It has published the final amendments to the draft regulations governing pensions. The employment aspects of the rules were introduced on October 1, but the rules were delayed for pensions amid widespread confusion over the implications for existing schemes.
The amendments build on earlier tweaks designed to give pension trustees and employers more leeway on the rules.
The amendements will allow trustees to pay different contributions to personal pensions and defined contribution occupational schemes based on an employee’s length of service. But the difference must be justified where the member being discriminated against has more than five years service.
Standard Life marketing technical director Andy Tully says this provision will make it difficult to operate a scheme which makes different contributions based on length of service.
He argues the prospect of a legal challenge may also force employers to change their schemes. If a challenge is successful, he says employers would have to retrospectively level up their schemes to when the rules were introduced, which would be hugely costly.
He says: “Employers may not sleep easy with this potential threat hanging over them so changing the scheme now may well prove more attractive.”
The CBI meanwhile has welcomed the amendments but called for further delay as it argues employers will find it impossible to meet the December 1 deadline.
This week Jupiter called for an end to the life office monopoly on contracted out pension funds, arguing the industry has done a mediocre job looking after the money.
Jupiter pensions development manager Jamie Fergusson says there is no reason why the millions of pounds in funds from people who have contracted out of the second state pension should not be channelled through the open market.
Fergusson says it is unfair that people who would be better off investing their money in a Sipp are forced to keep some of their pension in poor or average performing with profits policies.
Fergusson says this can be particularly frustrating for customers that want to go into income drawdown and need to consolidate their pensions pots.
He also argues the restriction is inconsistent with recent pensions reform which allows people to take more control of their assets.
In response, the ABI points out Jupiter has missed the boat by about ten years as the Government is going to abolish contracting out anyway. A spokesman argues the stated aim behind contracting out has always been to ensure there is no advantage in staying in or contracting out. It was also to encourage private saving, he says, not to encourage different types of investment.
Standard Life claims to have spotted another wrinkle in A-day rules which will cause people to lose tax free cash.
The problem arises where a person has a protected tax-free lump sum in one scheme and a basic 25 per cent tax-free lump sum in another.
Standard Life marketing technical manager Andy Tully says this is common, with more than half of the members in Standard’s occupational pension schemes having more than 25 per cent tax free cash at A-day.
Many of these people will also have another contract, such as a free standing additional voluntary contribution or personal pension scheme, which pays a 25 per cent lump sum.
If the person decides to transfer one of these contracts to the other, or amalgamate them both into a new scheme, then they will lose tax-free cash unless they pay an additional contribution into the new scheme. Tully says this type of transfer is a fairly common as people combine all of their pension money into one new contracts, such as a Sipp, for ease and simplicity.
Tully says this again shows that pensions simplification is anything but simple. He says: “Tax free cash sums are one of the major benefits of pensions, and people don’t want to lose out. So it is vital that advisers are aware of the nuances surrounding tax free cash protection on offer. Fortunately, paying an additional contribution to the new scheme will often solve the problem.”