-related investments — the terms are used in the employer-related investment framework in relation to the capacity of trustees of occupational pension schemes to enter into dealings with the schemes’ sponsoring employers, or with parties associated with, or connected to, such entities as well ...

Pensions

PRACTICE NOTES

Converting to an LLP: pensions implications, TUPE, section 75 debts, scheme transfers, consultation and life assurance for transfers from partnerships or companies

A Limited Liability Partnership (LLP) An LLP is a statutory business vehicle created under the Limited Liability Partnership Act 2000 (LLPA 2000). From 6 April 2001, LLPs have been capable of being formed in England and Wales. Notable features of an LLP are: It is a corporate body and separate legal entity, with a legal personality independent of its members. It has unrestricted capacity. Its members benefit from limited liability, whereas partners in a general partnership have unlimited liability (although, for tax purposes, an LLP is treated as a general partnership). Members may determine their own arrangements, via an LLP members’ agreement, including: obligations to contribute to the LLP allocation of management responsibilities profit distribution mechanisms the appointment and removal of LLP members members’ duties to provide for their retirements An LLP is also distinct from a limited partnership constituted under the Limited Partnership Act 1907. LLP members have limited liability...

Pensions

PRACTICE NOTES

Cross-border enforcement of the UK Pensions Regulator’s contribution notices and financial support directions post-Brexit: EU/EFTA regimes, international conventions and practical obstacles

The Pension Regulator’s moral hazard powers Under the moral hazard provisions of the Pensions Act 2004 (PeA 2004), the Pensions Regulator holds authority to impose contribution notices (CNs) and to require financial support directions (FSDs). These measures are notably far-reaching and can be severe in practice indeed...

Pensions

PRACTICE NOTES

DB occupational pension scheme surpluses: ownership and utilisation on ongoing and wind-up; trust deed primacy, key case law, and proposed UK surplus-extraction reforms

FORTHCOMING DEVELOPMENT: At a roundtable in the City of London on 28 January 2025 with leaders of the UK’s largest companies, Prime Minister Keir Starmer and Chancellor Rachel Reeves set out proposals to ease constraints on defined benefit (DB) pension schemes that have strong surpluses, to release capital for investment in UK firms as part of the Labour government’s broader drive to spur economic growth. The government envisages that, where trustees consent to share a slice of the scheme’s surplus with the employer, the employer could channel these monies into its core operations and/or offer extra benefits to members. The reforms seek to unlock an estimated £160 billion presently sitting in surplus across roughly 75% of schemes. Legislation is proposed to permit all DB schemes to amend their rules to allow surplus extraction, subject to trustee–employer agreement. The government, however, stresses that any changes will be introduced with suitable safeguards to protect member benefits...

Pensions

PRACTICE NOTES

Death-in-service via registered schemes: standalone group life trusts, section 255 (PeA 2004) compliance, authorised payment rules and 2024 lump sum and death benefit allowance (UK)

Ways of providing death-in-service benefits Employers commonly provide their staff with death-in-service benefits (often referred to as 'life assurance' or 'life cover' benefits). This protection is ordinarily limited to employees (hence the term 'death in service', reflecting the label itself), although in certain situations an employer may decide to extend the benefit beyond retirement. Employers can deliver these benefits in three ways: via a dedicated trust-based arrangement that, while registered as a pension scheme for the purposes of Part 4 of the Finance Act 2004 (FA 2004), provides only death-in-service benefits—such arrangements are frequently known as 'life cover only schemes', 'death-in-service schemes' or 'standalone life assurance schemes', and no other benefits through a registered pension scheme (usually an occupational pension scheme) in which the death-in-service benefits form part of the broader benefit structure of the scheme as a whole. In this type of arrangement or model, a scheme member may receive: both death benefits (including death-in-service benefits) together with retirement benefits, or death-in-service benefits only, eg because the member has elected not to contribute to the pension scheme...

Pensions

PRACTICE NOTES

Defined benefit pension de-risking—buy-ins and buy-outs: trustee powers, member consent, PPF/FSCS, GMP equalisation and Insurance Act 2015 duties

THIS PRACTICE NOTE APPLIES ONLY TO DEFINED BENEFIT OCCUPATIONAL PENSION SCHEMES Recent years have seen more defined benefit occupational pension schemes fall into deficit, and sponsoring employers and trustees have shown heightened interest in ways to manage, and preferably reduce, the financial risks and investment swings linked to these arrangements—a process typically termed ‘de-risking’. A range of de-risking approaches exists, and further options continue to be developed. These methods are directed at managing exposure to financial risk and investment volatility tied to such schemes. Among them are incentive exercises, including enhanced transfer value exercises and pension increase exchange exercises, which are treated as part of the de-risking toolkit—an arsenal available to employers and trustees of defined benefit schemes (for more information on incentive exercises, see Practice Note: Pension scheme incentive exercises). Increasingly, however, de-risking strategies are turning to insurance solutions, with pension buy-outs and pension buy-ins being the most prevalent choices. Before proceeding with a buy-in or buy-out, the Pensions Regulator advises trustees to obtain specialist advice and, where appropriate, to consider appointing an accredited professional trustee or a risk transfer specialist...

Pensions

PRACTICE NOTES

Defined Benefit Pension Incentive Exercises: The Pensions Regulator’s Expectations, Industry Code, Boundary Examples and Legal Duties for Employers, Trustees and Advisers

While pension scheme incentive exercises enable employers to control and reduce liabilities within defined benefit (DB) arrangements, they can also pose risks to the interests of beneficiaries. Their legitimacy has been queried by The Pensions Regulator and by scheme trustees. Regulatory framework A code of good practice on incentive exercises (the Code) was produced by the pensions community’s Industry Working Group. Although voluntary, the Code indicates that where advisers are uneasy about conducting an incentive exercise, such concerns ought to be notified to The Pensions Regulator. The Code first appeared in June 2012, was refreshed in February 2016 (with the updated version applying to member offers made thereafter), and was accompanied by a suite of boundary examples. In November 2019, stewardship of the Code was, in effect, transferred to The Pensions Regulator, though it is uncertain whether the Regulator will continue to maintain it. For more detail, see: Status of the Code below. In July 2012, The Pensions Regulator also issued a statement on incentive exercises aimed at employers contemplating such activity, the trustees of the affected DB schemes, and the professionals advising them...

Pensions

Employer-Related Investments: 5% Limit, Loan Prohibitions, SSAS and Master Trust Exemptions, Reporting, Penalties and Regulator Approach

PRACTICE NOTES

THIS PRACTICE NOTE APPLIES TO REGISTERED OCCUPATIONAL PENSION SCHEMES As a broad principle, and subject to the governing provisions contained in their trust deed and rules, registered occupational pension schemes may invest without limits on the nature of those investments. Nevertheless, practical departures from this broad principle do exist in practice. The most significant qualifications are the constraints set out in section 40 of the Pensions Act 1995 (PA 1995) and the Occupational Pension Schemes Act (Investment) Regulations 2005, SI 2005/3378 (the Investment Regulations), which significantly curb trustees’ scope to place scheme funds in employer-related investments. These limits, which this Practice Note addresses, are intended to give clear statutory support to the general tenet that scheme assets should be kept strictly separate from the employer’s property so as to provide greater security for members. The Pensions Regulator has produced guidance concerning the limits applicable to employer-related investments. Please note that small self-administered schemes (SSASs) generally fall outside these limits—see: Which schemes are exempt? below. What are employer-related investments?...

Pensions

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