The Pensions Minister Clears His In-Tray

Author:Mr Mark Atkinson
Profession:CMS Cameron McKenna LLP

Yesterday was a busy day at the Department for Work and Pensions. In the morning, it issued a wide-ranging consultation on dealing with small pension pots, in which it also announced the abolition of short service refunds under defined contribution occupational pension schemes. After lunch, it issued final Regulations, which come into force next month, introducing "flexible apportionment arrangements" for dealing with employer debts. This Law-Now looks at the key proposals in each area.

Transfers and small pots

This consultation seeks views on what DWP calls "a key challenge... the proliferation of small pension pots". The options being canvassed include:

ways of encouraging members to consolidate pension savings, and of reducing the cost of administering small pension pots (such as additional information to members, using simpler transfer forms, requiring schemes to accept transfers-in or reducing the fixed costs of administering pots); automatically transferring small pension pots to one or more "aggregator" schemes (possibly including NEST) when a member leaves service; or automatically transferring pension savings so they follow an individual from job to job. Government is intending to report back next summer, with a view to making firm proposals for reform later in 2012.

The abolition of DC short service refunds

Under current rules, a member is entitled to receive a refund of pension contributions if he or she leaves an occupational pension scheme within two years of joining it. The DWP says that it will amend existing preservation requirements by abolishing short service refunds under DC occupational schemes altogether.

In contrast to the relatively open consultation on small pots, this decision is clearly already made. The DWP claims that the existing rules "jeopardise pension savings for low to median earners and have no continuing role in an automatic enrolment world".

Government intends to implement abolition by 2014, but accepts that this is likely to be dependent on having arrangements in train for dealing with small pots by that time.

Flexible apportionment arrangements

A flexible apportionment arrangement is a new method of dealing with debts under section 75 of the Pensions Act 1995 that might otherwise arise on a corporate group restructuring. No "employment cessation event" triggering such a debt will be treated as occurring, so long as certain conditions are met which include:


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