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Transcript of The Pensions Regulator The latest from the regulatory front line Terry Saeedi, Matthew Ambler, Ruth...
The Pensions Regulator
The latest from the regulatory front line
Terry Saeedi, Matthew Ambler, Ruth Bamforth and Ian Devlin Eversheds Hilton Hotel, Belfast21 March 2011
Agenda
• The effectiveness of the anti-avoidance regime• Case study• Legal round-up:
– Latest developments in the Republic of Ireland– Latest developments in Northern Ireland
The effectiveness of the anti-avoidance regime
• Anti-avoidance: a quick reminder• Anti-avoidance in practice• The effectiveness of anti-avoidance• Anti-avoidance: where next?
Anti-avoidance : a quick reminder (1)
• Regulator has power to issue:– Contribution notices (CNs)– Financial support directions (FSDs)
• Designed to protect members’ benefits and PPF• Clearance regime
Anti-avoidance : a quick reminder (2)
• CN may be issued, where reasonable, to party to act/failure which:– Had a materially detrimental impact on DB
scheme’s ability to pay accrued benefits; or– Was designed to avoid or reduce a section 75 debt
• Covers employers, directors and other group companies• Material detriment code of practice
Anti-avoidance : a quick reminder (3)
• FSD may be issued on person connected or associated with sponsor which is:– A service company; or– Insufficiently resourced
• FSD only issued where reasonable• FSD require Regulator-approved financial support until
scheme wind-up
Anti-avoidance in practice (1)
• CN: Bonas Group• FSDs:
– Sea Containers– Nortel Group– Lehman Brothers Group
Anti-avoidance in practice (2)
• Bonas Group:– Bonas trading at a loss– Bonas placed into pre-pack insolvency– Regulator concluded Bonas unsustainable due to
pensions liabilities– Regulator declined imposing CN against individuals
Anti-avoidance in practice (3)
• Bonas Group– Upper Tribunal preliminary judgment– Upper Tribunal final judgment awaited
Anti-avoidance in practice (4)
• Sea Containers– First FSDs issued against Bermudan SCL– UK subsidiary (SCS) was service company– SCL ceased participation in UK schemes– Trustees contacted Regulator– Reasonable to issue FSD– Parties agreed financial support despite SCL and
SCS in US Chapter 11
Anti-avoidance in practice (5)
• Nortel Group– Nortel global network operated as single entity– Group went into insolvency– History of contribution holiday led to deficit– Parent refused to let Nortel UK agree contribution
schedule
Anti-avoidance in practice (6)
• Nortel Group– Regulator litigation in US/Canada– Insufficiently resourced test satisfied– Reasonable to impose FSD– Further litigation
Anti-avoidance in practice (7)
• Lehman Brothers– Complicated corporate structure– Companies operated in “closely integrated fashion”– Parent companies controlled sponsoring employer– Reasonable to impose FSD– Further litigation
Anti-avoidance in practice (8)
• Nortel and Lehman: the latest– Both in insolvency– High Court decision on FSDs and companies in
insolvency:• FSDs can be imposed• FSD ranks as administrative expense
– High Court decision appealed– FSD appeal on hold
The effectiveness of anti-avoidance (1)
• FSDs and companies in insolvency• Enforcement overseas• Timing issues
The effectiveness of anti-avoidance (2)
• FSDs and companies in insolvency– Many issues as result of High Court decision– Administrators/liquidators may be reluctant to take
appointments– Banks may have concerns
The effectiveness of anti-avoidance (3)
• Enforcement overseas– FSD does not itself impose enforceable liability– Ease of enforceability depends on the jurisdiction– Regulator considers no difficulty enforcing in EU– Jurisdictions outside EU may be problematic
The effectiveness of anti-avoidance (4)
• Timing issues– Years before cases finally decided– Is there any money left?
Anti-avoidance: what next?
• Pensions Bill changes to time limits– Currently time limits end with Determinations Panel
decision– Bill provides time ends with Regulator warning notice
Legal round-up
• Latest developments in the Republic of Ireland• Latest developments in Northern Ireland
Background to Recent Developments
• National Pensions Framework • Deepening banking crisis • EU/IMF bailout and National Recovery Plan • Budget and Finance Act 2011 • New Fine Gael / Labour Government
National Pensions Framework – Overview
• Launched March 2010 following extensive consultation on 2007 Green Paper on Pensions
• Aims – Adequacy of retirement incomes– Sustainability of pensions system– Increase pension coverage
National Pensions Framework – Proposals
• State Pensions – State pension age to increase to 66 in 2014, 67 in 2021 and 68
in 2028 – State pension - 35% average weekly earnings
• Auto-enrolment – Employees not already in a pension scheme– Mandatory contributions from employees, employers and the
State (via tax relief) in a 2:1:1 ratio– 2014 “depending on the prevailing economic conditions”
National Pensions Framework – Proposals
• Occupational pension schemes – Replace marginal rate tax relief via State contribution
of 33% tax relief – Ongoing review of funding standard – Proposals on new model DB scheme
• Public service pensions – Career average for new entrants – Increase retirement age to 66– Link post-retirement increases to CPI
NPF Proposals – Overtaken by Events
• Deepening Banking Crisis – €7 billion of NPRF invested in BOI and AIB– Continued rise in Irish bond yields – Ireland withdraws from bond markets – EU/IMF bailout and National Recovery Plan (“NRP”)
NRP – Impact on Pension System?
