Scheme pension: IFAs in state of purgatory
The Government has been accused of leaving IFAs and pension providers in “a state of purgatory” after an amendment to the Pensions Bill reclassified scheme pension arrangements as defined benefits.
Last week, Money Marketing revealed the amendment risked killing off the market for scheme pension by forcing them to comply with DB funding regulations.
This would include completing a funding valuation every three years, having a deficit correction plan if the scheme is in deficit and paying the Pension Protection Fund levy.
On Friday, the Department for Work and Pensions said it could introduce new regulations to address any “adverse consequences” resulting from the legislation. A spokeswoman says: “The amendment to the Pensions Bill gives flexibility to make further regulations if necessary to avoid any adverse consequences. We have given ourselves some space to make further regulations should we need to.”
The DWP was forced to clarify its definition of a money-purchase scheme following a Supreme Court ruling in the Houldsworth v Bridge Trustees case.
The court ruled that the Home Decor pension scheme was money-purchase despite the fact that it promised certain levels of benefits and was therefore capable of developing a deficit. The DWP’s amendment was designed to remove any uncertainty caused by the ruling.
Standard Life head of pensions policy John Lawson (pictured) says: “I think the DWP has blundered into this. It has made scheme pension defined benefits and if you are going to provide a defined benefit, you have got to fully fund it.
“If the DWP does not want the principles of Bridge Trustees to apply, it can make regulations exempting scheme pensions paid by these schemes. That way, they would return to being moneypurchase benefits and exist in the grey area they are in today. By making this amendment, the DWP has left both IFAs and providers in a state of purgatory.”
Following news of the amendment, Sipp and SSAS provider trade body the Association of Member-directed Pension Schemes released a statement suggesting the impact would be small because current DB funding regulations only apply to occupational pension schemes and would exclude SSASs with fewer than 12 members.
James Hay head of technical support and Amps honorary secretary Neil MacGillivray says: “The reclassification is likely to have little effect on scheme pensions provided through Sipps and most SSASs. The basis for this is that many of the onerous aspects of pension legislation relate to occupational schemes only and therefore do not impact on Sipps. Where an occupational scheme has fewer than 12 members and all the members are trustees, as is the case with most SSASs, then again, the burden of legislation is diminished somewhat.”
But Lawson says the new legislation would appear to catch all SSAS and Sipp scheme pensions as their exemption from solvency requirements was only granted because at the time they were just providing money-purchase benefits.
Radcliffe & Newlands chartered financial planner Mel Kenny says: “If legislation changes again for scheme pensions, this would be another death knell for people’s confidence in pensions.
“If the signal is that the goalposts will be forever changing, planning paralysis will prevail, making us all worse off.”
Worldwide Financial Planning IFA Nick McBreen says: “Policymakers tend to make life difficult for advisers and their clients by constantly changing legislation. We can do due diligence in terms of the current state of play but if the Government changes the rules, then, all of a sudden, the decision you have taken might look very different.”