Pensions news — November 2013
The new definition of ‘money purchase benefit’ is due to come into force in April 2014 with retrospective effect from January 1997. Recognising that this could have serious consequences for schemes that have been operating since 1997 on the basis that they were money purchase schemes (or schemes that provided some benefits on a money purchase basis) but that will not fall within the new definition, the Department for Work & Pensions (DWP) has issued a consultation on provisions limiting the retrospective effect of the change.
The main issue relates to schemes that provide ‘cash balance benefits’ or scheme pensions derived from cash balance or money purchase benefits. These schemes may have operated on the basis that they were money purchase schemes and/or provided money purchase benefits. The consultation document suggests that ‘cash balance benefits’ include benefits that have a promise of an amount linked to salary or a guaranteed interest rate. The change will also apply to schemes operating on a defined-contribution basis but offering internal annuities.
The draft regulations are broadly aimed at protecting decisions trustees of affected schemes made up to 27 July 2011 (and in some areas up to April 2014). What they do not seem to cover (other than in relation to those schemes winding up on or after 6 April 2005) are schemes operating an underpin or top-up (typically by reference to GMP or former protected rights)…
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