Docstoc

PPI - Holland Financial Centre

Document Sample
PPI - Holland Financial Centre Powered By Docstoc
					PPI:
Feasibility
study of a
tax-qualifying
pension
scheme:
Netherlands
and the UK
Foreword
This document is the result of the way in which          We believe that the PPI is the perfect vehicle
the Dutch government and the Dutch financial             to deliver cross-border pension solutions, and
sector have joined hands within the Holland              we demonstrate in this report how practical
                 1
Financial Centre.                                        obstacles can be overcome.

The Netherlands has long been a friendly, open-          In the Netherlands, we see (business) oppor­
minded country with an open economy. Based               tunities long before others do. We combine
on trade, the central geographical position of the       innovative products with prudent and sound
Netherlands, its highly developed infrastructure         supervision. A combination which is needed
and multi-lingual highly educated workforce              in both properous as well as economically
make it an attractive place to do business. This         challenging times.
is why numerous European, American and Asian
companies have established their offices in the          We very much welcome you to the Nether-
Netherlands.                                             lands and we would be happy to answer any
                                                         of your questions. We will help you find your
The Netherlands is one of the world’s best               way to set up your business in a smooth and
locations to find high quality products: from            efficient manner!
flowers, windmills (old and new) and designer
products to excellent pension services and               Dr H. Van Meerten
solutions.                                               Holland Financial Centre
                                                         T +31 (0)20 708 58 00
The latter is the subject of this booklet. The           info@hollandfinancialcentre.nl
Holland Financial Centre for Retirement Manage-
ment (HFCRM) is dedicated to establishing the
Netherlands as a leading specialist ‘centre of
competence’ for retirement management, by

1. Marketing and promoting the Netherlands
   as a centre for financial pension services:
2. Initiating, developing and boosting
   competitive propositions in the pension
   sector, in cooperation with government,
   industry (including Netspar and universities)
   and business.
3. Being an Information Centre (one-stop-
   shop) for those interested in settling in the
   Netherlands and/or in using Pan-European
   pension solutions, including market research
   and surveys.

In this booklet, we set out to investigate how
feasible and attractive it would be to run a cross-
border pension scheme operated by a Dutch
Premium Pension Institution.




1
  We are grateful to the Dutch Tax Authorities and the following parties: AEGON, APG, De Brauw
Blackstone Westbroek, Clifford Chance, Houthoff Buruma, Allen & Overy, ADP, Deloitte, BNY
Mellon, IG&H, Towers Watson, Delta Lloyd, PwC, Northern Trust, Nauta Dutilh, Robeco, MnServices.
HFC is solely responsible for the contents of this study. No rights can be derived from this publication.
Contents
Management Summary                           4

The Study                                    6
1. Introduction and conclusions              6
2. General legal aspects                    10
3. The Fiscal Study                         12
4. Social and Labour Law                    14
5. Administration and ICT                   15
6. Investment solutions                     19

Annexes                                     22
A – Legal Disclosure requirements           23
B – Legal Investment requirements           27
C – The Fiscal Study                        28
                                2
D – Dutch Social and Labour Law             41
E – UK Social and Labour Law                43




2
 The social and labour law overview of the UK and The Netherlands are taken from the EIOPA website.
These overviews are the most recent ones that these Member States have sent to the EU.
Management Summary                                                                                                      4




               Management
               Summary
                PPI Makes International Pension                        make international pension pooling profitable.
                Pooling Profitable                                     Operating several national pension schemes
                                                                       within a single vehicle can only be done efficiently
                A Premium Pension Institution (‘PPI’) can              if these schemes are as similar as possible in
                make international pension pooling profitable          terms of governance, investments, administration
                despite differences in national tax and labour         and communications. At present there are still
                laws. The example of the UK and Dutch                  substantial differences between EU member
                markets shows that such an approach can                states’ tax regimes and applicable labour
                allow for multinationals to achieve economies          legislation.
                of scale, as well as a competitive edge.
                                                                       The case for a UK-NL PPI
                For multinational companies, international pension     We have therefore set out to investigate
                pooling involves setting a single international        whether it is possible, given these differences
                pension strategy and integrating national pension      in national legislation, to create an outline
                activities as much as possible. This approach          pension arrangement which would fit within the
                enables these companies to reduce costs in             requirements of two different jurisdictions.
                the long term, improve quality and mitigate any
                pension-related risks.                                 We decided to embark on this exercise by
                                                                       focusing on the UK and the Netherlands, because
                The EU Directive on the activities and supervision     both countries have an open, international
                of institutions for occupational retirement pro-       economy, even though there are marked
                vision (‘IORP Directive’) aims to facilitate further   differences in terms of the way each country’s
                international pension pooling by making it possible    pension system is structured.
                to establish group pension vehicles, which can
                operate several different national schemes on a        We identified 22 tax­design principles that can
                cross-border basis.                                    be applied in order to align UK and Dutch pension
                                                                       schemes as closely as possible, while also
                Premium Pension Institution                            ensuring that they continue to comply with national
                The Dutch Parliament approved a new Institution        law and, therefore, qualify for tax relief. Where
                for Occupational Retirement Provision (‘IORP’) in      there are significant differences between the UK
                early 2011. This institution, known as the Premium     and Dutch situations (such as the state pension
                Pension Institution (‘PPI’), can manage several        offset, the maximum annual pension contribution
                defined contribution pension arrangements              and maximum pension permitted) we have
                simultaneously, when necessary it will transfer        proposed solutions to deal with these ‘problems’.
                participants’ accrued capital to an insurance
                company on retirement, in order to pay certain         Our study shows that the differences identified
                benefits. A PPI is therefore a low­cost, low­risk      between applicable UK and Dutch labour law
                entity as it does not have to cover insurance risks    do not present insuperable obstacles, which
                such as longevity, while its investment process is     cannot be overcome. In other words, they can be
                relatively straightforward.                            accommodated within a single pension scheme
                                                                       design. UK and Dutch law differ, for example, with
                Tax regimes and labour law                             regard to the extent to which freedom of choice is
                Many service providers in the pension industry,        offered. In the Netherlands, choice is limited to a
                and also most international companies able to          small number of investment funds. In the UK, on
                benefit from such a construction, see an IORP like     the other hand, individual participants can chose
                the Dutch PPI as a major step towards achieving        between many different investment categories
                a truly international way of providing pensions.       and individual securities. Within a single pension
                                                                       scheme design, this difference can be dealt with by
                At the same time, however, there is the question       offering this freedom of choice to UK participants,
                of whether IORP vehicles such as a PPI actually        while restricting it for Dutch contributors.
Management Summary                                                                                                        5


                Nevertheless there are some differences that           Dutch pension funds are currently investigating
                cannot be accommodated within a single                 this possibility.
                pension scheme. Under both UK and Dutch
                law, pension administrations, for example, must        For a multinational company, operating a cross-
                remain separate. These kinds of differences can        border PPI is also a way to improve international
                be dealt with, however, in the way the pension         employee mobility as the company will no longer
                administration and the underlying information          have to worry about making up any gaps in its
                systems are set up. To achieve the desired             expatriate employees’ pensionable service.
                economies of scale, a company could either
                set up a central administration with country-          A PPI will also offer the quality and low­cost
                specific modules or decide to use decentralized        structure associated with service providers in
                administrations with shared components. In this        the Dutch pension sector. This attractive price
                way, common elements of the pension schemes            tag will definitely represent a major competitive
                can be administered as if they formed part of          edge, given the substantially higher fees which
                a single scheme, while those that cannot be            traditionally apply in the UK market.
                integrated can be managed separately, without
                jeopardizing overall quality and the potential for     Respect for cultural differences
                economies of scale.                                    Last but not least, a PPI serving both the UK
                                                                       and Dutch pension markets will have regard for
                Competitive edge                                       cultural differences between the two countries.
                We also believe that operating similar UK and          As mentioned above, it can offer differing
                Dutch pension schemes within a PPI offers              degrees of choice to participants in line with
                several competitive advantages over running            national customs, while also communicating
                two ‘traditional’ national pension schemes.            with participants in their own language. A PPI
                                                                       can even operate under a different label in each
                The first major advantage is that a multinational      individual country.
                can operate a single governance structure for
                its UK and Dutch pension activities. A single          For all these reasons we believe a cross-
                governance body will be better equipped,               border PPI will be an asset to any multinational
                for example, to manage the investment risks            company seeking to optimize its international
                associated with the pension strategy.                  pension strategy.

