Pensions legislative changes coming into force in April 2016

Primary legislation comes into force abolishing defined benefit (DB) contracting-out and introducing a new single-tier state pension.

Primary and secondary legislation introduces a number of consequential changes and saving provisions, including:

(See Practice note, Contracting-out: abolition of contracting-out on a salary-related basis.)

A new single-tier state pension is introduced (known as the "new state pension"), effectively combining the basic state pension and state second pension into a single flat-rate weekly payment. For 2016/17, the full weekly rate of the new state pension is confirmed at £155.65 (see Legal update, New state pension and abolition of DB contracting-out: secondary legislation finalised).

Transitional provisions apply to applications for sharing the new state pension on divorce, and on dissolution or annulment of a civil partnership (see Legal update, New state pension: transitional provisions for sharing state pension on divorce confirmed).

For background about the impact of the new state pension on employers sponsoring occupational pension schemes, see Article, State pension changes: the impact on employers.

The lifetime allowance is being reduced from £1.25 million to £1 million. Two new forms of transitional protection are being introduced for individuals who may be adversely affected.

For more information see Practice notes, Lifetime allowance: overview and Lifetime allowance charge: fixed protection 2016 and individual protection 2016.

Finance Act 2004 (FA 2004), as due to be amended by clause 19 of the Finance Bill 2016

The annual allowance will remain at £40,000, but will be tapered down to £10,000 for individuals with income of £150,000 or more, subject to certain conditions.

Pension input periods used for annual allowance calculations will be aligned with the tax year from 6 April 2016.

FA 2004, as amended by Schedule 4, Finance (No. 2) Act 2015

Amending regulations introduce new provision-of-information requirements for scheme administrators in relation to the tapered reduction in the annual allowance for individuals with annual income of over £150,000.

(See Legal updates, Tapering the annual allowance: HMRC consults on new information requirements and Tapering the annual allowance: HMRC finalises information requirements.)

For more information about the changes to the annual allowance, see Practice notes, Annual allowance: overview and Tapering the annual allowance for high earners.

Amending regulations introduce two new statutory exceptions where the employer auto-enrolment duty will be converted to a discretion to auto-enrol. The new exceptions cover certain company directors and members of limited liability partnerships.

Further technical changes made by the regulations include a transitional easement allowing formerly contracted-out schemes to continue to meet the statutory quality test, as well as a simplified process for employers to bring forward their staging dates (see Legal updates, Auto-enrolment: consultation on further exceptions to employer duties and new process for re-declaration of compliance and Auto-enrolment: regulations simplifying automatic enrolment processes finalised)

Amending regulations come into force that contain a number of provisions reforming defined contribution (DC) governance requirements in relation to occupational DC schemes, including:

(See Legal updates, DC governance: DWP finalises changes to occupational DC scheme administration requirements and DC governance: Occupational DC scheme administration amendment regulations made.)

Providers of workplace DC schemes will be prohibited from levying differential charges for different categories of members (such as active member discounts) in qualifying schemes used for auto-enrolment.

(See Practice notes, Charges in DC occupational pension schemes: Active member discounts (AMDs) banned from 6 April 2016 and Charges in workplace personal pension schemes: FCA rules: Differential charges (active member discounts (AMDs)).)

Providers of workplace DC schemes will be prohibited from levying commission or other charges for advice that is not initiated by members in all qualifying schemes used for auto-enrolment. In relation to contract-based schemes, this measure extends the existing prohibition on member-borne commission that has applied to new schemes set up since December 2012 so it applies to existing schemes too.

In occupational schemes, the DWP will implement the ban in two stages. The prohibition coming into force on 6 April 2016 does not apply to charges under commission arrangements entered into before that date, unless such an agreement is varied or renewed on or after that time. The DWP will consult on a further set of draft regulations banning existing commission arrangements later in the year.

(See Practice notes, Charges in DC occupational pension schemes: Member-borne commission ban phased in from 6 April 2016 and Charges in workplace personal pension schemes: FCA rules: Commission charges.)

Lump-sum death benefits paid by registered pension schemes (if the member died after reaching the age of 75) will in most cases be taxed at the marginal rate of the recipient, instead of under the special lump-sum death benefits charge.

(See Practice note, DC pension flexibility: overview: Further changes to the tax treatment of death benefits from 2016/17.)

The DWP is putting on a statutory footing the recommendation made by the Pensions Regulator for trust-based schemes to provide generic risk warnings to members who are considering taking advantage of flexible access (see Legal updates, DC pension flexibility: DWP consults on changes to secondary pensions legislation and DC pension flexibility: DWP confirms secondary legislation changes including valuing guaranteed annuity rates).

The DWP is making a range of consequential amendments to existing legislation to reflect DC flexible access options, including legislation relating to pension-sharing and earmarking orders on divorce, the compensation rules applying to the PPF and the discharge of a scheme's liabilities on winding-up (see Legal updates, DC pension flexibility: DWP consults on changes to secondary pensions legislation and DC pension flexibility: DWP confirms secondary legislation changes including valuing guaranteed annuity rates).

Pension providers will be required to report to HMRC under its real-time information (RTI) regime the following payments:

(See Legal updates, RTI: HMRC consults on draft amending regulations extending PAYE reporting requirements to flexible pension and death benefit payments and RTI: HMRC finalises regulations for PAYE reporting on flexible pension and death benefit payments.)

Trustees of an occupational pension scheme established under trust may only repay any surplus to the employer if they passed a resolution in accordance with section 251 of the Pensions Act 2004 before 6 April 2016 (subject to certain conditions).

Section 251, Pensions Act 2004 (as amended by section 25, Pensions Act 2011)

New regulations are introduced which align the legislative requirements governing the audit of certain occupational pension schemes with the relevant financial reporting framework applicable to these schemes and with the investments they have made. The regulations also exempt multi-employer pension schemes with at least 20 participating employers from the requirement to obtain a statement from the auditor concerning the payment of contributions to the scheme.

Regulations come into force specifying that a qualifying recognised overseas pension scheme (QROPS) is required to re-notify its status as a recognised overseas pension scheme (ROPS) every five years. Where the reference letter was sent before 6 April 2011, HMRC will tell the scheme manager its re-notification date.

Pension Schemes (Information Requirements - Qualifying Overseas Pension Schemes, Qualifying Recognised Overseas Pensions Schemes and Corresponding Relief) Regulations (SI 2006/208) (as amended by the Taxation of Pensions Act 2014)

The new persons with significant control (PSC) regime will require most UK companies (including pension trustee companies) to maintain a register of people with significant control over the company. A failure to have a register in place will be a criminal offence. From 30 June 2016, companies will need to supply Companies House with the information on their PSC register along with the company's confirmation statement, which will replace the annual return. From that date, new companies will need to supply this information on incorporation so that it can be made publicly available.

(See Legal update, PSC register: Register of People with Significant Control Regulations 2016 and Practice note, Small Business, Enterprise and Employment Act 2015 (corporate aspects): Information on beneficial ownership.)

Part 21A, Companies Act 2006 (as inserted by section 81 of and Schedule 3 to the Small Business, Enterprise and Employment Act 2015)