Scheme pensions for SIPPs and SSASs and the Pensions Act 2011
There are a host of regulations in place, such as scheme funding requirements and the Pension Protection Fund levy, designed to ensure that benefits promised to occupational pension scheme members are protected. Defined benefits schemes have to comply with these regulations but in general money purchase schemes do not have to, as they do not provide a promised benefit.
In October 2011 the Government published details of proposed amendments to the Pensions Bill 2011, designed to clarify the definition of money purchase benefits used in the Pension Schemes Act 1993 and the Pensions Act 2008. These amendments became law when the Bill became an Act on 3 November 2011.
The primary purpose of these amendments is to strengthen the protection offered to members of larger group pension schemes which, on the face of it, appear to be money purchase schemes but actually provide a promised benefit from the member’s accumulated fund, and will ensure these schemes comply with the protective regulations too.
The Pensions Act amendment changes the definition of money purchase schemes but only for the purposes of the Pensions Act. Pensions Acts focus on social security type matters, for example the state pension age, auto enrolment and protection of benefits. Finance Acts define the rules under which pension schemes operate, and there is no change to the definition of money purchase schemes under the Finance Act.
The amendments would appear to mean that occupational money purchase schemes, including SSASs, which provide benefits by way of a scheme pension, are to be classified as defined benefit arrangements and will therefore have to comply with the protective regulations.
SIPPs, including Family SIPPs like the Rowanmoor Pensions Family Pension Trust, are not occupational schemes and are unaffected by the changes to legislation.
Existing exemptions apply to occupational schemes with fewer than 12 members, such as SSASs and DB SSASs, which mean they are not affected by the majority of the protective regulations, provided all members are trustees and trustee decisions are made unanimously. This is because members of such schemes are in control of their pension arrangements and therefore do not need protective measures designed for members of ordinary occupational pension schemes.
However, defined benefits schemes which have accrued benefits since April 1997, must include provision for all pensions in payment to increase by Limited Price Indexation (LPI), which is now capped at 2.5%.
The Government has committed to consult on the regulations that are yet to be written regarding the finer details of how the Pensions Act is to be implemented and early indications from the Department of Work and Pensions (DWP) are that there was no intention to negatively impact SSASs. We have spoken to our lawyers about it and the Association of Member-Directed Pension Schemes (AMPS) will also be making representations to the DWP with the aim of ensuring that the regulations do not adversely affect SIPPs and SSASs.
We recently undertook research into the retirement income choices of pensioners over the age of 75, which showed that scheme pensions are preferred by the majority.
A scheme pension is a secured income paid to the member for life. A scheme pension provides a member with a set level of pension in return for their fund and is designed to pay out the fund over the member’s expected lifetime. The amount of scheme pension payable is normally reviewed every three years and may vary depending on the investment performance of the scheme assets. If a member’s life expectancy changes, for example due to ill health, the Actuary can review the payment of the scheme pension to reflect this. Our Actuarial Department undertakes all actuarial work associated with our schemes in-house, which means we can offer the option of scheme pension across our full SSAS, SIPP and Family Pension Trust (Family SIPP) product range.
If you have any questions, please send them via the enquiry box on the right hand side, call 08445 440550 or email us.