                Only having to deal with one supervisory                The feasibility and profitability of
                authority and one relatively straightforward            international pension pooling
                set of supervisory regulations will also offer
                a competitive advantage. Although a UK­NL               The Dutch Premium Pension Institution (PPI)
                PPI will be supervised by the Dutch Central             is a low-cost, low-risk group pension vehicle
                Bank, it will not have to comply with certain           that can manage several different national
                prudential rules which apply to ‘ordinary’ Dutch        pension schemes. This study shows that
                pension funds. Being a defined contribution             the use of a PPI makes international pension
                scheme will, for example, exempt the PPI                pooling feasible and profitable:
                from the duty to maintain technical provisions          – Given the differences in national tax
                and meet certain solvency requirements.                     regimes and labour law, it is possible to
                Additionally, the PPI will not be under any duty            design national pension schemes that are
                to submit a recovery plan to the regulator in the           as similar as possible.
                event of underfunding.                                  – With the right administration and IT, a PPI
                                                                            can manage these schemes as if they were
                Creating economies of scale in the investment               one entity, thus creating the necessary
                process, which essentially involves increasing              economies of scale.
                the assets under management, also generates             – This construction will have a competitive
                new, potentially attractive investment                      edge (simple governance, low cost
                opportunities. After all, the larger a pension              structure) over the pension solutions
                fund is, the more likely it is to have a substantial        that are now standard to multinational
                presence in the capital markets. A large pension            companies.
                fund, for example, is better able to hedge its
                risks efficiently by swapping them with other
                financial institutions. Indeed some of the larger
                UK pension funds have swapped their longevity
                risk with life insurers, while most of the major
The Study                                                                                                            6




            The Study
            1 Introduction and conclusions
            1.1 Introduction and conclusions                        States. In order to achieve this, tax rules have
            of the study                                            to be mapped out systematically on a country-
                                                                    by-country basis. All common elements have
            A new Institution for Occupational Retirement           to be incorporated into the scheme, excluding
            Provision (IORP), the Premium Pension                   elements that are incompatible between the
            Institution (PPI) was approved by the Dutch             different member States, for instance, tax relief.
            Parliament on 1 January 2011. The PPI can take          The figure below illustrates this idea.
            several forms, including that of a Dutch PLC
            (BV) and a foundation or trust.                         The dark gray area demonstrates the tax
                                                                    aspects of the pension systems in the countries
            The PPI is the first Dutch institution that has         in question. Any overlap between the countries
            been specifically designed to operate several           is incorporated into the pension scheme. The
            pension schemes across borders. The PPI                 result is a pension scheme, the tax aspects of
            meets a growing demand for cross border                 which are acceptable in several Member States.
            pension pooling. Below, we will explain what
            pension pooling is, and what the advantages
            are.

            This study aims to take pension pooling a
            step further. It aims to provide some tools for            NL scheme                       UK scheme
            multinationals to help them in setting up a
            cross-border pension scheme within a PPI. An
            often-heard argument against pension pooling
            is that it is “too difficult”, mainly because the tax
            regimes of the Member States differ too much.

            Within a PPI, different pension schemes from
            different countries can be pooled. In this study,       The feasibility of such a pension scheme is
            we discuss pooling a Dutch and a UK pension             explored for the Netherlands and the UK. The
            scheme. So, what do we mean by “pooling”?               conclusion is that a DC scheme would qualify
            So far, cross­ border IORPs have operated               for tax relief in both the UK and the Netherlands
            schemes that have been compartmentalized by             (see chapter 3).
            country.
                                                                    With this in mind, further advantages can be
                                                                    achieved. After all, it might be easier to have one
                                                                    set of fiscal rules than several (see for further
                                   IORP                             explanations, below). If a common set of rules
                                                                    can be identified, what are the consequences
                                                                    for two other very important aspects of
                                                                    operating pension schemes: the administration
                                                                    and the investment strategy of the schemes?


                NL scheme                      UK scheme            The outcome of the feasibility study is:
                                                                    – When comparing UK and NL tax regimes, 22
                                                                       common elements can be identified when
                                                                       operating a DC scheme;
            Pension schemes have to observe various legal           – When comparing UK and NL social and
            requirements, of which the fiscal requirements             labour law (SLL), many similarities were
            are probably the most important. When pooling              identified;
            pension schemes, the individual schemes must            – administrative pooling seems feasible. It
            meet the domestic tax laws of several Member               is possible to either (1) develop a central
The Study                                                                                                         7


                administration with country specific modules    which are open to both pension insurers
                or compartments, including the option           and pension funds, can be used in particular
                of setting multiple ‘timeframes’ or to (2)      to capitalise on the growth of multinationals.
                develop decentralized administrations with      Pension pooling will allow multinational under-
                shared components (such as premiums/            takings to establish an IORP in a single Member
                contributions, member administration,           State to administer all of their different pension
                (multi-lingual/currency) asset management       schemes.
                solutions.
            –   A single PPI information system can be
                developed to facilitate the cross-border PPI,   1.3 What is the PPI?
                as long as the differences are limited and
                can be implemented within one system;           The PPI is a pension vehicle that entirely fits
            –   The investment product that can be offered      within the framework of the IORP directive.
                by a PPI that operates UK-NL schemes is
                relatively straightforward. There are a few     A PPI can take the legal form of a public
                design issues that need to be accounted         limited company, a private limited company,
                for, mostly stemming from differences in        a foundation or a European company (SE). It
                SLL. Some cultural differences will remain,     is financed on the basis of capital funding –
                for example, the extent to which pension        meaning that pay-as-you-go pension schemes
                providers operate under a duty of care          cannot be operated by a PPI – with its registered
                towards their members with regard to            office in the Netherlands. Furthermore, the PPI
                investment choices. The flexibility of the      can also be established independent of any
                PPI can be used to accommodate such             sponsoring company or business sector.
                differences in a user-friendly way, allowing
                the PPI to be a competitive proposition for     A PPI can operate plans that qualify as pension
                employers.                                      schemes under social and labour legislation
                                                                of the countries in which these schemes
                                                                have been set up. As a result, the pension
            1.2 Pension Pooling                                 benefits accumulated in a PPI can eventually –
                                                                depending on the regulations applicable in the
            With the introduction in 2003 of the EU             country involved – take various forms: a periodic
            Directive on the activities and the supervision     benefit, a lump sum benefit or a benefit for life.
            of Institutions for Occupational Retirement
            Provision (the IORP Directive) a first step         In addition, a PPI can deliver a broad range of
            towards an internal European pension market         pension services, although it is not permitted to
            was taken.                                          cover any insurance risks (for example biometric
                                                                risks). As a result, the financial obligations of a
            Multinational companies are increasingly            PPI consist of the payment to participants of
            investigating the possibilities of establishing     the accumulated pension capital. If a pension
            pension vehicles that can operate pension           scheme has to provide a benefit for life, the PPI
            schemes on a cross­border basis (also known         will be under a legal obligation (when it comes
            as pension pooling). This is a relatively new       to the point of retirement) to transfer a member’s
            trend, as multinational companies had appeared      accrued pension capital to an insurance
            to be focusing on asset pooling and solutions       company or another pension fund, which will
            for expatriates.                                    then pay out the benefit. The reason for this is
                                                                that the PPI is not allowed to cover insurance
            There are many potential benefits to cross­         risks. In such a situation, a PPI will only be
            border pension pooling. A pension administrator     able to cover the accumulation of a member’s
            offering several European pension schemes           pension capital. The “payment phase” of the
            from a single jurisdiction could benefit from       pension benefits will be organized by the
            numerous efficiencies of scale. These would         insurance company involved.
            not only include administrative efficiencies
            (after all, a separate legal pension scheme is      However, the PPI is allowed to operate schemes
            required for each country) but more importantly     entailing guarantees offered by the employer
            would create the potential for pension pooling.     and/or by means of the investment portfolio
            Underlying assets and liabilities could be joined   – for example, whereby a certain investment
            and bundled, for instance. It does not take an      return is realised.
            economics degree to understand that this would      A major advantage of this is that many
            generate synergies. Pension pooling options,        requirements of the Dutch supervisory
The Study                                                                                                            8