• Commitment to reduce pension tax relief by €940 million by 2014
• Pension Contributions – Abolish employee PRSI and health levy relief– Reduction of annual earnings cap – Reduction in Standard Fund Threshold (“SFT”)– Phased reduction of tax relief to 20% by 2014
Budget and Finance Act 2011
• Implementation of NPR proposals – Annual earnings limit reduced from €150K to €115K – Tax free lump sums capped at €200K – SFT reduced from €5.4 million to €2.3 million– Imputed distributions on ARFs increased – USC and PRSI applied to employee contributions– Employer PRSI exemption reduced
• But, rate of tax relief on contributions unchanged
Other Recent Pension Developments
• Sovereign Annuities (SAs)– Pensions Board approved SAs backed by Irish/EU
Government bonds– Buy-in or buy-out pensioner liabilities – Underlying bonds default => reduce pension
payments – Honest and reasonable defence for trustees
Other Recent Pension Developments
• Funding Standard – Effectively suspended last October – Reintroduction now awaited – Re-price liabilities where invest in SAs
New Government, New Direction?
• Fine Gael / Labour Government now in power • On pensions, Government for National Recovery 2011 –
2016:– Retiring politicians wait until 65 for pension– Cap tax subsidies on pensions €60K plus p/a– Reforms to achieve universal coverage - focus on
lower paid– Greater flexibility for phased retirement
New Government, New Direction?
• Limited detail on pension proposals but:– Continued clamp down on large pension pots– Possible further reduction in SFT and annual
earnings allowance – May see auto-enrolment to address coverage– Flexible retirement - access funds while still in
employment?
Final Thoughts
• Irish pensions system undergoing major reform• Pensions as tax efficient savings vehicle for high earners reduced• The big threat - tax relief restrictions in NRP?• Return of reformed funding standard for Sas• Expect continued DB restructurings and wind ups• Auto-enrolment and public sector reforms?• Phased increase in State retirement age
Legal round up: Northern Ireland
• Revamped tax regime• Auto-enrolment round the corner• Other issues to be aware of
Revamped tax regime
• April 2011 changes– New annual allowance (AA)– Abolition of compulsory annuitisation
• April 2012 changes– New lifetime allowance
Revamped tax regime: new annual allowance (1)
• From 6 April 2011:– AA reduced to £50k– AA test applies in year benefits come into payment
except:• in year of member’s death• on terminal or serious ill-health• for period of deferral
– Three year carry forward of unused AA
Revamped tax regime: new annual allowance (2)
• AA charge at marginal rate• Proposal for payment of AA charge
– In full each year– £2-6k in relevant tax year and balance from scheme
Revamped tax regime: new annual allowance (3)
• Transitional provisions–New AA does not apply to pre 14 October 2010
pension earnings
BUT– Issues for pension input periods after 5 April 2011
Revamped tax regime: abolition of compulsory annuitisation
• Members satisfying minimum income requirement (£20k pa) will not have to annuitise DC pot at age 75
• NB age 75 requirement removed for various lump sums
Revamped tax regime: April 2012 changes
• Lifetime allowance (LTA) currently £1.8m• LTA to reduce to £1.5m from April 2012• New “fixed protection” regime to protect earnings in
excess £1.5m• NB trivial commutation to remain at £18k
Auto enrolment round the corner (2)
• Quick reminder– Jobholders aged 22 to SPA to be auto-enrolled into
qualifying scheme/NEST– Minimum contributions 8%: 4% jobholder; 1% tax
relief; 3% employer– Auto re-enrolment every three years
• 2010 Review changes
Auto enrolment round the corner (3)
• What employers need to do– Determine date duty applies: staging 01 October
2010 – 01 October 2016– Decide on qualifying scheme– Ensure relevant information available to jobholders– Ensure administration process in place for both
enrolment and re-enrolment
Other issues
• Abolition of default retirement age from 1 October 2011• CPI/RPI for pension increases and revaluation• Equalisation legislation expected soon• Bridge Trustees v Yates in Supreme Court June 2011