Pensions schemes may not function properly if the government fails to pass legislations defining money purchase benefits immediately, said the Society of Pension Consultants (SPC).
In a letter sent to Department for Pensions and Works (DWP) following the department’s response to Supreme Court ruling in Bridge Trustees v Yates, the SPC urged speedy action adding it is “vital that certainty is achieved by passing the necessary legislation quickly, otherwise affected schemes will not be able to operate correctly.”
The trade body cautioned that there may be a human right’s issue for the government to consider adding, “We can understand the government’s decision to legislate in the way it intends. However, we would ask that the government passes the necessary legislation as soon as practicable, perhaps as an addition to the Pensions Bill,” the communiqué added.”
Pensions schemes will not know if benefits such as internally annuitized additional voluntary contribution accounts – are salary related benefits or money purchase.
An internally annuitized additional voluntary contribution pension presently enjoys priority over defined benefits if the scheme winds up. However, this will change if new legislation mandates such pensions as salary related, the report observed.
There can be confusions over the status of whole schemes in extreme cases such as a money purchase scheme contracted out on salary related benefits, the report further added.
If the Supreme Court’s judgment is applied, these benefits will be treated as money purchase and will continue to enjoy priority on winding up; however they will not be counted as defined benefit liabilities for scheme specific funding requirements and for the purposes of legislation such as Section 75, the report argued.
The original case Bridge Trustees v Yates brought by independent trustees Bridge Trustees, concerned a £40 million pound deficit in the £130 million Imperial Home Décor Pension Scheme.
The DWP contended that if a scheme offered guarantees when deficits can arise, the full pension protection legislation would apply.
The Court of Appeal confirmed in March 2010 that benefits were DC benefits when pensions were paid directly out of the scheme’s assets or where certain guarantees existed.
The DWP went to the Supreme Court where judges dismissed its appeal last month by a majority of four to one.