DWP postpones revaluation cut
UK - The department for work and pensions (DWP) has confirmed the implementation date for the revaluation cap on deferred pension benefits has been postponed by four months until April 2009.
The UK government announced plans in October 2007 to reduce the revaluation cap on deferred rights of early leavers from a pension scheme from 5% a year to 2.5% a year as part of its deregulatory review of occupational pensions. (See earlier IPE article: Pension experts disagree over deferred benefits)
Under UK rules occupational schemes are currently required to increase the deferred benefits in line with inflation up to a cap of 5% a year.
A new cap was scheduled to come into force from 1 January 2009, however the government has now postponed the start date until 6 April 2009.
"Following discussions with pensions industry representatives, we intend to commence the relevant provisions of the Pensions Act 2008 with effect from 6 April next year," said a spokesman for the DWP.
"This should allow schemes sufficient time to make necessary preparations for the change, and has been welcomed by scheme advisers."
Following confirmation of this delay, actuarial consultants Lane, Clark & Peacock (LCP) said the previous start date of January was "just too close, especially if employers needed to consult".
Tony Bacon, senior consultant at LCP, pointed out all pension schemes will "need to do something as a result of the change, depending on how their rules are written", and noted amendments will be required to schemes whether the change is automatic or not.
LCP has subsequently warned all defined benefit (DB) schemes should carry out an immediate check on how the legislation will impact them, albeit this will incur additional legal, actuarial and administrative costs which will not necessarily be offset by the savings from the cap reduction, which LCP suggested "may be relatively modest and will in any case only emerge over time".
"Four months is not a long time to carry out the necessary actions whatever the decision on future revaluation and whatever scheme rules say. But this issue could be resolved quickly if trustees and employers work together on this now," said Bacon.
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