abolition of money purchase contracting-out for pension
schemes
The Department for Work and Pensions has confirmed that it
retains its intention to abolish money purchase contracting-out
with effect from 6 April 2012, and that it is adhering to the
timetable proposed by the previous Government.
The enabling legislation is contained in the Pensions Acts 2007
and 2008. The DWP has now published a consultation document asking
for views on four draft statutory instruments. These make
consequential amendments to existing legislation required to
implement the objective of ending money purchase contracting-out.
The consultation runs until 19 October 2010.
The main purpose of the regulations and orders that are the
subject of the consultation is to remove any reference to
money-purchase contacting-out from the statutes. Money purchase
contracting-out certificates will be cancelled automatically and
there will be no requirement to treat money purchase protected
rights differently from other funds in the scheme, because the
protected rights provisions will have ceased to exist.
Generally it is good news as far as scheme administration is
concerned, but it is not quite as simple as it sounds. It is well
known that contracting-out rebates are not always paid on time, and
not always at the correct amount. In any event, rebates for the tax
year ending 5 April 2012 will have to be calculated (and corrected
in some instances!) and paid. The new regulations provide for a
three year transitional period, to allow time for resolving any
rebate payment issues. During that transitional period schemes will
remain responsible for notifying HMRC of transfers of protected
rights. After 5 April 2015 any remaining issues will be resolved
between HMRC and the member directly. To facilitate that there will
be a de minimis amount, below which HMRC will not pay any underpaid
rebate.
There will be a requirement for a one-off communication with
affected members, and the regulations specify the minimum
information to be provided.
To summarise, from 6 April 2012 money purchase contracting-out
will cease to exist, although there will be transitional provisions
to allow any discrepancies in contracting-out rebates and minimum
payments to be resolved.
