Pensions Levy - Further Considerations

Since our last update, the practical difficulties facing employers and pension trustees in dealing with the impact of the pensions levy created by the Finance (No 2) Act, 2011 (the "Act") have started to emerge. This update focuses on those practical issues assuming that the levy has been paid.

To recap on some key points:

The levy had to be paid through the Revenue On-line Service (via the administrator if the scheme is not registered) or on or before 23rd September (as the 25th was a Sunday). Insured assets had to be valued at 30 June 2011 and the levy was payable by the insurer. Most insurers deducted the levy from assets invested with them on or shortly after 30 June 2011 and have already remitted it to the Revenue prior to the due date. If scheme assets include insured and non-insured assets the levy would have been partly paid and the actuary/administrator would then have advised on the remainder amount of the levy to be paid by 23 September. Queries with the Revenue about valuing the assets have been addressed by Revenue guidance. The levy is a stamp duty on a statement of assets. It is not an individual tax on members or their benefits or on the employer. What happens next?

Most employers have stated that they want members to bear the cost of the levy. In the interests of making valid decisions, it is important for both employers and trustees to appreciate that trustees may not simply be able to agree to reduce benefits without formally considering the discretionary power given to them under the Act.

What does the Act say?

The Act provides that trustees have a statutory discretion to reduce benefits– "the benefits payable currently or prospectively to any member under the scheme may accordingly be adjusted by the trustees". If the trustees decide to reduce benefits the reduction overrides any contrary provision contained in any scheme rules or legislation. The issue this creates is that the Act permits trustees to reduce benefits but does not oblige them to do so. The question for the trustees is therefore whether it is appropriate to accede to the request – should they exercise the discretion to reduce benefits for one or more groups of members?

This leaves most trustees with a difficult decision to make since at first glance it is difficult to see how reducing members' benefits is in members' interests. While this issue is most acute for defined benefit schemes, we recommend that defined contribution scheme trustees should also...

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