            legislation do not need to be met. For instance,       1.5 Target groups of the study
            a PPI does not need to fulfil a number of
            prudential rules (supervised by the Dutch              This blueprint is intended for several target
            Central Bank) that are applicable to “ordinary”        groups (see the table below) – companies
            Dutch pension funds, such as the obligation            or organisations with employees in the UK
            to maintain technical provisions and to meet           and the Netherlands who want to explore the
            solvency requirements. Additionally, the PPI           possibilities of pension pooling. The blueprint
            is not under a duty to submit recovery plans           is not designed to deal with issues facing
            to the Regulator in connection with scheme             existing pension schemes that wish to transfer
            underfunding. Thanks to this, a PPI can be             or transform into a different type of pension
            set up as a simple, efficient and (as a result)        vehicle. That would entail too much detail and
            cost-friendly vehicle. Finally, the PPI has a          falls outside the scope of this study. We can
            competitive tax regime: an exemption from VAT          also not cover every other point of detail that
            and corporate income tax is in place and, due to       might come up (like many cultural and language
            its qualification as a resident for tax purposes,      differences, national state pension provisions,
            a PPI will be able to claim the advantages of the      changing legislation, etc.). We aim to show that
            (internationally competitive) Dutch tax treaty         with a single pension scheme, the target group
            network for income and capital gains on its            that wants to pool its DC schemes for both their
            cross-border investments.                              UK and NL personnel can achieve considerable
                                                                   advantages: less complexity, more transparency
            Owing to these factors, we believe a PPI can be        and increased efficiency.
            considered perfectly suited for operating DC
            pension schemes and servicing the international          Several target groups
            pension market. Research shows that,
            compared with other available IORPS, the PPI is          1. Multinationals setting up an IORP to
                                3
            “best of DC class”.                                         consolidate retirement plans
                                                                        – Improving governance of pension fund
                                                                            (“in control”)
            1.4 Comparing PPI with other                                – Reduction of financial vehicles per
            DC pension solutions in the                                     corporate entity
            Netherlands and UK                                          – Efficient Communication
                                                                        – Economies of scale
            For a better understanding of what a PPI is,             2. Solution for internationally mobile
            we compare the PPI with other DC solutions                  employees
            available in the UK and the Netherlands.                    – Removes barrier to international
            1. Trust­based DC (UK) or Pension fund                          mobility
               offering DC plans (NL). This can be either               – Transparency for participants
               unbundled (a self­administered pension                   – Economies of scale
               fund) or a bundled solution, with either              3. Cross-border solution for other
               an insurance company or a third party                    institutions, like EU bodies, governments,
               administrator/consultant/bank (in Dutch, this            commercial parties.
               is called bancair DC). This can be combined
               with DB plans;                                      Source: APG
            2. Contract­based DC (UK). A Group Personal
               Pension plan (GPP) offered by the company
               can be combined with a personal pension
               (3rd pillar). Not mandatory until UK pension
               reforms in 2012 with auto­enrolment;
            3. Insured­based DC (NL). Insurer delivers DC
               plan bundled to include life and disability
               insurance.




            3
             See: ’feasibility study for creating an EU pension fund for researchers’, prepared by Hewitt for the
            European Commission Research Directorate­General, Final Report, 15 June 2010 – Contract n°RTD/
            DirC/C4/2009/02687944/2009/0268794.
The Study                                                                                                        9


            1.6 How is this study set up?                        Following up an analysis of the legal require­
                                                                 ments, we develop the ICT and administration
            This report contains a number of chapters. In        aspects (chapter 5). Setting up a cross­border
            the second chapter, we describe some general         PPI requires input from the administrative
            legal features of pension pooling. How does it       side. While international asset pooling and risk
            work?                                                pooling are more or less common practice,
                                                                 ‘administrative pension pooling’ is new to
            In the third chapter, we outline the ‘backbone’ of   pension providers. Though advantages of scale
            the scheme: the fiscal blueprint. A key criterion    should result in a more efficient administrative
            is that the UK­NL pension scheme should be           set-up, the complexity of dealing with two
            tax­efficient in both the UK and the Netherlands.    legal frameworks can be challenging. In this
                                                                 document, we outline a framework for the PPI
            Fourthly, we discuss the social and labour           administration and identify various options.
            law requirements that have to be met. In the
            Netherlands the Dutch provisions must apply,         In chapter 6, we focus on investment solutions.
            and for UK workers the English provisions            Clearly, the ultimate objective is to create a
            must apply. We have identified some common           scenario that will bring added value to sponsors
            elements, and have also drawn up a list of           and members. Multinational companies
            similarities between the UK and NL in the            increasingly value uniformity across countries,
            areas of investment restrictions (applying to        even though uniformity in pension plan manage-
            pension schemes) and member information              ment has been more difficult to achieve. With
            requirements. We have focused on these two           the PPI, we have a good opportunity to make a
            areas because these are of immediate relevance       significant step towards being able to achieve
            to employers and administrators. Without             more efficient pension provisions.
            laying claim to having provided exhaustive
            lists, we do believe that our comparison tables      Our analysis focuses on creating a uniform
            show that there is a great deal of overlap in        solution for DC Investment Management in the
            these areas between the UK and NL. Dutch             PPI for the UK and NL. In some instances, it will
            PPI administrators will therefore not have to        be necessary to allow for national differences.
            start from scratch when dealing with the UK
            requirements in these two areas.
The Study                                                                                                          10



            2 General legal aspects
            The PPI is an IORP, which means that all the           2.2 Sound and solid supervision
            requirements of the IORP Directive (2003/41/EC)        for the PPI
            need to be met.
                                                                   Financial supervision in the Netherlands is
                                                                   carried out by two supervising authorities.
            2.1 Home and host supervision                          The Dutch Central Bank (hereafter referred
                                                                   to as DNB) is responsible for the prudential
            Let us start with a snapshot of the structure of a     supervision, aimed at regulating financial
            cross­border IORP (source: Hewitt).                    enterprises and contributing to the stability of
                                                                   the financial sector overall. The Netherlands
                                                                   Authority for Financial Markets (hereafter
                                                                   referred to as AFM) is responsible for the
                                                                   supervision of “conduct”, aimed at orderly
                                                                   and transparent financial market processes,
                                                                   clear relations between market parties and
                                                                   responsible client-care. This applies to both the
                                                                   supervision of financial enterprises (pursuant
                                                                   to the Financial Supervision Act) and the
                                                                   supervision of pension funds (pursuant to the
                                                                   Pension Act).

