marketing notes for solicitors promoting pension law services
These notes are not advice to any person and may not be taken as a definitive statement of the law or practice 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.
Pensions are a key part of everyone’s and every business’s financial planning in spite (perhaps because of) of all the bad news around us. There are both public and private schemes to provide pensions on retirement, with increasing emphasis on private provision. The financial aspects need, it goes without saying, good independent financial advice for businesses as well as individuals, but there are also important legal issues involving pensions, where not only pension law specialist but employment, commercial, private client, family law and dispute resolution teams can offer you help and guidance.
For most private sector employers final salary schemes have ceased to be an HR function but have become historic financial liabilities. Today’ problems are to balance the demands by trustees for funding deficits and meeting regulatory requirements with the employers’ need for resources to develop their business, which can be difficult when the risk adverse caution of the former inhibits the latter’s need to take risks with an eye to the future. Accounting standards heighten business’ worries about salary related pension schemes by showing mathematically calculated deficits in balance sheets as though they were actual liabilities. Even when employers have the resources to increase what they put into their pension schemes, they might hesitate to do so, for fear that changed economic circumstances will put them into surplus which cannot be readily withdrawn.
There was a time when the canny investor buying businesses looked for companies with large pension scheme surpluses. Very rarely is that so now. When buying or selling a business or shares a key issue are whether there is a pension scheme deficit and who will be responsible for it after completion. The relatively recent backdated re-definition of “money purchase” is a trap for the unwary, because some schemes, which had been described and treated as money purchase are now under the funding regime of salary related schemes. Pensions due diligence must start early in the negotiation.
Even an internal corporate reconstruction of a group of companies can trigger a pension debt, as can the sale of a subsidiary, if other employers in the scheme have employees who remain active members.
And TUPE? The European court of Justice has shown pensions are not wholly exempt from the Transfer Regulations and that some pension liabilities can pass to the transferee even though no assets are transferred to support them. In addition, employees in an occupational pension scheme who transfer under TUPE are entitled to a pension from their new employer.
Public sector outsourcing is also fraught with pension problems. The “2007 Direction” for best value authorities, mostly local governments, and the Government’s “Fair Deal” for other public sector schemes meant that employees, who transfer to a contractor by TUPE on an outsourcing contract, or from one contractor to another, are entitled to a pension, usually final salary, matching the public sector scheme they were in before the transfer. New Fair Deal requires public sector scheme to permit contractors to participate in them, so that transferring employees can remain in their public sector schemes and contractors do not need to establish broadly comparable schemes. If the public sector scheme is funded, the contractor can be liable if there is a deficit when he contract ends or is transferred. Do enquire about the pension risks before you sign anything.
What will you provide for your employees? Auto-enrolment started in 2012 and in the two years from May 2015 applies to small (thirty or fewer workers) and micro employers (even if only one worker) and will apply to everyone from February 2018. Few, if any, people imagine that the full contribution rate of 8% of pay (initially it is only 2%) will provide adequate pensions, but how many employers, coming to pensions for the first time, and hard pressed employee will pay more? You cannot draw employment terms without considering pensions. Pensions can also be a major part of compensation calls for unfair dismissal.
private clients – mostly wills and trusts
Pensions are a part but only part of your financial planning. Family wealth and pensions is where commercial and private client work overlap. Small pensions schemes (still known as SSASs even after A-Day) let you save for your pension and, in a tax privileged environment, invent back into our business, or, say, the property in which it trades, but the limits on tax relief on pension contributions must encourage the highly paid to make arrangements outside the tax registered pension regime
Earmarking or pension splitting? The first was discredited by many before it started and is not very much used. Pension splitting is different. If can give the ex-spouse of a scheme member a share of the member’s pension scheme, and should be part of every financial settlement on divorce or settlement, clean break or with on-going financial maintenance.
Are you still suffering the aftermath of pensions misselling? Has your pension scheme let you down in some way and failed to give redress through its internal disputes resolution procedure? Do you need to make a complaint to the Pensions Ombudsman for maladministration? If as a trustee has a member complained against you? Has the Pensions Regulator threatened you with an investigation and perhaps a fine for non-compliance with some pensions regulations? These and many more matters can bring pension scheme members, trustees and employers into conflict and, as with all dispute resolution, the sooner the problem is investigated the better.