Budget 2014 Actions for defined benefit trustees

Budget 2014 saw the announcement of some of the most radical changes for the UK pensions industry. Although primarily focused on defined contribution pension schemes, trustees and managers of defined benefit (DB) schemes still have a lot of decisions to make and only a limited time in which to implement them.

Our key actions timeline will help shape your key decisions, meeting agendas and action points for 2014 and 2015.

To consider now

For immediate attention from Trustees and pension managers and immediate implementation if required.

Make decisions on 27 March 2014 relaxations

• Decide whether your scheme will adopt the new limits in effect from 27 March 2014 for trivial commutation and small pots.
• Consider whether you will apply the limits to future retirements only or will you offer the new limits as an option to existing pensioners.
• If you want to adopt any of the new limits, ask your lawyer to consider what (if any) rule amendments will be necessary.

Implement any changes to scheme rules

• Consider whether your scheme's rules need to be amended to ensure that they are aligned with your intentions and any new legislative requirements.
• For DB schemes, changes may be needed to allow for the 27 March 2014 relaxations and/ or the 6 April 2015 lower age threshold for trivial commutation and small pots and higher trivial commutation lump sum death benefit limit.
• Consider whether you want to deal with just the 27 March 2014 relaxations or to cover both these relaxations and the flexibilities that will apply from 6 April 2015.
• If rule amendments are required, ask your lawyer to draft a deed of amendment.

Communicate with members

• Decide whether you want to issue a general communication to all members on the Budget 2014 changes.
• Ask your lawyers to review all communications.

To consider later in 2014

For consideration by Trustees at the next Trustee meeting with implementation by end of 2014 or the beginning of 2015.

Understand the impact of the 6 April 2015 changes

• Consider the various impacts that the flexibilities being introduced with effect from 6 April 2015 will have on your scheme.
• Check whether your scheme rules allow partial transfers to be made and, if not, decide whether such a rule should be introduced.
• Review the scheme's rules to determine whether any other changes will be needed.
• Consider existing cash commutation and transfer value terms.

Consider your powers and duties on DB to defined contribution (DC) transfers

• Take legal advice on your existing powers to delay transfer payments and reduce CETV levels and the Pensions Regulator's new guidance (expected Autumn 2014).
• Devise a process to ensure compliance with the post-6 April 2015 requirement to ensure that a member who wants to transfer and has pension savings of more than £30,000 has received independent financial advice.

Decide how to monitor the impact of DB to DC transfers

• Consider how you will monitor the level of transfer requests and scheme funding levels.
• Decide on the form and regularity of monitoring and any parameters that, if breached, will trigger actions such as delaying transfer payments.

Communicating with members

• Consider communicating with scheme members on any changes to your scheme.
• Take legal advice on any member communications.

To consider at the beginning of 2015

For action by 5 April 2015 and ongoing actions to ensure compliance with the new regime.

Post-6 April 2015 compliance and communications

• Implement a policy and process to deal with DB to DC transfers. This should be designed to maximise compliance with the requirement to ensure that a member who wants to transfer and has total pension savings of more than £30,000 has received independent financial advice and cover record keeping and audit for such transfers.
• Consider communicating with members on transfer rights and the new requirements on taking independent financial advice.
• Ask the scheme's lawyers to review any communications and member booklets.

Monitoring the scheme

• Continue to monitor the level of DB to DC transfers.
• Ongoing monitoring and review of the scheme's funding levels and investment strategy.
• Add a standing item to trustee meeting agendas to consider monitoring reports.
• Discuss the impact of DB to DC transfers and any actions you are considering taking on delaying transfers or changing CETV levels with the scheme's employers.

Take legal advice on flexibility for DB schemes

• Keep up to date on the expected government consultation on extending certain flexibilities to DB schemes and consider any potential impact on your scheme.