                                                                   The supervision of pension funds is carried out
                                                                   by DNB pursuant to the Pension Act. On the
            The IORP Directive requires that an IORP               basis of the IORP Directive a pension institution
            be based in one Member State (the home                 will have a licence issued by the supervising
            state) and operates an occupational pension            authority or be listed in a register in order to
            scheme located in another Member State                 perform its activities. Under the Pension Act
            (the host state). It needs to ensure that the          a pension fund has to report to DNB within
            relevant provisions of the social and labour law       three months of its being set up. DNB then
            pertaining to the host state are fully complied        handles the registration and management of
            with.                                                  a register on which all pension funds (with a
                                                                   registered office in the Netherlands) are listed.
            What does this mean? Let us be clear: the UK/          Pursuant to the Pension Act there is “material”
            NL scheme has many common elements, but                supervision to ensure compliance with Dutch
            legally two separate schemes can in fact be            legislation, in addition to the “prudential” and
            identified: a Dutch scheme and a UK scheme.            “conduct” supervision. The responsibility for
            Under Dutch social and labour law the scheme           this supervision also lies with DNB.
            qualifies as a Dutch scheme, and under UK
            social and labour law the scheme qualifies as a
            UK scheme.                                             2.3 Cross-border activity
            Pension scheme members (Dutch or English)              If a pension institution intends to engage in
            will therefore be subject to and protected by          cross-border pension activities, pursuant to
            their domestic legal system.                           the IORP Directive, in addition to the above­
                                                                   mentioned licence or registration, prior
            As the diagram above demonstrates, we should           permission is required from the supervising
            differentiate between the pension scheme on            authority of the country where the pension
            the one hand, and the pension institution on           institution has its registered office. If a pension
            the other. In this study, we assume that the           fund with its registered office in the Netherlands
            PPI operates the scheme. The PPI is a Dutch            wishes to provide cross-border services, a
            regulated IORP. It fulfils all the legal criteria of   licence from DNB will be required.
            the IORP Directive, the Dutch Pension Act and
            the Dutch Financial Supervisory Act. This also         DNB is also the designated contact for foreign
            means that the supervisory authorities of the UK       supervising authorities that supervise pension
            and the Netherlands must closely co-operate.           institutions intending to implement Dutch
The Study                                                                                                              11


            regulations. Where a premium pension                    2. Tax Treaties
            institution with its registered office in the Nether­   If a PPI established in the Netherlands invests
            lands intends to implement a foreign regulation         its assets abroad, it can enjoy the advantages
            (pursuant to the Financial Supervision Act),            of the Dutch tax treaties network for income
            is it advisable to appoint DNB as supervising           and capital gain achieved with assets invested
            authority as well. A premium pension institution        abroad. Many of the Dutch tax treaties explicitly
            intending to operate a foreign pension scheme           contain a provision that (for tax treaty purposes)
            has to notify DNB, providing the relevant               pension funds are deemed to be resident.
            information requested.                                  According to the description of the term
                                                                    “pension fund” as used in the Dutch tax treaties,
                                                                    a pension fund is a resident of the Netherlands
            2.4 Tax aspects of the PPI                              if the pension fund is recognised as such by
                                                                    the Netherlands. The income of such a pension
            The premium pension institution enjoys (1)              fund is, in general, exempt from tax in the
            exemption from corporation tax, (2) may claim           Netherlands and the pension fund falls under
            the advantages of the Dutch tax treaties network        Dutch supervision.
            for income and capital gain and (3) is exempted
            from VAT.                                               Last but not least, a number of the tax treaties
                                                                    concluded by the Netherlands include a
            1. Corporation tax                                      provision that reduces the withholding tax on
            The Corporation Tax Act 1969 contains an                portfolio dividends to zero (instead of it being
            exemption from corporation tax for pension              levied at 15%). The Dutch tax treaties with the
            funds. The exemption applies to entities                United States contain this attractive treaty
            which are almost exclusively concerned with             benefit.
            remunerating (former) employees by means of
            pension and early retirement schemes within             3. VAT
            the context of the Wages and Salaries Tax Act           Management services provided by premium
            1964 or a foreign scheme which by its nature            pension institutions – including the additional
            and purpose corresponds with these schemes.             services – are exempt from turnover tax. In
            The thought behind the exemption is that the            cases where the additional activities are not
            activities of such a pension fund as a rule do          subject to exempted management services, the
            not lead to the making of profit. In view of the        VAT treatment (exempt or taxed) depends on the
            conditions stated in Article 3 of the Corporation       nature of the activities. Incidentally, the services
            Tax Implementation Decree 1971, all income              of regular pension funds – not being premium
            of the pension fund (apart from normal interest         pension institutions – are exempt from turnover
            on the capital that may have been earned)               tax.
            eventually has to be applied for the benefit of
            the scheme members.
The Study                                                                                                         12



            3 The Fiscal Study
            This study intends to demonstrate how to             3.3 Maximum pension
            develop a single pension scheme that qualifies
            for tax relief in the UK as well as in the           Dutch law also prescribes a total amount of
            Netherlands. To this end, all relevant UK and        pension that a tax­qualifying pension scheme
            Dutch fiscal pension criteria were analysed and      is allowed to pay out. In the Netherlands, a
            differences and similarities were reviewed. All      pension annuity cannot be higher than 100%
            the similarities were combined to draw up the        of final salary. There is no identical provision in
            basis for a UK/NL single pension arrangement,        the UK, although in the UK a member is now
            which meets the various requirements. This           not allowed to exceed the so­called Lifetime
            study shows that it is feasible to set up a tax      Allowance. Where a member’s total pension
            qualifying UK/Dutch pension scheme. We focus         pot does exceed the Lifetime Allowance (set at
            below on a few noticeable issues in detail, in       £1.5 million from 6 April 2012), a member will be
            par. 3.4 a summary follows. The entire study can     subject to tax penalties. Both “caps” can easily
            be found in Annex C.                                 be combined in a UK/Dutch pension scheme.



            3.1 State pension offset                             3.4 Summary of the fiscal study

            A Dutch tax qualifying pension scheme has            In performing our fiscal study, we took the
            to implement a basic state pension offset.           following five steps:
            Effectively this means that the first slice of a
            person’s salary does not get taken into account      1. Surveying relevant tax elements of UK/NL
            for pension accrual, as the amount of basic               pension scheme
            state pension that a person will receive in future   Based on existing pension schemes, we made a
            will be deducted from this. In other words: an       list of the ‘top 22’ relevant elements of a UK/NL
            offset has to be taken into consideration. In the    pension scheme.
            UK, there is no similar mandatory provision in
            tax law. However, it is not forbidden to have        2. Fleshing out tax requirements in the UK
            such an offset in the pension scheme, and                and NL
            indeed some UK pension schemes do operate            We asked UK colleagues to describe the tax
            such an offset. In order to have our “outline”       requirements in the UK for all 22 elements,
            pension scheme qualify for tax relief in both        having regard to the provisions of the UK
            countries, we have therefore assumed an offset       Income Tax Act and Finance Act. We then
            of €15,000.                                          identified the Dutch tax requirements looking at
                                                                 the provisions of the Dutch Wage Tax Act 1964.

            3.2 Maximum annual pension                           3. Determining common features for each
            contributions                                           element
                                                                 We compared the tax requirements in the
            In the Netherlands, DC pension contributions         UK and the Netherlands, and pinpointed the
            are structured in such a way that a maximum          common features for each element.
            percentage of the pensionable wage is tax
            deductible. This percentage rises during the age     4. Incorporating ‘common denominator’ in
            of the employee so that it is actuarially neutral.      UK/NL pension scheme
            In the UK, the only limits on contributions into a   Based on the common features, we surveyed
            pension scheme are those set out as part of the      options for incorporating them into the UK/NL
            Annual Allowance, which (from 6 April 2011) is       pension scheme.
            set at £50,000. This difference can be dealt with
            by using the normal Dutch contribution scale. As     5. Preparing blueprint of UK/NL pension
            long as the annual input into the scheme never          scheme (see Annex C)
            exceeds £50,000, the pension arrangement
            will qualify for favourable tax treatment in both
            countries.
The Study                                                                                                  13


