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Pensions: What's On Your Agenda?

Pensions: What's On Your Agenda?

There are three key issues that should be on every pension scheme employer’s agenda for the final quarter of 2015.

Power to return surplus to employers

Many pension schemes have a power to return surplus to their sponsoring employer even where the scheme is not in wind-up, subject to the statutory requirements being met.

From 6 April 2016 this power will be lost, unless steps are taken to preserve it.  A relatively straightforward document is all that is required, but three months’ advance notice must be given before it can be put in place.

Action: Sponsoring employers of defined benefit (DB) pension schemes should start liaising with their scheme’s trustees by the end of the year in order to ensure the statutory deadline can be met.

The abolition of contracting-out – can you recoup the additional costs?

With the introduction of the single-tier state pensions, DB contracting-out will be abolished with effect from 6 April 2016. Employers and members of schemes that are contracted-out on a DB basis currently pay reduced national insurance contributions (NICs); from 6 April 2016 they will pay NICs at the full rate.  As this will be an additional cost for employers, they will be permitted to change their scheme rules (without trustee consent) in order to recoup that additional cost.  The amendments that can be made using that statutory power are limited to increasing future member contributions, or reducing the rate of future benefit accrual; but there are other options open to employers to achieve cost savings.  Any such changes need careful planning and will take time to implement.

Action: With only six months to go until DB contracting-out is abolished, sponsoring employers of contracted-out DB schemes should assess the impact this will have on their pension costs and discuss and agree an action plan with trustees.

VAT recovery on pensions costs

HMRC’s current approach to VAT recovery on pension costs is due to end on 31 December 2015.  From 2016, HMRC has set out specific criteria which all services contracts must satisfy in order for an employer to be able to recover VAT. In future, sponsors will need to be a party to any agreement between trustees and third party service providers and advisers in order to be able to recover VAT on the relevant fees.  Various industry bodies have lobbied HMRC to extend the transitional period to allow the industry more time to meet the new requirements and have suggested an alternative to the tripartite contract proposal. 

Action: Sponsoring employers of DB pension schemes should assess the impact of HMRC’s new approach and identify any actions that need to be taken before the end of the year to enable VAT to be recovered.

For further information and assistance, please get in touch.

Sarah Phillips
Partner

LChalmers