22 October 2007 – O’Brien publishes plans to ease regulation
Proposals for easing the burden of regulations on employers providing pension schemes were unveiled today by Minister for Pensions Reform Mike O’Brien.
The DWP has published its response to the findings of an independent review of pensions regulation carried out by Ed Sweeney and Chris Lewin.
Mike O’Brien said:
“We believe the proposals we’ve brought forward today strike the right balance between encouraging employer provision of pensions and protecting members’ benefits.
“These measures will reduce costs and will make it easier for schemes’ rules to take advantage of specific relaxations to legislation. We want to seek further views from stakeholders on these plans before we introduce any changes, so there will be a short period of consultation.
“We have also identified further areas where regulation now needs to be carefully examined and we intend to take this forward as part of an ongoing programme of deregulation.”
The Government proposes the following measures:
- Reducing the cap on the revaluation of deferred pensions so that the maximum increase required in the value of pension rights - between a member ceasing to build up any more rights in the scheme and their scheme retirement age - would be 2.5 per cent per annum. The current cap is 5 per cent per annum.
- Introduction of a ‘statutory override’ to make it easier for scheme rules to be amended to take advantage of measures in the Pensions Act 2004 which reduced the cap for annual increases to pensions derived from benefits accrued since 2005 from 5 per cent to 2.5 per cent. A statutory override would also make it easier to make amendments to reflect any change to the cap used for the revaluation of deferred pensions.
A number of organisations asked the Government to remove the statutory requirement to index pensions in payment but the Government has rejected this move.
Mr O’Brien added:
"Removing the statutory requirement for employers to index pensions would put the value of future payments at risk, and we do not believe that would be in members' best interests. We also agree with the reviewers’ recommendation that no changes should be made which would adversely affect pension rights already accrued in schemes.”
The Government accepts there is scope for more work on other issues and as part of a rolling programme of deregulation will explore the following areas:
- The circumstances in which an employer leaving a multi-employer scheme must make a payment to the scheme under the Employer Debt Regulations.
- Principles-based legislation, starting with simpler rules on what schemes must tell members.
- Employer concerns about the existing rules on surplus funds in defined benefit schemes.
Notes to Editors
- The full Government response to the Deregulatory Review’s findings is available at: http://www.dwp.gov.uk/pensionsreform/deregulatory_review.asp
- There will be a further period of consultation on the proposals ending
on November 15. Anyone wanting to contribute to the consultation should
contact:
Ruth Saunders
Deregulatory Review, Department for Work and Pensions
3rd Floor
Adelphi
1 – 11 John Adam Street
London
WC2N 6HT
Email: adelphi.deregulatoryreview@dwp.gsi.gov.uk
Phone: 020 7712 2059
- Legislation currently requires pension schemes to protect the value of early leavers’ deferred pensions against inflation by increasing the amount of pension payable from normal pension age in line with the retail price index (RPI) over the period of deferment or by 5 per cent compound, whichever is less. This requirement has been in place since 1986.
- It is common for new mandatory legislation to override existing pension scheme rules. Trustees then update their rules to take into account new regulation at a convenient point. Difficulties occur when regulations are relaxed and pension scheme rules prevent trustees and/or employers from taking advantage of the change. The reviewers specifically recommended allowing an override to scheme rules which would enable scheme rules to be amended to take advantage of changes made in the Pensions Act 2004.
- The findings of the independent reviewers to the Deregulatory Review were published on July 25, 2007 and are available at www.dwp.gov.uk/pensionsreform/deregulatory_review.asp
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