Pensions Update - January 2012

Flexible Apportionment Arrangements are on the way!

Amendments to the Employer Debt Regulations introducing Flexible Apportionment Arrangements ("FAA") were laid before Parliament on 15 December. They are due to take effect from 27 January 2012.

The amended legislation follows the Government's consultation on FAAs which was reported in our June newsletter. As we discussed then an FAA can be used where: the funding test is met; all of the pensions liabilities of the "leaving" employer are reapportioned to another employer or employers "staying" in the scheme; the trustees and the employers who are parties to the FAA agree; and, where an employment-cessation event has already occurred, no part of the debt must have been paid.

These remain the requirements for an FAA. However, changes from the initial legislation include allowing a cessation employer the option to make a partial payment of Section 75 and FAAs will become a notifiable event. The issue of cessation arrangements for charities/not-for-profit organisations or for non-associated employers is still not addressed despite our writing to the DWP specifically pointing out the issues. Revised Pensions Regulator guidance dealing with FAA is expected next year.

The grace period (during which no debt is triggered if the employer intends to employ another active member) is to be extended from 12 to 36 months. However, the extension beyond 12 months is only with trustee consent, if trustees have concerns about the employer's financial circumstances.

The Government confirmed that the existing "scheme apportionment arrangements" and "regulated apportionment arrangements" are being retained. However, to apportion liabilities, (rather than fixed or floating amounts of debt), the Government is of the view that only an FAA is appropriate.

An FAA is a welcome addition to the options available to corporate groups looking to restructure their business without triggering unnecessary debts. From the trustee perspective, as consent is required, they will retain control over their use.

Useful links

A copy of the Government's response can be found at: http://www.dwp.gov.uk/docs/employer-debt-consultation-response.pdf

Auto Enrolment changes

The DWP has published its consultation paper entitled "Automatic Enrolment Earnings Thresholds Review and Revision 2012/2013".

As you will be aware, from October 2012 the phasing in of the requirement for all employers to auto-enrol eligible employees into pension scheme commences. There are two relevant financial triggers involved in the process: (i) the auto enrolment earnings threshold, which is...