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Pensions legislative changes coming into force in April 2015
Practical Law UK Legal Update 5-604-8908 (Approx. 11 pages)
Pensions legislative changes coming into force in April 2015
A summary of the main changes to pensions legislation that are coming into effect on or around 6 April 2015.
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A number of amendments to pensions and tax legislation are coming into effect on or around 6 April 2015. The most notable changes are the introduction of new flexible access options for members of defined contribution (DC) schemes when they reach age 55. Several pieces of secondary legislation are putting in place consequential changes to existing legislation to reflect the reforms, including new requirements on trustees of defined benefit (DB) schemes to check members have obtained independent advice before transferring to a DC arrangement to take advantage of the new flexibilities.
Aside from these measures, other legislative changes coming into force include measures simplifying the auto-enrolment regime, as small and micro employers start to reach their staging dates. Among other things, new statutory exceptions are being introduced that will remove the duty on an employer to auto-enrol a jobholder who would otherwise be eligible if the jobholder falls within certain categories (such as being in a notice period at the employer's staging date).
This update summarises the key points about the forthcoming changes and includes links to more detailed materials.
The sections below set out key legislative changes relating to pensions in the UK that are coming into effect on or around 6 April 2015. Unless otherwise indicated, the changes referred to will take effect on 6 April itself.
Practical Law Pensions tracks ongoing developments in pensions legislation, including consultations, draft and finalised legislation through our Legislative and regulatory developments tracker. We also maintain a summary of key data in our Current allowances, rates and limits table.
DC pension flexibility
Development | Legislation |
New flexible access options will come into effect for individuals with defined contribution (DC) pension saving who have reached normal minimum pension age (or meet the ill-health condition). They will be entitled to:
Individuals can mix and match, for example taking an UFPLS and then entering flexi-access drawdown at a later date. | Pension Schemes Act 2015 (PSA 2015) |
New requirements are being introduced that will apply to trustees of defined benefit (DB) schemes when members want to transfer to a DC arrangement (or have their benefits converted to DC benefits), and provided their benefits are worth more than £30,000. Trustees will have to check a transferring member has received appropriate independent advice from an adviser who is authorised to advise on the relevant regulated activity. In some circumstances, employers will be obliged to meet the cost of the necessary advice, though this is exempt from income tax and National Insurance. Changes to financial services legislation are introducing the new regulated activity and applying transitional measures for the period before 6 April 2015. | |
Consequential changes are being made to secondary pensions legislation to reflect the new flexibilities, including:
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Consequential changes are also being made to secondary tax legislation to reflect the new flexibilities, including:
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A statutory instrument came into force on 26 March 2015 specifying that individuals giving guidance under the ambit of the Pension Wise service are not carrying out a regulated activity for FCA purposes. | |
For more information about all these changes, see Practice note, DC pension flexibility: overview. |
Auto-enrolment: technical changes
Development | Legislation |
Following its 2014 consultation on measures intended to simplify the automatic enrolment regime, the following changes will come into force:
For further detail on the changes see Legal update, Auto-enrolment: DWP finalises technical changes to regulations. | |
The maximum interval before an employer is obliged to automatically re-enrol its eligible jobholders in an automatic enrolment scheme is being amended from three years to two years and nine months (see Legal update, Pensions Act 2011: commencement order for timing of automatic re-enrolment provision). |
DC governance and charges
Development | Legislation |
A cap on charges in default arrangements under DC pension schemes used for auto-enrolment is being introduced under regulation-making powers included in the Pensions Act 2014. Where it applies, the cap will limit charges to 0.75% of funds under management, excluding transaction costs. A last-minute change to the regulations introducing the cap was made in amending regulations laid before Parliament on 25 March 2015. These confirm that an arrangement is not a default arrangement for the purposes of the cap if it provides no benefits other than benefits attributable to AVCs (see Legal update, DC charges: DWP issue consultation response on technical change). Alongside the charges cap, minimum quality standards are being introduced for all trust-based DC pension schemes. Providers of contract-based schemes will be required to set up independent governance committees. |
