deeds and rules after A-Day
by Roderick Ramage, solicitor, www.law-office.co.uk
first published on 9 May 2006
This article is not advice to any person and may not be taken as a definitive statement of the law in general or in any particular case. The author does not accept any responsibility for anything that any person does or does not do as a result of reading it.
From A-Day (6 April 2006) the Revenue limits on contributions and benefits and the earnings cap ceased to apply and were replaced by a lifetime allowance £1.5m and an annual allowance £215k, which apply to all types of registered schemes, whether final salary or money purchase and whether occupational or personal. Most pre A-Day publicity focussed on highly paid minority, who may have needed to take immediate financial advice to protect their pension funds, particularly if their existing pension schemes are worth around the lifetime allowance or are over it. Our attention now is on the more mundane question: What to do with the pension scheme now?
Employers with occupational schemes and scheme trustees have a great deal to do. Administration systems will need to be reviewed and both money purchase and final salary pension scheme deeds and rules may need to be altered to reflect not only A-Day but other changes, made by the Pensions Act 2004, the Civil Partnership Act and “family friendly” employment policies. For example, changes may be made to scheme rules to take advantage of some relaxation in the Revenue rules, for example:
- earnings cap removed (or a new one fixed by employers);
- members’ contributions of 100% of earnings up to the annual allowance;
- pensions not limited to 2/3rds final salary;
- death in service life assurance can be any amount up to the lifetime allowance;
- tax free lump sum on retirement of 25% of the member’s fund including AVCs; and
- flexible retirement, ie taking all or part pension while continuing to work full or part time.
If no action is taken the existing revenue limits will remain in force until 2011. This is a long transitional period, but, as delay will cause pension schemes to become increasingly out of line with current practice, employers who wish to take advantage of the changes in law should act sooner rather than later.
In addition members should be notified of the changes, and members’ booklets will need to be revised and reissued even if the employer does not alter the trust deed and rules.
copyright Roderick Ramage
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