When Chris Lewin and Ed Sweeney produced their report for the Deregulatory Review on 25 July 2007, the Minister for Pensions Reform (Mike O'Brien) promised a Government response this autumn. Yesterday he announced the result: a consultation paper which sets out:

1. a limited set of Government proposals for change, on which views are sought by 15 November 2007; and
2. Government decisions on other areas where either the reviewers were agreed, and/or there is broad support from stakeholders, and on which no further consultation is proposed because the Government accepts the reviewers' recommendations.

As we noted in our previous article on this subject, Lewin and Sweeney said that no changes should be made to legislation which would adversely affect pension rights already built up, or pensions already in payment.

The Government agrees, but on the other hand, whilst the reviewers were united in also recommending no change in the statutory revaluation cap of 5% per annum compound for early leavers from most DB schemes, in force since 1986, the Government proposes to halve the cap for all pension rights accrued on or after a future date.

Although arguments to remove LPI altogether (one of a number of issues on which Lewin and Sweeney had not themselves agreed) have been rejected, the Government has accepted the reviewers' recommendation to introduce a "statutory override" to make it easier for scheme rules to be amended to take advantage of PA 2004 s.278. The Act reduced the cap for annual increases to pensions derived from benefits accrued since 2005 from 5% to 2.5%. Presently s.278 is permissive, not mandatory, however. In some schemes restrictions on the amendment power in the trust deed and rules may prevent trustees and/or employers from taking advantage of the change. A statutory override as proposed would also make it easier to make amendments to reflect any change to the cap used for the revaluation of deferred pensions.

Third, the condoc asks "would it be appropriate to introduce a third layer of legislation which would make provision for a specific type of risk sharing scheme and to introduce flexibility for such schemes for example, on revaluation and indexation which currently does not exist?"

These are the only proposals on which the condoc seeks comments, although the Government is committed to:

• carry out further work to seek a practical solution to the difficulties encountered in relation to the application of the employer debt provisions (PA 2005 s.75 and SI 2005/678) where there is a group reconstruction in a multi employer scheme involving a employer leaving;
• explore with stakeholders, over the coming months, the scope to address concerns about the legislative requirements which must be met before surplus funds can be returned to the employer;
• move towards a principles-based approach to legislation, with the disclosure requirements relating to the day to day running of a pension scheme being used as a test bed for that approach (the objective being simpler rules on what schemes must tell members);
• repeal the legislative requirements on pension sharing on divorce which apply to safeguarded rights (even though the impact assessment in the condoc describes the benefits to be derived as "negligible") and review the remaining legislation applying to the payment of pension credit benefits (i.e. those benefits which arise from pension sharing, not state pension credit); and
• move to combat misconceptions about the trustee knowledge and understanding requirements by clarifying the effect of the relevant legislation.

Two other consultations have also been launched recently by DWP.

(A) Consultation [PDF] on the success of the Occupational Pension Schemes (Cross-border Activities) Regulations 2005 (SI 2005/3381, as amended) in implementing the cross-border provisions of Directive 2003/41 (the IORP Directive).

The European Commission plans to review the IORP Directive in early 2008. One of the key areas they will focus on will be the success of the cross-border provisions of the Directive. The Cross-border provisions seek to enable multi-nationals operating in a number of EU Member States through subsidiary companies to consolidate their pension arrangements in one Member State. The Directive also allows an employer to locate their pension scheme in another Member State for commercial reasons.

In advance of this review the Government is consulting "on the success of the Occupational Pensions (Cross-border Activities) Regulations in enabling schemes to operate cross-border". It should not take very long to address the key question in the condoc, viz. "What are the inhibitors to entering into cross-border activity?"

As we noted in our previous article on this subject,

UK-based schemes in fact would be expected to strive to avoid operating cross-border as it would trigger a requirement for full funding. Between the IORP Directive's transposition date (i.e. 23 September 2005) and January 2007, only two UK-based schemes commenced operating on a cross-border basis. The Regs may have successfully implemented the Directive, but they surely haven't stimulated new cross-border operations.

The consultation period runs until 4 December 2007.

(B) Consultation on The Occupational Pension Schemes (Non-European Schemes Exemption) Regulations 2007 [PDF]

The draft regulations attached to this short consultation paper address two arguably less controversial issues related to overseas schemes:

1. Section 253 PA 2004 prohibits employer payments to an occupational pension scheme with its main administration outside the EU, unless the scheme is established under trust and there is a trustee or nominee in the UK. The draft regs exempt from the requirements of s. 253

1. a split approved scheme which has its main administration outside the EEA States; and
2. an unregistered occupational pension scheme which has its main administration outside the EEA States.

2. HMRC recognises there are a number of overseas employers operating occupational pension schemes in their home country with employees working in the UK. In many cases the individual wishes to remain a member of the home scheme, and the employer wishes to make payments to the scheme on behalf of the member. In many cases the scheme itself is not registered with HMRC for tax purposes, but the individual may qualify for tax benefits under the migrant member relief provisions. In these cases the Government accepts there is no reason to require the scheme to operate under trust with a UK resident trustee (or nominee).