            The result of the study can be summarized as        3. Payment of benefits
            follows:                                            Payment of benefits:     Lump sum or lifelong
                                                                                         pension in accordance
            1. Pension accrual and pensionable salary                                    with prevailing local
            Pensionable service:    Actual service period                                laws on date of
            Normal retirement age:  65                                                   retirement
            Salary (“pensioen­      Fixed annual salary         Commutation prior to     Not allowed
            gevend salaris”):       including other fixed       retirement date:
                                    components                  Minimum return           None, unless otherwise
            Pensionable Salary      Salary in excess of an      guarantee:               agreed
            (“pensioengrondslag”):  offset; subject to a cap    Indexation of pensions   Purchase of annuity
            Defined contributions:  In accordance with          in payment:              or lump sum in
                                    Dutch tax-approved                                   accordance with
                                    defined contributions                                prevailing local laws
                                    table (Scale I)                                      on date of retirement
            Employee contributions: No tax requirements
            Employer contributions: No tax requirements
            Maximum Retirement      In principle no cap on      4. Personal circumstances
            benefit:                pension benefits            State pension age:     Abandoning link
                                                                                       between supplemen-
                                                                                       tary pension age and
            2. Coverage                                                                state pension age
            Membership:               Any employee with         Bringing forward       Option to bring effec­
                                      an employment             effective retirement:  tive date forward to no
                                      contract with the                                earlier than age 55
                                      employer qualifies for    Deferring effective    No deferral option
                                      membership                retirement:            under the scheme
            Qualifying period:        None                      Implications of        Non-contributory
            Partner’s pension:        No life insurance under   termination of         pension remains with
                                      the scheme                employment:            administrator/transfer
            Orphan’s pension:         No life insurance under                          of accrued benefits
                                      the scheme
            Occupational disability   No occupational
            pension:                  disability insurance
                                      under the scheme
            Administrator:            Dutch PPI
The Study                                                                                                   14



            4 Social and Labour Law
            As said in chapter 2, the UK/NL scheme must        We have also drawn up a list of similarities
            be legally separated into a Dutch scheme and       between the UK and NL in the areas
            a UK scheme. Under Dutch social and labour         of investment restrictions (applying to
            law the scheme qualifies for tax purposes as a     pension schemes) and member information
            Dutch scheme, and under UK social and labour       requirements. We have focused on these two
            law the scheme qualifies as a UK scheme.           areas because these are of immediate relevance
                                                               to employers and administrators. Without laying
            Pension scheme members (Dutch or English)          claim to having provided exhaustive lists, we do
            will therefore be subject to and protected by      believe that our comparison tables show that
            their “own” domestic legal system. Although        there is a great deal of overlap in these areas
            the PPI does not need to follow all UK legal       between UK and NL. Dutch PPI administrators
            requirements (see par. 2) it is useful to have     will therefore not have to start from scratch
            an overview of the different aspects (see the      when dealing with the UK requirements in these
            Annexes D and E).                                  two areas.

            Both the governments of the UK and the             Our legal tables are included at Annexes A
            Netherlands have published a list of those parts   and B.
            of their domestic and social legislation which
            apply to a European IORP, and therefore also to
            a PPI. We have added these lists as appendices
            to this document.

            An administrator of a PPI needs to be aware that
            employers will themselves have to be satisfied
            that those parts of their legislation that have
            been prescribed by their own member state
            can be observed by a PPI. This study therefore
            highlights the fact that PPI administrators will
            need to be aware that employers will expect
            them to be aware of the relevant legislative
            provisions.
The Study                                                                                                           15



                5 Administration and ICT
                5.1 Administration                                  Administrative pooling is possible and various
                                                                    options for doing so are available. It is important
                Setting up a cross­border PPI requires a lot        however to recognise that country­specific
                of input on the administrative side. While inter-   requirements have to be accommodated.
                national asset and risk pooling are relatively
                common practice, ‘administrative pooling’ is
                new to pension providers.                           5.2 The PPI framework for a
                                                                    cross-border PPI
                Though efficiencies of scale should result
                in a more economical administrative set-up,         For the development of a cross-border PPI
                the complexity of dealing with two or more          the administrative framework is essential. It is
                legal frameworks can put a certain limit on its     the core of the PPI, the place where all parts
                benefits.                                           of the PPI come together. It administers the
                                                                    legal requirements, the member administration,
                Having investigated the possibility of pooling      the PPI’s business rules (the pension plan)
                administrations, although some technicalities       and complies with reporting and governance
                remain, it is clear that administrative pooling     guidelines. Together with its legal framework
                is feasible as long as local requirements are       and external relations (such as Regulators, but
                met. On this basis, we provide an outline for a     also the link to the decumulation phase), this
                potential framework for the administration of an    results in the PPI framework.
                international PPI. Furthermore, we address how
                to approach identifying the different options       The entire constellation of the PPI framework is
                available and raise some of the most important      depicted in the picture below.
                questions of interest.



                PPI framework




            3                                       1




                                                    2




                Source: IG&H Consulting & Interim
The Study                                                                                                            16


            Approach to cross-border pension                         How a cross-border PPI administration
            administration                                           could work
            Now the framework for PPI administration                 Looking at the PPI framework again, some
            has been defined, the next step is to address            conclusions can be drawn from the comparison
            the most important topics for cross-border               of the Dutch and UK situation. The most
            pension schemes, determine which issues                  important conclusion is that all components
            need to be overcome and what solutions are               of the PPI administration can be shared.
            available . This results in a set of requirements        In addition, we have also investigated the
            for the pension administration of the cross-             possible options for dealing with interfaces
            border PPI. There are three main drivers in              between the insurance and asset management
            setting these requirements. Commonalities                administration components of the cross-
            between the Netherlands and the UK are                   border PPI.
            the most obvious drivers and these are the
            easiest to accommodate, as only a single set of                              Due to the existence of
                                                                 1
            requirements is needed. Legal requirements are                               several country­specific
            more difficult to accommodate, as these differ                               demands, it is essential
            according to country, as explained earlier in this                           that the PPI administration
            document. A wide set of legal differences has                                can meet these demands.
            been identified. The final driver is the different                           Two solutions can be
            market customs in the Netherlands and the                                    identified.
            UK (for example, the possibility to receive a
            25% lump sum at retirement in the UK). These             It is possible to (1) develop an administration
            customs do not have the force of law, but they           system with country­specific modules (2)
            are necessary for commercial success.                    develop an administration system with shared
                                                                     components (such as premium contributions,
                                                                     member administration, (multi­lingual/currency)
                                                                     asset management solutions with country-
                                                                     specific modules embedded.

                                                                     Based upon the current level of software
                                                                     development possibilities, both can be
                                                                     developed on a single physical platform. Both
                                                                     are depicted below in an example.
            Example of a single platform
The Study                                                                                                          17


            Dealing with the fiscal requirements (for              mind that UK pension schemes tend to have a
            example, in relation to premium maximization)          wide selection of funds in the DC offering, while
            for both countries can be done by the                  in the Netherlands the trend is more focused
            employer’s salary administrator, reducing the          on life-cycle funds and guaranteed income
            administrative impact of the PPI (single point of      solutions.
            administration).
                                                                   The complexity of solutions is mainly caused by
            In this setup, country­specific demands (such          things such as the volatility of the stock markets,
            as different regulations regarding member              money transfer duration and exchange rates.
            communication, or asset management offerings)          An extensive network of parties is involved in
            can be implemented in a flexible way. It is also       this area. The main conclusion is that there is no
            possible to achieve certain levels of benefits.        single preferred solution.


 3                           1                                     The same complexity applies to the choice
                                                                   between actual or assumed payment, which
                                                                   can also be PPI specific. Both options have
                                                                   advantages and disadvantages.

                                                                   The similarity for both the UK and the
                                                                   Netherlands is that it’s important to be able to
                                                                   provide a multi-lingual, multi-currency solution.

