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Steve Bee on pensions

I thought it would be useful to look at the Pensions Act 2004 and put down a brief summary of what is going on with it and what we can expect to happen next. A sort of story so far, if you like.

The Pensions Act is really trying to do a number of different things at once. It is establishing the new Pension Protection Fund, changing the way pension schemes are funded, bringing in a new regulator for occupational pension schemes and completely rejigging the make-up of the trustee boards of occupational schemes too.

On top of all that, it has to change the way all existing pension schemes work so that they will dovetail neatly with the new tax rules coming in on A-Day because of the Finance Act 2004. Much of the detail of how all this is going to work is still up in the air and there will be loads of regulations coming out throughout 2005 and 2006.

The first key date will be April 6 when Opra bites the dust and is replaced by the new pensions regulator. Also in April 2005, the Pension Protection Fund will finally be with us after all the talk of the last few years. We will also get the Financial Assistance Scheme coming out on April 6. This is sort of a pension protection fund for people who have missed out on the fund but it has some fairly serious funding problems. Although it is coming out in April, the FAS looks likely to be backdated to January 1, 1997 but a lot of the detail on that is a bit unclear at the moment.

Also on this subject, we are expecting some so-called “moral hazard” provisions to be introduced in April that will retrospectively stop employers walking away from their pension commitments. These will be backdated to April 27, 2004.

The reduction of statutory increases on pensions in payment from 5 per cent to 2.5 per cent will also kick in on April 6 but you will need to be a member of Mensa to understand which schemes it applies to and how. We’ll have the new pension scheme wind-up priority order to look forward to this April as well.

Also in April, we will see all the new stuff regarding company takeovers, where the workers of the company taken over have new rights as to the pensions they can expect from their new employer.

There will be loads of other bits coming out in April 2005, too, but that’s about it for the headlines. The next big date for our diaries pension-wise (unless we get further changes in this year’s Finance Act in July) will be September 2005. This is when all the stuff in the Pensions Act that is meant to comply with a European Union directive has to be put on our statute books.

Steve Bee is head of pensions strategy at Scottish Life

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