How we’ve adapted to the new pensions freedoms
As the changes announced in last year’s budget were largely effective from 6 April 2015, we wanted to take this opportunity to update you on our progress with implementing these changes, provide details of our new services and to explain what this means for you.
In view of the extent of the changes we have only provided brief details below but please let your Client Manager know if you would like more information on any of these points.
Where a member has Defined Contribution (DC) benefits we have amended our standard member communications and processes to reflect the mandatory requirements and timescales covering the need to signpost members to the service. This requirement also affects members of Defined Benefit (DB) schemes who have DC benefits, such as Additional Voluntary Contributions (AVCs) so we have ensured that these members are included in the scope of our changes.
DB to DC transfers
Again, many of the changes we have made in relation to our DB to DC transfers are required for compliance and primarily impact processes and member communications. On behalf of the trustees we will check that the member has obtained independent financial advice from a registered Independent Financial Adviser (IFA) and that the IFA concerned has appropriate registration before allowing the transfer to proceed. If we have any concerns about a transfer we will raise these with you prior to making payment. One of the challenges we have is that we do not know how many members may choose to look to make a DB to DC transfer in the light of the new flexibilities. This potentially has implications for both the trustees in terms of cashflow but also for us in terms of the number of transactions we process and the resulting impact on work levels. As a consequence, from 6 April 2015 we will be monitoring the number of transfer quotations we undertake and benchmarking the information that provides against the statistics from previous quarters. Where we see an increase in activity we will discuss this with you. In order to provide members with as much choice as possible, some clients are choosing to include transfer values on retirement statements and/or benefit statements.
Uncrystallised Pension Funds Lump Sum (UFPLS)
As Trustees develop their thinking on solutions for their members, we are seeing an increasing number choose to offer members the opportunity to take an UFPLS from the trust. In many cases, this is within pre-defined parameters designed to keep the administration simple but allow members some flexibility. We are able to offer an UFPLS solution from all our platforms.
Flexi Access Drawdown (FAD)
Some DC schemes have already made a decision about whether they wish to offer FAD from within the trust and, for those that don’t, in our experience some are considering partnering with a master trust to offer this flexibility. By far and away however the majority of our clients with members with DC benefits are waiting to see whether there is member demand for FAD. Within Capita we have built the capability to provide a FAD solution on both our HartLink and Profund platforms. Whilst both systems are fully flexible, we have designed a proposition that trustees can choose to adopt which we believe addresses the needs of members whilst managing the administrative complexity.
Annual Allowance (AA) changes
Once a member has started to access their benefits flexibly through FAD or UFPLS then, for DC contributions, this has the effect of reducing the AA to £10,000 in the Pension Input Period (PIP). This has necessitated us making some compliance changes to record holding, processes and member communications not just in relation to members who choose to flexibly access benefits from a scheme where we are the administrator but also for our clients who have open schemes and where a new member might notify us that they have flexibly accessed benefits in a former employer’s scheme and therefore we may need to assess their AA position against the lower £10,000 threshold.
Changes to triviality
Whilst the changes to the triviality limits largely took effect in March 2014, the further changes from April 2015 which lower the age limit for triviality to 55 but also remove the £30,000 triviality limit for DC schemes have only recently been implemented. In implementing the changes for DB schemes we have referred to the scheme rules to ensure that they are written in such a way that we can implement these changes immediately. Where, for example, the rules contain a minimum age for triviality of 60 we will refer these to you. Where rules allow we will make the changes automatically.
These changes have prompted many of our schemes (both DB and DC) to undertake a bulk trivial commutation exercise which we have been able to help with.
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