Not a lot of people know that...

Topic:

Legal & governance

Date published:

Thursday, 12 November 2015

Author:

Gillian Graham

In the horribly technical world that is pensions, things can easily pass by unnoticed. There are a couple of good examples right now. Neither is earth shattering – and one involves scheme surplus, which is a distant dream for most – but trustees do need to look at both now.

First - surpluses. The Pensions Act 2011 introduced a five year period in which pension schemes (established before April 2006) could amend their rules to enable surplus to be repaid to the sponsoring employer. Most schemes that wanted to do something on this will have done so already but, as the five year period ends on 5 April 2016, and there is a three month consultation requirement, now is the time to check.

Second - guaranteed minimum pension (GMP) increases (I didn’t promise they would be exciting). The end of contracting out is a current issue for many defined benefit (DB) pension schemes. One knock on from the new legislation and the introduction of the new single-tier State pension that doesn’t seem to have had much coverage is the change to the payment of inflationary increases on GMPs.

Currently, the government funds all inflationary increases for pre 88 GMPs and the excess over 3% on post 88 GMPs. For individuals reaching state pension age on or after 6 April 2016, these state funded increases will fall away. Although this won’t affect most pension schemes, trustees should ensure wording regarding GMP increases is clear and accurate in all member communications, including benefit entitlement letters, pension increase letters etc. It is also sensible to flag the issue in your next pension scheme newsletter as existing pensioners may also be affected if they have not already reached state pension age before the single-tier state pension is introduced.

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