Pensions roundabout

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HMRC guidance on annual and lifetime allowances

HM Revenue & Customs (HMRC) has issued revised guidance addressing queries that have been raised about the reduced annual allowance (AA) and lifetime allowance. The Registered Pensions Scheme Manual now contains examples, including how to calculate the value of pension savings in a DB arrangement when members have tranches of benefits with different pension ages, and reducing a dependant’s pension as a consequence of a reduction to the member’s benefits to meet an AA charge under scheme pays.

However, there are still notable omissions. There is no guidance on how scheme pays applies if an AA charge arises in the year a member becomes entitled to all of his or her benefits in the scheme.

NISPI on disclosure by COMB schemes

National Insurance Services to Pensions Industry has published Countdown Bulletin Issue 5 which contains some helpful advice for those running contracted-out mixed benefit (COMB) schemes. It explains that it will not be necessary to issue a notice of intention or meet consultation requirements in respect of members who are currently contracted out under the contracted-out money purchase (COMP) section of the scheme and who will switch to being contracted out on a salary-related (COSR) basis on or after 6 April 2012. Also, the current COMB certificate will remain valid for the one COSR element of the scheme, so there will be no need for a notice of intention. The Bulletin also confirms that, for the same reason, there will be no need to surrender or vary the COMB certificate.

Where a COMP is switching to be contracted out on the reference scheme test, a notice of intention and new contracting-out certificate will be required.

Revaluation Order published

The Order setting the rates of increase to pensions during deferment for revaluation periods ending on 31 December 2011 came into force on 1 January 2012. Following the Government’s decision to use the Consumer Price Index (CPI) rather than the Retail Prices Index (RPI) for revaluation periods from January 2010 onwards, the latest Order reflects the September rise in CPI for the two years to September 2011. Earlier years continue to be based on the September rise in RPI. The increase in CPI for the year to September 2011 is 5.2%. As benefits accrued before 6 April 2009 are subject to an overall cap of 5%, and those accrued on and after that date to a 2.5% cap, the increase in deferment for the latest revaluation period ending on 31 December 2011 is 5% and 2.5% for each tranche of pension, respectively.

Annual statutory increases to pensions in payment, known as limited price indexation (LPI), are based on the percentage increase specified under the revaluation Order for the latest revaluation period subject to a 5% or 2.5% cap. The 2012 LPI rate therefore for pensions accrued after 5 April 1997 but before 6 April 2005 is 5%, and for pension accrued after 6 April 2005 is 2.5%.