Abolition of DB contracting-out: employer override
Development | Legislation |
Regulations will come into force specifying the framework that applies when employers sponsoring DB schemes currently contracted out of the second state pension exercise the new power allowing them to amend scheme rules (without obtaining trustee consent) to offset the increase in NICs when contracting-out ends. Among other things, the regulations explain how the actuary should calculate and certify that the value of the amendments will not be greater than the increase in the employer's NICs (see Legal update, Abolition of DB contracting-out: DWP publishes final override regulations and response). |
Money purchase benefits
Development | Legislation |
An occupational pension scheme containing benefits that are no longer treated as money purchase benefits under section 181B of the Pension Schemes Act 1993 but were treated as money purchase benefits until 24 July 2014 will become an eligible scheme for Pension Protection Fund purposes from 1 April 2015 (see Practice note, New definition of "money purchase benefits": what trustees and advisers need to know: PPF: eligibility and process). The trustees of an occupational pension scheme that discharges pensions in payment deriving from AVCs (that is, internally annuitised pensions) on winding-up must treat new pensions coming into payment on or after 1 April 2015 as non-money purchase benefits (see Practice note, New definition of "money purchase benefits": what trustees and advisers need to know: Discharging AVCs on winding-up). |
Public-sector pensions: reforms
Development | Legislation |
On 1 April 2015, new Armed Forces, Civil Service, Firefighters, NHS, Police and Teachers pension schemes come into effect. Members will accrue future benefits on a career-average revalued earnings basis, with normal pension age linked to future increases in state pension age. Transitional provisions specific to each scheme are intended to ensure that members do not suffer any detriment from the changes. | |
The Pensions Regulator's new code of practice 14 on governance and administration of public service pension schemes comes into effect on 1 April 2015 (see Legal update, Pensions Regulator: public-service pension scheme code of practice in force on 1 April 2015). |
Changes to current allowances, rates and limits
Pensions tax allowances and limits
Development | Legislation |
The lifetime allowance remains at £1.25 million for 2015/16. | Section 218, Finance Act 2004 (FA 2004) |
The annual allowance remains at £40,000 for 2015/16. | Section 228, FA 2004 |
The new money purchase annual allowance comes into effect on 6 April 2015, set at £10,000. | Sections 227ZA, 227B-C, FA 2004 |
Auto-enrolment earnings thresholds
Development | Legislation |
The thresholds for auto-enrolment under the Pensions Act 2008 are as follows:
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Pension Protection Fund (PPF) compensation cap and levy ceiling
Development | Legislation |
The PPF compensation cap will remain at £36,401.19 for 2015/16. The overall PPF levy ceiling for the financial year beginning on 1 April 2015 will rise from £941,958,542 to £947,610,293, in line with the 0.6% increase in earnings for the period from 1 August 2013 to 31 July 2014. |
National Insurance contributions (NICs)
Development | Legislation |
The following limits and thresholds for primary class 1 NICs are changing:
The secondary threshold for secondary class 1 NICs increases from £153 to £156 a week. |
State pensions, pension increases and contracting-out
Development | Legislation |
The basic state pension (category A and B) increases from £113.10 to £115.95 a week with effect from the week beginning 6 April 2015. | |
The low earnings threshold (LET) used for calculating state second pension accruals increases from £15,100 to £15,300. | |
The flat-rate accrual element of the state second pension, introduced from 6 April 2012, increases from £92 to £93.60 for 2015/16. This element replaced the previous 40% accrual band on earnings between the LEL and the LET (see Legal update, Changes to social security pensions legislation coming into effect on 6 April 2015). | |
Guaranteed minimum pensions (GMPs) accrued until 5 April 1997 must be increased in payment by 1.2%. | |
Public-service pensions in payment must be increased by 1.2% with effect from 6 April 2015. | |
Pensionable earnings of members of the LGPS 2014 for the scheme year running from 1 April 2014 to 31 March 2015 must be revalued by 1.2% under the new CARE basis applying to the scheme. | |
Earnings factors used to calculate state second pension and GMPs for deferred members of contracted-out schemes must be revalued in line with the rise in national average earnings between September 2013 and September 2014. For earnings factors in the 2014/15 tax year, the increase is set at 1.5%, with corresponding increases made for past years (as already revalued). |
End of Document
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Resource ID 5-604-8908© 2024 Thomson Reuters. All rights reserved.
Published on 26-Mar-2015
Resource Type Legal update: archive
Jurisdiction
Related Content- United Kingdom