NO. 4 9TH MARCH, 2006
In this issue:
♦ PPF: risk based levy: update and key dates ♦ Cross border guidance
♦ General and PPF administration levies 2006/07 ♦ Tax Simplification : regulations made
: protection of rights on transfer, reorganisation and winding-up : Newsletter No. 10
♦ Contracted-out rebates from 2007
♦ Part-time workers: Matthews v Kent & Medway Towns Fire Authority ♦ Age discrimination: statutory redundancy payments
FOCUS: TUPE Regulations 2006.
Legal and regulatory developments in Pensions and Employment
slaughter and may
**PENSIONS ACT 2004**
PPF: risk based levy: update and key dates
On 28th February, 2006, the PPF published on its website its response to the second pension protection levy consultation that took place in December, 2005. It also published its final Determination under Section 175(5), setting out the precise rules that will govern the PPF levy for 2006/07.
The response document details final refinements to the PPF Board’s proposals for calculating the risk based levy, namely: ♦ for the 2006/07 levy year, Section 179 valuation
certificates can be submitted more than 1 year after the effective date of the valuation. They must still be
♦ the “parental severe risk” override of the Dun and Bradstreet failure score methodology will be ignored for the 2006/07 risk based levy calculation; the insolvency risk of a subsidiary will be used, even where it has a weak parent, and
♦ the PPF will not recognise credit default swaps for the 2006/07 levy year; it is working on standard documentation that should be available to ensure that they can be recognised next year.
On 3rd March, 2006, the PPF Board published an updated guidance note on contingent asset arrangements, and additional answers to FAQs concerning contingent assets.
slaughter and may 2
structure can only have a positive or neutral impact on the risk based levy calculation),
♦ Section 179 valuation (optional for 2006/07), and ♦ Contingent Asset forms.
The deadline for special cash contribution forms is 7th April,
2006 (allowing for contributions made up to 31st March, 2006
to be taken into account).
Cross-border guidance
On 2nd March, 2006, the Pensions Regulator announced that it has “clarified” its guidance for cross-border schemes following negotiations with the DWP.
Changes have been made to the requirements that must be satisfied in order for members working overseas to be treated as on “secondment”. New sections have been added on withdrawing an application for approval to operate cross-border and revocation of authorisation and approval.
Comment: Although the Regulator has relaxed the conditions to be satisfied by persons on secondment, in particular as to: ♦ the length of the secondment period, and
♦ the distinction between secondments in place on 29th
December, 2005 and those which take place after 29th
December, 2005
in our view it is not safe to rely on that guidance as it is not clear that it amounts to proper implementation of the Pension Funds Directive in the UK.
The guidance document is available at www. thepensionsregulator.gov.uk/trustees/crossBorder/index
General and PPF administration levies 2006/07
On 15th February, 2006, the Secretary of State for Work and Pensions, John Hutton, announced that there will be no increase in either the Pensions Regulator General Levy rates or the PPF administration levy rates for 2006/07. Rates will remain at the 2005/06 level as set out in the table below.
General/PPF Administration Levy Rates for 2006-07
Number of Members General Levy (for occupational pension schemes) PPF Administration Levy
2-11 £24.00 per scheme £24.00 per scheme
12-99 £2.50 per member £2.50 per member
100-999 £1.80 per member, max £250 £1.80 per member, max £250 1,000-4,999 £1.40 per member, max £1,800 £1.40 per member, max £1,800 5,000-9,999 £1.06 per member, max £7,000 £1.06 per member, max £7,000 10,000+ £ 0 . 7 4 p e r m e m b e r, m a x £10,600 £0.74 per member, max £10,600
**TAX SIMPLIFICATION**
Regulations made
The following sets of regulations under the Finance Act 2004 were made on 28th February, 2006:
The Taxation of Judicial Pensions (Consequential Provisions) Order 2006 (SI2006/497) (making consequential amendments to judicial pensions legislation to reflect the fact that the judicial pension schemes will not be registered pension schemes from 6th April, 2006).
The Pension Schemes (Block Transfer) (Permitted Membership Period) Regulations 2006 (SI2006/498) (prescribing the period of 12 months as the period during which a member is permitted to have been a member of a transferee pension scheme on a bulk transfer if he is not to lose protections (for example the right to retire before age 55) available in the transferor scheme).
The Pensions (Transfer of Sums and Assets) Regulations 2006 (SI2006/499) (providing (i) that a transfer of sums or assets in respect of a scheme pension from one registered pension scheme to another is a “recognised transfer” with the new scheme pension being treated in the same way as the original scheme pension and (ii) that a new scheme pension payable by an insurance company following a transfer of sums or assets is to be treated as the original scheme pension for the purposes of benefit crystallisation).
Protection of Rights on a Transfer,
Reorganisation or Winding-up
On 2nd March, 2006, HMRC published a revised draft of the
Pension Schemes (Transfers, Reorganisation and Winding-up) (Transitional Provisions) Order 2006.
The Order preserves the protection of certain pre A Day rights in the event of two particular types of transfer from one pension scheme to another.
First, any right to take benefits before the normal minimum pension age is protected in the event of a transfer under the TUPE regulations having taken place between 10th December,
2003 and A Day.
Under the revised draft, protection of rights to take benefits before the normal pension age is also now maintained where a sponsoring employer has reorganised its pension schemes during the period between 10th December, 2003 and A Day.
