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Action plan to the rescue

Employers with occupational schemes have a new tool to help solve A-Day issues

It is an excellent document for three reasons. It sets out a framework which employers and trustees can use to tackle their A-day issues, it gives a list of what the key A-day issues might be and, because it is produced by the Pensions Regulator, nobody can accuse it of commercial bias.

The framework for tackling the A-day issues is a five-point action plan. The first point reminds trustees, “to keep up-to-date with changes to the law such as this,” and suggests that employers and trustees talk to their advisers about the changes.

The briefing is silent on the possibility that for very small schemes the trustees knowledge and understand- ing requirements may be relaxed.

The second point explains, crucially, that in many cases the scheme’s documentation will need to be changed in order to make use of the flexibility the new regime allows. Examples given include tax-free cash, death benefits and minimum retirement age – all fundamental aspects.

The list also explicitly includes two references to HMRC’s new reporting regime, as it refers separately to “scheme administrator” and its responsibilities, and to HMRC’s new online services and registration requirements. When the trustees investigate these issues they will find that the default option is for them to become “scheme administrator”. Having understood the potential liabilities of this function, I suspect they will start looking for someone else to take it on. I predict that they will not find that an easy buck to pass.

Under the third point – agreeing what changes are going to be made – there is a very interesting observation that, “employers will want to assess the appropriateness of their current pension arrangement and trustees will need to consider their fiduciary duties to the scheme members”.

I suspect that in a number of money purchase cases the employer will conclude that an occupational pension scheme is not the best way forward. Whatever the decisions, the briefing suggests the changes should be agreed in good time. Given that A-day is less than six months away, I suggest that time is now!

This urgency is emphasised under the fourth point – implementing the changes – where the briefing suggests that for members retiring in April 2006, communication may be needed in October 2005! The fifth point is about making sure employees and scheme members understand how the changes affect them.

The Pensions Regulator has no agenda for creating structural change in occupational pension schemes but by publishing this very helpful briefing it is highlighting the issues which I believe will cause many employers to think along those lines.

I can envisage many specialist pensions advisers using this briefing with their occupational pension scheme clients.

Finally, what is the Pensions Regulator saying about contract-based schemes? The briefing does not promise a separate publication to cover these, but simply says, “Briefing No. 3 does not cover stakeholder or personal pension schemes so employers with these types of schemes should talk to their provider”.

You can draw your own conclusions about where the Pensions Regulator sees the biggest risks.

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