                                                                   How Cross-Border administration pooling
                                                                   could work
            Though dealing with the insurance part of a            In a cross-border situation, the PPI and its
            pension scheme is strictly outside the scope           administration will have to deal with more than
            of a PPI, there is a need in the market for            one legal framework. To create an efficient and
            insurance. Pension schemes without death               cost-effective solution for the PPI administration,
            or disability benefits are not very widespread.        the use of one system that covers both local
            For dealing with these elements, there are two         and cross­border options is necessary. In short:
            potential solutions.                                   cross-border administration pooling is crucial to
                                                                   the success of a PPI. Within the administrative
                                  The first possibility involves   solution (PPI information system) provisions
                                  measuring the level of           must be made to cover both local and cross-
                                  risk to be insured more          border legal requirements, these provisions will
                                  precisely (either individually   unavoidably result in a more complex solution.
                                  or collectively). On a daily     We therefore can conclude that, although
                                  basis, the level of risk is      scale should result in a more economical
                                  measured, taking into            administrative set-up, the complexity of dealing
                                  account the portfolio value,     with two or more legal frameworks can put a
                                  resulting in a lower sum         certain limit on its benefits. The challenge here
                                  insured, but requiring a         is to consider options that reduce the impact of
                                  more complex interface.          this limit on the PPI’s benefits.
                                  The other possibility is
                                  to disregard the portfolio       As mentioned above, it’s possible to either
                                  value and to periodically        develop an administration with country­specific
            (for example, annually) determine the level of         modules or develop an administration with
            risk to be insured. This results in higher sum of      shared components with country specific
            insured risk and higher insurance premiums,            modules embedded. Based upon the current
            but the complexity of the interface is reduced         level of software development possibilities, both
            dramatically.                                          can be developed on a single physical platform.
                                                                   Both solutions require software adaptations
            The last area that’s been investigated is the          taking account of local requirements as
            asset management area. In this case, there are         well as including generic software modules/
            several options available for addressing the           components. Business rules (on module or
            interface between the administration system            component level) must be specific to the
            and asset management. As these can result in           relevant legal frameworks. This will also
            a rather complex set of solutions, we will only        affect the structure of the database, the user
            cover high level requirements here. Bear in            interfaces and the interfaces to other systems.
The Study                                                                                                         18


            Developing and maintaining information               These outsourcing services are available
            systems is time-consuming and expensive.             and can be used on a cross-border basis
            In the case of cross-border legal frameworks,        by the PPI. They will contribute substantially
            the implementation of ever-changing legal            to the reduction of costs, since they don’t
            rulings within the system (business rules,           have to be developed (and maintained) by
            user interfaces, etc.) can bear – for various        the PPI. Balancing the development of the
            reasons - heavily on the costs. However,             PPI information system with the outsourcing
            modern approaches to system architecture             of services will strengthen the cross-border
            and design can absorb much of this complexity        administration pooling and at the same time
            in an efficient way and, by combining the PPI        reduce the complexity of the PPI information
            information system with existing outsourcing         system and the costs of its development and
            services, it is possible to reduce the complexity    maintenance.
            (and costs) even more.
                                                                 Cross-border administration pooling is feasible
            Payroll providers, operating globally, offer         and can provide advantages but requires
            cross-border services that are compliant with        appropriate and flexible systems.
            some of the administrative functions of the PPI.
            These providers can, for instance:
            – Calculate the contribution payments up-
               front, tax compliant with local requirements,
               invoice the contributions, collect and transfer
               them to the PPI.
            – Generate input for control and reporting
               purposes (GL) and for the duty of care
               function of the PPI.
            – Support interfaces between their HRM
               system and the PPI system for the transfer of
               participant and employer data (changes).
            – Support interfaces between the PPI and
               external institutions (Regulators, Tax
               department, Social Security).
The Study                                                                                                      19



            6 Investment solutions
            In this section, we focus on the investment         one of the most striking differences between
            solution presented as part of the overall           NL and UK.
            approach.
                                                                                  NL              UK
            Clearly, the ultimate objective is to create a
            solution that will bring added value to sponsors    Pay out           100% annuity Up to 25% cash
            and members. Multinational companies                                               lump sum option
            increasingly value uniformity across countries,     Start pay out
            even though uniformity in pension plan manage-      phase             Up to age 70    Up to age 75/77
            ment has been hard to achieve. With the PPI we
            have a good opportunity to make a significant       Risk
            step in this direction.                             preference        Low risk        High risk

            Our analysis will focus on creating a uniform       Choice            Some            Much
            solution for DC Investment Management in the
            PPI for UK and NL. In some instances it will be     Denomination      €               £
            necessary to allow for country differences.
                                                                Home bias         No              UK biased
            In section 6.1, we will analyse similarities and                                      Equity portfolios
            differences between the two markets, while          Fixed Income      € rates         £ rates
            section 6.2 contains the main elements of our
            blueprint and section 6.3 discusses additional      Source: APG
            requirements for the provider.

                                                                The UK and NL have different currencies
            6.1 DC Investment markets and                       which has an impact on the denomination of
            regulation                                          the funds, and on the Fixed Income Portfolio.
                                                                The 25% cash lump sum option in the UK has
            Taking a close look at the UK and Dutch DC          an impact on life-cycle strategies and the risk-
            markets immediately reveals a large number          free portfolio.
            of similarities that provides a solid basis for a
            uniform approach to investment management.
                                                                6.2 Description of investment
            The fundamental design of DC in both countries      product
            is an individualised account, in which every
            member holds units in a set of unitised             DC arrangements typically take the form
            investment vehicles, which are valued daily on a    of a life-cycle product, which de-risks the
            mark to market basis. Standard asset categories     participant’s asset mix as he/she comes closer
            that investors in both countries would look for     to retirement. Both countries are familiar
            are equities, fixed income, cash and possibly       with life-cycling, leaving a product with this
            real estate. Both markets have slightly more        feature suitable for the PPI and the design of
            exotic categories like Total Return funds, hedge    choice for this blueprint. There are, however,
            funds, commodities.                                 several design issues that need to be covered.
                                                                While some differences have been laid out in
            In both markets the concept of life-cycle           earlier sections, there are a few that affect the
            strategies and default funds are generally          investment product. Specific attention is paid
            accepted as key elements of DC investing.           to the extent to which customer choice needs
            Both in the UK and NL, DC schemes are usually       to be accomodated within the arrangement.
            created on the premise that members get a           – The type of payout: to facilitate the
            certain degree of freedom in choosing the               conversion risk that participants in DC
            investment vehicles they wish to use.                   schemes typically bear, the investment
                                                                    strategy should be aimed at paying out in
            While investment choice is accepted in both             annuities and not simply building up a sum
            markets, UK schemes will generally have                 of money. This requires a specific investment
            a much wider choice for employees. This is              strategy, with the added complexity that the
The Study                                                                                                            20


