Pensions Matter – November 2014
Print newsletter19/11/14

NEST – contributions cap and transfer ban to be abolished
National Employment Savings Trust (NEST) is a trust based occupational money purchase scheme, which was […]
National Employment Savings Trust (NEST) is a trust based occupational money purchase scheme, which was established under the Pensions Act 2008 to help assist with the Government’s auto-enrolment obligations.
Currently, NEST is subject to two key restrictions:
- Under the NEST Scheme, contributions made by or on behalf of jobholders cannot exceed £4,500 per year (2013/2014 tax year); and
- Subject to some exceptions, jobholders are unable to transfer their pension pots into or out of NEST.
The Government has stated that it will legislate to remove the annual contributions limit and restrictions on transfers by the latest of April 2017. This has come about as a result of the Government reviewing the impact that such scheme restrictions have on NEST members. It is also important to note that the ban in transfers will be removed at the same time of the introduction of automatic transfers of small pension pots.
Due to the way in which NEST was funded, it was necessary for the European Commission (EC) to agree to the establishment of NEST under EU state aid rules. As such, and before the above restrictions could be amended, the Government had to seek approval from the EC. We are pleased to announce that the Department for Work and Pensions has confirmed that the Government has now been given approval by the EC to make these amendments to NEST.

Outsourced employees entitled to rejoin NHS Pension Scheme
Guidance about how outsourced employees under the old Fair Deal arrangement can be re-admitted to […]
Guidance about how outsourced employees under the old Fair Deal arrangement can be re-admitted to the NHS Pension Scheme (NHSPS) has been issued by the Department of Health.
The key points are set out below:
- In order to allow the transfer of employees to the NHSPS for future service accrual, relevant contractors must first apply to the Department of Health for a Pension Direction; the granting of the Pension Direction allows the contracting employer to be a participant in the NHSPS. Before granting the Pension Direction, the Department of Health will consider each request from contractors on a case by case basis.
- The Department of Health will identify from what date the employees of the contractor will participate in the NHSPS. Please note in general, participation in the NHSPS for such employees will not be back-dated as to when such employees were originally outsourced from the public sector, and they will only be able to join the NHSPS in respect of future service accrual.
- Only previously contracted-out employees are able to join the NHSPS, subject to the condition that such employees are employed by the contractor as at the proposed date of such employees transferring back to the NHSPS from the contractor’s current comparable pension arrangement.
Relevant employees may have previously accrued pension rights in a broadly comparable pension arrangement, established by the contractor under old Fair Deal. In accordance with new Fair Deal, these employees will have the option to bulk transfer their accrued rights under the contractor’s broadly comparable scheme to the NHSPS, so that they can obtain day-for-day service credits. However, these employees may opt to not bulk transfer their accrued pension rights to the NHSPS. Where this occurs, such past service liabilities will remain with the contractor’s broadly comparable scheme.

Pensions case law round-up – November 2014
McNee (PO-2780/PO-4183) – assumption that members’ wishes had changed was incorrect The complainant’s daughter was […]
McNee (PO-2780/PO-4183) – assumption that members’ wishes had changed was incorrect
The complainant’s daughter was employed by the Royal Borough of Kensington and Chelsea (RBKC) and was a member of the LGPS. In 2005 the complainant’s daughter completed an expression of wishes form in favour of her parents. The daughter then went on to have a son in 2009 and consequently amended her will to provide for her residuary estate to be left on trust for her son. The expression of wishes form was not updated. Following their daughter’s death, the pension was paid to her son on trust, contrary to the expression of wishes form.
The Pension Ombudsman upheld the complaint by the parents as RBKC had failed to consider other potential beneficiaries. RKBC had also failed to properly investigate all relevant matters before allocating the pension to the deceased member’s son.
The decision was passed back to RBKC and directed it to pay £250 to each parent for the distress and convenience caused.
This determination is a poignant reminder that trustees need to properly and methodically investigate the deceased member’s background, before reaching a conclusion as to how benefits are to be allocated. We all know expression of wishes forms are not binding; nevertheless they should be taken seriously and seen as the default position, unless further evidence suggests otherwise.
Ramsey (PO-3290) – no employer or trustee duty to alert member about the consequences of a reduced annual allowance
By way of background, where a member accrues benefits (DB) or makes contributions (DC) that exceed the annual allowance during a pension input period, such member will have to pay a tax charge on accruals or contributions above the annual allowance threshold. The annual allowance used to be £255,000 but was reduced to £50,000 in April 2011 and has now been further reduced to £40,000.
As a result of this determination, it has been shown that a trustee or employer of a DB scheme does not owe a legal obligation to alert a member that a reduced annual allowance could make him personally liable to tax charges if he requested to receive major benefit enhancements after 6 April 2011.
The Deputy Ombudsman held that the trustee did not breach its fiduciary duty to act in the best interests of its members as the complainant at the time of requesting enhancements was not a member of the scheme. He only joined the scheme on electing to have the enhancements. The employer also had no legal obligation to alert him of the financial benefits of making that election prior to 6 April 2011, when the annual allowance was much greater and consequently the complainant would not have exceeded the annual allowance limit and become subject to personal tax charges.
Although in this example, the trustees and employer were found to have done nothing wrong, we feel they have been very fortunate. The amendments to the annual allowance regime in 2011/2012 were substantial and it appears from the information at hand, the complainant was given minimal information about this key amendment in legislation. In light of this determination, we would recommend that where possible, when there are key changes in law that may affect members of your pension scheme, you should provide potential and actual members of your scheme with as much information as possible in order to help minimise the risk of future similar claims being brought to the Pension Ombudsman’s attention.

Treasury publishes proposed changes to tax charges on lump sum death benefits
The Treasury in September 2014 previously announced that changes would be made to the current […]
The Treasury in September 2014 previously announced that changes would be made to the current 55% tax charge that applies when some lump sum death benefits are paid from a registered pension scheme to a member’s estate.
The Treasury’s briefing note “removal of the 55% tax on passing on pensions at death”, confirms the Treasury’s September announcement. In particular, from April 2015 where lump sum death benefits are paid to the member’s estate, some lump sum death benefits will attach zero tax, where the member dies prior to age 75, and taxed at 45% or the deceased member’s marginal rate of tax from 2016/17 tax year, if the member dies aged 75 or older.
It is important to note the Treasury’s briefing note is subject to final legislation and guidance. It is understood the Treasury plans to have discussions with HMRC and industry stakeholders before finalising the legislation in respect of the above.