The protection on the winding-up of the scheme also now applies where winding-up has commenced (but not concluded) before A Day.
The draft regulations are available from HMRC’s website (www.hmrc.gov.uk/pensionschemes/annex-a.htm).
Pensions Tax Simplification Newsletter No. 10
This was published on 28th February, 2006.
Annexed to the newsletter is a tabular summary of the options available at A day for submitting information to HMRC and amending information held by HMRC. The final versions of all the forms noted in the table will, apparently, be available on the HMRC website at A day.
The newsletter also sets out how to claim relief at source after 6th April, 2006, including transitional arrangements for claims
for periods up to 5th April, 2006.
The newsletter also deals with transfers to overseas schemes that are made after 5th April, 2006, noting that transfers to
schemes established in Ireland, the Isle of Man, Jersey and Guernsey will be subject to the new rules in the same way as other overseas schemes. HMRC announced on 22nd
February, 2006 that its reciprocal transfer agreement with those jurisdictions will be terminated with effect from 6th April,
2006.
The newsletter also lists (and summarises) the regulations that were laid during February, 2006.
The newsletter is available from www.hmrc.gov.uk/ pensionschemes/newsletter10.htm.
**OTHER NEW LAW**
TUPE Regulations 2006
slaughter and may 4
Contracted-out Rebates from 2007
On 2nd March, 2006, the Government announced the
contracting out rebate rates that will apply from 2007. For defined benefit occupational schemes the total (employer and employee) occupational rebate rises from 5.1% to 5.3%.
For defined contribution occupational schemes:
♦ the age related rebate cap falls from 10.5% to 7.4%, and
♦ the rebates below the cap will be increased between 0.5% and 1.9%.
The Government will consider whether the rebate rates will need to be reviewed again in light of decisions on the long term future of contracting out in the Pensions White Paper to be published “in the Spring”.
**CASES**
Part-Time Workers: Matthews v Kent and
Medway Towns Fire Authority
On 1st March, 2006, the House of Lords, by a majority, allowed
the appeal of 12,000 part-timer retained firefighters, holding that they had been unlawfully discriminated against in relation to their terms and conditions as compared to full-time firefighters. Their Lordships found that both sets of workers were employed on the same type of contract and were engaged in the same or broadly similar work.
The Part-Time Workers (Prevention of Less Favourable Treatment) Regulations 2000 (the “Regulations”) give part-time workers the right not to be treated by their employer less favourably than the employer treats a comparable full-time worker.
Under the Regulations, part-time workers and full-time workers are “comparable” if they are:
♦ employed by the same employer under the same type of contract, and
♦ engaged in the same or broadly similar work.
The part-time firefighters claimed that there was a difference between them and full-time firefighters employed by Kent and Medway Towns Fire Authority in that:
♦ there were differences in the way their sick pay was calculated,
♦ they were paid a lower hourly rate for additional duties, and
♦ they were excluded from the pension scheme. The Employment Tribunal and EAT both found that the part-time firefighters were employed under a different type of contract than the full time firefighters so it was lawful for the employer to treat them differently.
On appeal, the Court of Appeal held that both types of worker were employed under the same type of contract but that the two types of workers were not engaged in the same or broadly similar work. They therefore dismissed the firefighters’ appeal.
The House of Lords agreed with the Court of Appeal that both the part-time and full-time firefighters were employed under the same kind of contract. Further, since the main purpose of the jobs of both part-time and full-time fighters and the majority of their main duties and responsibilities were the same, they were engaged in the same or broadly similar work. To treat them less favourably was a breach of the Regulations.
**POINTS IN PRACTICE**
Age Discrimination: Statutory Redundancy
Payments
In a written statement to Parliament dated 2nd March, 2006, the
DTI has stated its view that the current statutory redundancy pay scheme, which contains three age bands, giving greatest financial support to older workers and those with long service, will not fall foul of the new age discrimination legislation which will take effect on 1st October, 2006.
The Government has gathered evidence demonstrating that older workers who are made redundant face a particularly difficult position in the employment market, being much more likely to become long term unemployed and to experience
a substantial fall in pay when they do find a new job. The Government therefore believes it is sensible for the level of support provided through the statutory redundancy pay scheme to reflect the existing pre-categories of “young”, “prime age” and “older workers”. A system using a single multiplier would leave a significant group of older workers substantially worse off than at present.
The EU Framework Directive, which prohibits age discrimination, provides for the possibility of member states providing for different treatment on the grounds of age where this difference is objectively and reasonably justified by a legitimate aim, including employment policy. The Government is confident that retaining the age bands is so justified. It has, however, decided to remove the lower and upper age limits in the redundancy scheme (18 and 65 respectively) and the taper at the age of 64 because it believes, as employees are
living and working longer, these cannot be justified under the Directive.
**MISCELLANEOUS**
Client Seminar Cancelled
Extreme pressure of work ahead of the introduction, on 6th
April, 2006, of Pensions Tax Simplification and the next raft of changes made by the Pensions Act 2004, has forced us to cancel the client seminar scheduled to take place on 21st March,
2006. We apologise for any inconvenience caused to those who had booked places.
The next seminar will take place on Tuesday 20th June, 2006. Further details of the subjects we expect to cover will be sent out with the next issue of the P&E Update.