                UK participants can take out a lump sum on         an example of an accumulation product with a
                retirement.                                        life-cycle feature. This offers different levels of
            –   The retirement age: both countries have            freedom, including a country­specific default.
                (at this point in time) a retirement age of 65
                in the second pillar and face an expected          Example (in a box): Life-cycle fund with
                increase in the first pillar. The administration   freedom of choice
                should account for a flexible retirement date.     What might an investment product with freedom
            –   The age to which you can postpone your             of choice look like? The default investment
                annuity: both countries offer the possibility      line is a life-cycle fund. In it, there are two
                to postpone the age at which you receive           risk/return portfolios: capital preservation
                your first life­long annuity payment. This is      and capital growth. The underlying assets in
                77 in the UK, and effectively 70 in NL. Before     the risk categories are flexible, but should be
                the annuity comes into effect, a part of           aimed at either earning an excess return in
                your accumulated wealth is used to provide         the capital growth portfolio or earning a safer,
                fixed payments for a number of periods (de         but lower return in the capital preservation
                ‘pensioenknip’). This means that the pension       portfolio. The share of the capital preservation
                money should be able to remain in the PPI          portfolio increases according to the age of the
                until the age of 75.                               participant. The two portfolios can differ by
            –   Contributions: due to the state pension offset     country. For example, to address the home bias
                and social and labour law, the contributions       in the UK, both the portfolios can have a greater
                can vary between sponsors. This means              weight of UK assets.
                that the strategy for accumulating a certain
                replacement rate might differ per country.         For the participant, this setup allows for
                The investment strategy should account for         flexibility on two levels:
                preferences of both countries (for example,        1. The ratio between the portfolios can be
                the 70% goal in the Netherlands).                      the first level of freedom of choice. This
            –   Guarantees: while both countries do not                addresses different risk appetites that
                offer a guaranteed investment return, there            participants may have. One could offer
                are a few countries that do. This guarantee            different tastes in the life-cycle. For example,
                has to be facilitated by means of a third              a riskier life-cycle, meaning the increase in
                party, but will affect the investment strategy         the capital preservation portfolio is slower.
                as well. However, a guarantee without              2. The second level goes deeper, meaning
                sponsor support is very expensive for                  that the participant can make changes in
                the participant, meaning it can become                 the underlying asset classes. This way, it is
                counterproductive in accumulating pension              easy to adjust for a home bias if participants
                wealth.                                                might have it. Similarly, one could opt for
                                                                       more specific asset classes if desired.
            Freedom of choice
            A large difference between the Dutch and British       The employer can offer freedom of choice on
            pension system is the extent to which freedom          different levels to its employees, depending on
            of choice is available. While the Dutch do offer       its preferences.
            a level of freedom in their DC arrangements, it
            is usually limited to individual “risk appetite” or    Provider
            a small number of investment funds. British DC         In addition to the design issues, there are a
            plans offer many funds to participants, who,           number of additional requirements that have
            on average, are not well­equipped to make              to be taken into account in order to set up a
            important investment decisions. At the same            competitive investment proposition.
            time, the extended freedom of choice model is
            one of the market demands in the UK, meaning           Costs
            that a commercial proposition should cater for         Investment charges have a large effect on the
            different levels of freedom in order for it to be      pension outcome. The well-known rule of thumb
            successful.                                            states that charges of 1% over a period of 25
                                                                   years mean the pension outcome decreases
            While a level of freedom is an important feature,      by 20% to 30%. The Netherlands are familiar
            many participants are reluctant to choose the          with low-cost pension implementation, while
            investment line they perceive as the right one.        the UK in general is used to higher charges.
            Instead, the default is chosen by not taking           Offering low­cost pension provision provides
            action. Therefore, the design of the default is of     a competitive edge in the UK market and is a
            high importance. In the box, we have included          necessity in the Dutch market.
The Study                                                                                                        21


            Outsourcing                                          Offering a competitive proposition
            While the PPI can serve as a pension provider        The chapter above describes various aspects
            and offer services like asset management and         that are relevant to offering a good DC solution
            administration, it can also choose to outsource      as a PPI. There are more factors that come into
            them. The cost of pension provision should           play which require attention, for example risk
            be a prime determining factor. The model is          management (specifically the conversion risk
            similar to a regular pension fund, with the added    management) and member communication. It
            advantage that one can now pool the services         is beyond the scope of this study to describe
            from various host countries.                         these in detail, but they are important in setting
                                                                 up a new pension vehicle.
            The PPI should cooperate with an insurer or
            pension fund if it wishes to facilitate the payout
            phase through providing annuities, due to            6.3 Concluding remarks
            its inability to assume risk. Similar reasoning
            applies to other insurance-like provisions like      The investment product that can be offered by
            disability pension and survivor’s pension. The       a PPI that operates UK/NL schemes is relatively
            figure below shows this relationship.                straightforward. There are a few design issues
                                                                 that need to be accounted for, mostly stemming
                                                                 from differences in SLL. Others, like the extent
                                                                 to which freedom of choice is offered, are more
                                                                 cultural in nature. The flexibility of the PPI can
                                                                 be used to accommodate for these differences,
                                                                 leaving the PPI as a competitive proposition
                                                                 for employers.




            Source: APG
The Study             22




            Annexes
Annex A – Legal Disclosure requirements                                                                                    23




A                             Legal Disclosure requirements
                              Comparison of disclosure requirements for money purchase pension schemes in the United
                              Kingdom and The Netherlands by Houthoff Buruma and Nauta Dutilh




To be disclosed in UK                        Disclosure to                          Equivalent in Netherlands

Contents of                                  − Members, prospective members and     Sections 21 and 46 of Pensioenwet
− Trust deed or other document                 their spouses;                       (Pension Act) and Regulation 2 of
  constituting the scheme;                   − Beneficiaries;                       Besluit Uitvoering Pensioenwet (Pension
− The Rules (if not in above document);      − Recognised Trade Unions.             Regulations).
− Any documents amending,
  supplementing or superseding any of
  the above.
                                                                                    In the Netherlands there are no general
                                                                                    requirements to disclose information
                                                                                    regarding pension schemes to Trade
                                                                                    Unions.

Membership information:                      − Members, prospective members and     Sections 21 and 46 Pension Act and
The conditions of eligibility for              their spouses;                       Regulation 2 of Pension Regulations.
membership.                                  − Beneficiaries;
                                             − Recognised Trade Unions.
The period of notice (if any) which a                                               N/A
member must give to terminate his
pensionable service.

Whether and on what conditions (if any),                                            N/A
a member may re-enter pensionable
service before normal pension age.

Contributions                                − Members, prospective members and     Sections 21 and 46 Pension Act and
How employers’ contributions are               their spouses; Beneficiaries;        Regulation 2 of Pension Regulations.
determined.                                  − Recognised trade unions.

How members’ ordinary contributions are
determined.
                                                                                    In addition: for what purpose the
                                                                                    contributions are used.
Annex A – Comparison of disclosure requirements UK and NL                                                                 24


To be disclosed in UK                         Disclosure to                        Equivalent in Netherlands

Benefits                                      − Members, prospective members and   Sections 21 and 46 Pension Act and
Normal Pension Age under the scheme.            their spouses.                     Regulation 2 of Pension Regulations.
                                              − Beneficiaries
What benefits are payable and how             − Recognised trade unions.
they are calculated (including how
pensionable earnings are defined and
the rate at which benefits accrue and
including, in a contracted-out money
purchase scheme, that the amount of
assets allocated for the provision of
protected rights benefits are increased.
How they are increased and why that
method is used).

The conditions on which benefits are
paid.

Whether and, if so, when and on what
conditions, survivors’ benefits are
payable.

Which benefits if any, are payable only at                                         N/A
some person’s discretion.

Whether there is a power under the
scheme to increase pensions after they
have become payable and, if so, who
may exercise it, and to what extent it is
discretionary.

Whether the scheme is a hybrid scheme                                              N/A
for contracting-out purposes, the
circumstances in which the nature of a
member’s accrued rights may alter and a
statement that the trustees will notify the
member if his rights are affected.

Administration                                − Members, prospective members and   Sections 21 and 46 Pension Act and
What arrangements are made, and                 their spouses;                     Regulation 2 of Pension Regulations.
in what circumstances, for estimates          − Beneficiaries;
or statements of a guaranteed cash            − Recognised Trade Unions.
equivalent, for the refund of contributions                                        N/A
and the preservation or transfer of the
accrued rights of early leavers.

Whether, and the circumstances in
which, the trustees will accept cash
equivalents and provide transfer credits
and whether this is discretionary.                                                 N/A

If applicable, a statement to the effect
that the trustees have directed that
any cash equivalent shall not take into
account discretionary benefits.                                                    N/A
Annex A – Legal Disclosure requirements                                                                                      25


To be disclosed in UK                        Disclosure to                             Equivalent in Netherlands

Administration (continued)
A statement summarizing the way in
which transfer values are calculated.

A statement that an annual report is
available on request (except public sector
schemes).

Information to be made available                                                       Sections 38­44 Pension Act and
to individuals                                                                         Regulations 5 and 6 of Pension
The amount of benefit which is payable       Any person to whom a benefit has          Regulations; these regulations provide for
and if a benefit is payable periodically:    become, or is about to become, payable.   periodical and incidental information on
− The conditions (if any) subject to                                                   accrued benefits.
    which payment will be continued; and
− The provisions (if any) under which
    the amount payable may be altered.

The rights and options (if any) available                                              N/A
on the death of a member or beneficiary,
and the procedures for exercising them.

