Pension News 01/06

January 15th, 2006 by JCB
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PENSION NEWS

This is a summary of my presentation given to the UKMPA at their annual conference held in Maidstone in November 2005.

PNPF 2005

Last November when I said that we would hit the floor running in 2005 I was not mistaken although not all our running was in straight lines and occasionally we ran in circles and sometimes it felt like we were disappearing up the proverbial. 2005 has seen meetings, changes and loads of training just in case we were getting bored.

Considering the amount of time the Trustees have had to dedicate to the Fund

this year it makes you ask: Who wants to be a Trustee?

Following Maxwell’s nose dive from his yacht pension reforms started coming through thick and fast in the form of the Pensions Act 1995, the Myners’ Review, and the Pension and Finance Acts 2004.  The upshot is the role of a scheme trustee in 2006 will be unrecognisable from what it was in 1986 and even 1996. Gone are the days of meetings only lasting until lunchtime.

During the course of 2005 the Trustees

have attended 4 quarterly Trustees’ meetings, 4 meetings covering the valuation, investment strategies and training, 1 beauty parade and a subcommittee meeting twice to discuss tax simplification. In addition to the extra workload, from April 2006 the Pensions Act 2004 legally requires Trustees to know and understand the law relating to pensions and trusts, general funding and investment principles, as well as being conversant with scheme documentation. Failure to do so could result in personal liability.

In relation to the Fund the Trustees will be required to be conversant with the Trust Deed and Rules; the Statement of Investment Principles; The Statement of Funding Principles; the Annual Report and Accounts and the Scheme booklets.

In addition they must have appropriate knowledge and understanding of the law relating to pensions and trusts; the principles of funding occupational pension schemes; and the principles of investing the assets of occupational pension schemes.  To assist in this The Pensions Regulator (TPR) is issuing a Code of Practice setting out the parameters of knowledge and understanding involved.

Tax Simplification

One of the subjects exercising the minds of the trustees this year was tax simplification.  After much deliberations the measures the trustees have decided to adopt, from 6 April 2006, are as follows:

Additional Voluntary Contributions

From April 2006 the trustees have decided to only offer the Open Market Option to members deciding to take all or part of their AVCs as an annuity. This means the ability to purchase an additional pension from the Fund will no longer be available.

On the upside, following clarification in the 2005 Finance Act members can take 25% of the value of their benefits from each pension arrangement, meaning the AVCs can now be considered together with the main scheme benefits. In simple terms all AVCs members will be able to take at least 25% of their AVC fund as cash, and possibly all of it, to the extent that it is no more than 25% of the total value of benefits provided through the Fund.

Lifetime Allowance (LTA)

This has been touched on previously but in order to determine whether members will require Enhanced or Primary Protection Aon Consulting are carrying out an exercise to determine which members may have benefits in excess of the current LTA, or may exceed the LTA should they continue to NRA.

In addition active members have been sent, by the Secretariat, a form for completion to ensure that all your benefits are taken into account when calculating the total value of your benefits.

Pension Commencement Lump Sum

(PCLS)

I do not know why the powers that be felt the need to change the name of the taxfree cash sum, maybe they thought the Inland Revenue would leave it alone if the took away the words tax-free.

Members will now be able to take 25% of the total value of their benefits as a lump sum, although it is not really 25% that is just to confuse you. The maximum cash sum can be expressed as:

Pre Commutation Pension x 20 x 10 20 + (3 x 10) (10 being the Fund’s commutation factor).

This sum must not exceed:

º (PCLS + (Residual Pension x 20).

This is after all simplification!

Five Year Guarantee

This remains the same but will now be known as a Defined Benefits Lump Sum Death Benefit.

Flexible Retirement

The Trustees have agreed to allow members to draw their PNPF benefits whilst remaining in pilotage, with the proviso that no future benefits will accrue in the PNPF and your CHAs agreement would be necessary to avoid any manpower issues.

Children’s Pensions

Children’s pensions that become payable after 06.04.2006 will have an upper age limit of 23 if remaining in full-time education this has been reduced down from age 25 currently permitted under the Rules.

PNPF Rules

Two changes in PNPF Rules arising from the Valuation were effected in June 2005. A new Rule 14(4) allows the Trustees to seek additional funding from an employed port should they cease to have PNPF pilots and wish to cease participating in the PNPF to cover the CHAs portion of the deficit. The second is a new Rule 19(3) which apportions a member’s service between the pre 01.08.05 and post 01.08.05 retirement ages.

Pensions Act 2004

Key provisions of the Pensions Act 2004 came into force on 6 April 2005.

The Pension Protection Fund (PPF) was established.

The Financial Assistance Scheme (FAS) was established.

The pensions Regulator (TPR) was

established in place of OPRA.

New minimum compulsory increases in pensions in payment for service after 6 April 2005 will be the lesser of 2.5% or the increase in the Retail Price Index. (This has not been adopted by the Trustees).

Armageddon (not the end of the World)

A recent survey carried out by YouGov on around 2200 people showed that while 16% knew A-Day referred to the new pension tax simplification regime, around 11% thought it was the day the world would end. A further 46% thought A-Day stood for Armistice Day and 19% said it was the day A-Level results were published.  Communication is obviously not the pensions’ media forte!

Debbie Marten

Debbie@pnpf.co.uk