Pensions have become an increasingly hot topic. Who would have thought 10 years ago that saving for retirement would be an election issue or that it would be front-page news?
The UK population is ageing and people are living longer, but still want to live comfortably in their later years.
This has put pensions at the top of the agenda. And they are likely to stay there for some time. Pensions will remain a vitally important issue that everyone needs to be aware of, and HR will have a pivotal role to play.
The Pensions Act 2004 responds to the need to concentrate regulation where it can be most effective, and this draws on the practical experience of the Occupational Pensions Regulatory Authority (Opra) during its seven years of existence.
The Act introduces the Pensions Regulator in place of Opra and sets up the Pension Protection Fund (PPF), which will pay benefits where an employer becomes insolvent and its pension fund cannot meet its obligations.
The Pensions Regulator will be launched in April 2005 and will build on the work of Opra.
It will be our aim to protect the benefits of pension scheme members. Saving for retirement means the public can provide for the future and it is essential that members are confident that their scheme is well run.
By building confidence in pensions we can promote saving so that individuals ensure they have sufficient provision for their later years.
The Pensions Regulator will have wider powers than Opra and will operate in a different way.
It will have a wide educational remit, working with trustees, employers and pension professionals to raise standards in scheme administration.
The regulator will, among other things, be able to issue improvement notices to scheme organisers or to third parties requiring action to remedy breaches in legislation.
It will be able to freeze a scheme while investigations take place to protect members’ benefits or the assets of a scheme. It also has more power to suspend or remove trustees.
The new powers of information gathering granted to the Pensions Regulator will enable it to create the first-ever detailed database of pension schemes.
With this information the regulator will be able to respond quickly to the changing circumstances of different schemes and be able to use its policies, guidance and regulatory powers to greater effect.
The new regulator and the introduction of the protection fund also means HR professionals need to stay informed about pensions issues.
Promoting good administration of pension schemes is one of the statutory objectives of the Pensions Regulator, which takes a more risk-focused approach.
With this in mind, employers should be aware that if a scheme is well run it is likely to have little interaction with the regulator.
However, given the greater emphasis on scheme administration, where things go wrong the regulator can take action. This could include issuing a third-party notice to put things right.
HR professionals can help organisations avoid this by making sure that trustees have the time and support – in particular for training – that they need to carry out their job effectively.
You should also be aware of the need to notify the regulator of any corporate activity that could have a negative effect on a pension scheme.
A code of practice on notifiable events – a list of serious events that employers must notify the Regulator about – will be issued in the near future.
As well as the Pensions Act, HR should also be aware of the Finance Act 2004, which includes pension simplification rules due to come into force in 2006.
The Act abolishes the earnings cap and allows increased contributions. This should provide greater flexibility and mean that people can save more into their scheme.
Trustees and employers should begin discussing the possibilities in light of these changes and consult their advisers.
Further relaxations include changes to the ‘benefits in kind’ rules, which allow employers to offer staff up to 150-worth of financial advice tax-free every year.
These changes to pension law mean that employees should be better protected and employers will be better able to help staff to save for retirement.
This is a period of significant change and we need to work together to ensure the best protection of members’ benefits.
The Pensions Regulator will communicate with employers in a timely and targeted way to make sure they are aware of all relevant changes.
There will also be the opportunity for employers to contribute to consultations on the various codes of practice that will be issued by the regulator, so please participate and visit the pensions regulator website.