‘Memorable’ Pensions Bill holds hidden quirks

The 2011 Pensions Bill is currently progressing through Parliament
The 2011 Pensions Bill is currently progressing through Parliament

The publication of the 2011 Pensions Bill has provoked wide-ranging reactions from the industry, with Punter Southall dubbing it one of the most significant ever.

The Bill implements a wide range of controversial changes to the pensions and benefits system, from auto-enrolment to the switch from RPI to CPI.

Sackers, the law firm, argues the Bill allows for the RPI to CPI switch to potentially be made retrospectively.

A Punter Southall spokesperson says: “2011 joins the list of years we will remember for their Pensions Bills. Perhaps 2011 is not as vintage a year as 1995, 2004 or 2008 in that it does not contain any sweeping new pensions concept such as the Pensions Regulator or the Employer Duties regime, but the Pensions Bill published today does contain a number of important amendments to the existing pensions legislation.

“It implements a number of the recommendations of the independent review of automatic enrolment, it amends the legislation on pension increases to prevent schemes with RPI in their rules having to pay the better of RPI and CPI and it also contains the promised legislation to clarify the legislation on the payment of surplus to employers.”

Zoe Lynch, partner at Sackers & Partners says: “We already knew from the consultation paper published on 8 December 2010 that the Government were not going to insist on a CPI underpin being provided for members who had a right under the scheme rules to increases based on RPI. But we now know the mechanism for making the switch from RPI to CPI means that a scheme, if it decides to opt-out from the statutory method of making increases, by way of the Revaluation Orders, can choose to offer increases on either CPI or RPI.

“But, crucially, it can only offer RPI-based increases, provided that the rules require and have always required increases based on RPI since the “beginning of 2011” for pensions in payment before 2011. The date is uncharacteristically vague for legislation, begging the question of when the beginning of 2011 actually is – 1 January or perhaps another, as yet unspecified, date? Thankfully if the pension isn’t yet in payment, the limitation is clearer – pensions that have not yet come into payment must have this limitation applied from the date they come into payment.”

Robin Hames, head of technical at Bluefin Corporate Consulting, says: “The new Pensions Bill is not the nemesis of workplace pensions.

The risks of levelling down were already introduced by the previous Bill three years ago, but in-depth studies indicate that most employers would maintain existing levels if it is easy to do so.

The generally accepted view is that this is more likely to create a shift in remuneration as employers will put more into pensions and gradually less into workers’ pay packets over the course of time.

One of the main features of this new Bill actually makes levelling down less likely – the new system of certification will make it easier for employers with existing good schemes to maintain them.

“The Bill also introduces the easements recommended by the automatic enrolment review panel and, in a surprise move, takes cash balance schemes out of the indexation requirement.

Maybe we’ll eventually move to a more flexible framework for risk-sharing schemes.”