If the amount of benefit is to be altered    Any person in receipt of a benefit.       N/A
(other than under a provision already
notified to the person concerned):
− The amount of benefit which is
     payable to the person; and
− The rights and options (if any)
     available on the person’s death and
     the procedures for exercising them.

− The amount of contributions (before
  the making of any deductions)
  credited to the member during the
  preceding scheme year and, where
  the scheme is contracted-out, the
  contributions attributable to:

− The minimum payments required to                                                     N/A
  be made in respect of the member
  by his employer during the preceding
  year;

− Any rebate payments made by the                                                      N/A
  DWP;

− The age­related payments (if any)                                                    N/A
  made by the DWP; and

− The date of birth used in determining                                                N/A
  the appropriate age-related
  percentage and name and address of
  whom to contact should the date of
  birth be incorrect.
Annex A – Legal Disclosure requirements                                                                               26


To be disclosed in UK                       Disclosure to                       Equivalent in Netherlands

Information to be made available
to individuals (continued)
− In the case of a simplified defined                                           N/A
    contribution scheme, the amount or
    fraction of contributions applied to
    insure death benefits.

− The value of the member’s protected                                           N/A
  rights at a specified date;

− The member’s accrued rights (other                                            N/A
  than protected rights) at the same or
  another specified date; and

− The cash equivalent of the member’s                                           N/A
  rights, if different.

− In the case of a pension credit                                               N/A
  member, his safeguarded rights
  under the scheme as at a specified
  date as well as his accrued rights
  other than his safeguarded rights
  under the scheme at the same or
  another specified date (and his cash
  equivalent if different).

− An illustration of the amount of the                                          Regulation 9 of Pension Regulations
  pension which would be likely to
  accrue to a member, or be capable
  of being secured by him at retirement
  in respect of his money purchase
  benefits that may arise under the
  scheme.

− Where a scheme is, or has been a          Each member and pension-credit      Section 52 Pension Act and Regulation 9
  money purchase scheme or provides         member who is eligible for money-   of Pension Regulations; these regulations
  money purchase benefits, the options      purchase benefits.                  provide for additional periodical
  available to the member within the                                            information on the development of
  scheme rules.                                                                 investments.

− Information where a scheme ceases         Each member who has ceased to be    N/A
  to be contracted-out.                     contracted-out.

Contingent beneficiaries                    Any contingent beneficiary
Where a member or beneficiary has died:
− The rights and options (if any)
  available to the contingent beneficiary
  and the procedures for exercising
  them; and
− The provisions under which any
  contingent pension may or will be
  increased, and the extent to which
  such increases are discretionary or
  a statement that there are no such
  provisions.
Annex B – Legal Investment requirements                                                                                     27




B                           Legal Investment requirements
                            Comparison of pension scheme investment regulations in the Netherlands and the United
                            Kingdom by Houthoff Buruma and Nauta Dutilh




Applicable regulation in UK                   Netherlands equivalent for PPI?      Where?

The trustees of a trust scheme must           Yes                                  Section 3:267a(1) Dutch Financial
secure that a Statement of Investment                                              Supervision Act (Wet op het financieel
Principles is prepared for the scheme                                              toezicht “DFSA”)
and reviewed every three years.

Trustees must use their investment            Yes                                  Section 3:267b(2) DFSA
powers in the best interests of the
members and the beneficiaries.

The powers of investment, or the              Yes                                  Section 3:267b(2) DFSA
discretion, must be exercised in a
manner calculated to ensure the security,
quality, liquidity and profitability of the
portfolio as a whole.

Requirement for proper diversification;       Yes                                  Section 3:267b(3) DFSA and Section
assets of the scheme must consist                                                  124e(1)(d) Prudential Supervision Decree
predominantly of investment admitted                                               (Besluit prudentiële regels Wft, “Bpr”)
to trading on regulated markets and
investment in derivative instruments may
be made only in so far as they contribute
to a reduction of risks or facilitate
efficiënt portfolio management.

Except for the purpose of providing           Yes                                  Section 3:267b(4) DFSA
liquidity for the scheme and on a
temporary basis, trustees of a trust
scheme (or a fund manager to whom
investment discretion has been
delegated) must not borrow money
or act as a guarantor in respect of the
obligations of another person.

Disapplication of certain provisions in       No                                   N/A
respect of certain schemes.

Restrictions on employer-related              Yes                                  Section 124e(1)(a) Bpr
investments.

Restrictions relating to certain employer-    No                                   N/A
related loans.
Annex C – The Fiscal Study                                                                                                     28




C                   The Fiscal Study
                    UK-NL Pension Scheme
                    Feasibility study of a tax-qualifying pension scheme in the Netherlands and the UK




                    Introduction                                              Feasibility study
                                                                              It was agreed that PwC would perform a
                    General trends                                            feasibility study of the tax impediments to a
                    In the Netherlands, legislation permitting the            pan-European pension scheme. For the sake
                    establishment of a pan-European Institution for           of ease, it was decided to limit the study to the
                    Occupational Retirement Provision (IORP) has              Netherlands and the UK because most Dutch
                    been approved by the Dutch Parliament. This               multinationals have branch offices in the UK.
                    makes the Netherlands a leader in the European            We have fleshed out the tax requirements of
                    Union. This first Dutch established pan­                  a pension scheme in the Netherlands and the
                    European IORP is referred to as an Institution for        UK, using these as a basis to survey the tax
                    Contributory Occupational Retirement Provision            feasibility of a UK­NL pension scheme. We have
                    (Dutch acronym: PPI). A PPI cannot offer a                described the outcome of our feasibility study in
                    full range of retirement provisions. It cannot            this document.
                    insure biometric risks nor issue investment
                    guarantees unless backed by underlying parties.           Announced amendments to tax laws
                    Nevertheless, the PPI is the first administrator          On 14 October 2010, HM Treasury announced
                    that has been specifically designed to allow              amendments to the tax treatment of pensions
                    Dutch institutions to serve the European pension          in the UK. One of the proposed amendments is
                    market.                                                   to change the maximum amount of tax exempt
                                                                              pension savings that individuals can build up
                    The European pension landscape already                    over their lifetime (lifetime allowance), as well as
                    has many pan-European pension schemes.                    the maximum amount of tax exempt pension
                    Dutch parties play an extremely modest role in            savings that can be built up in one tax year
                    administering these. Although expertise has been          (annual allowance).
                    used in designing pension schemes, there is no
                    know­how when it comes to the tax efficiency              We have included the changes in the UK, and
                    of benefits and contributions, which is generally         the changes to Dutch laws (e.g. in relation to
                    perceived as a major impediment to a pan-                 retirement age), in our feasibility study where
                    European pension scheme. An added drawback                possible.
                    to the lack of tax efficiency is that the tax liability
                    for the contributions is now mostly in the hands
                    of employers, which comes at a high cost for              Procedure
                    them.
                                                                              Feasibility study
                    Leading role for Dutch pension administrators             A key criterion is that the UK­NL pension
                    In the first meeting on 1 October 2010, the               scheme should be tax-facilitated in both the UK
                    options for developing a pan-European                     and the Netherlands. Logically, the first step
                    pension scheme were explored and we also                  that we took was to launch a study of the tax
                    discussed the leading role that Dutch pension             feasibility of a qualifying pension scheme in
                    administrators could play in the European                 the UK and the Netherlands. In performing our
                    pension market. The wishes and requirements               study, we took the following five steps:
                    that we have identified in the cross­border
                    pension market would suggest that multinational           1. Surveying relevant (tax) elements of UK-NL
                    tax­qualifying pension schemes are a potential                pension scheme
                    growth market for Dutch pension administrators            Based on existing pension schemes that we
                    and insurers.                                             come across everyday, we made a list of the
                                                                              ‘top­22’ relevant elements of a UK­NL pension
                                                                              scheme.
Annex C – The Fiscal Study                                                                                                          29


                           2. Fleshing out tax requirements in UK and NL              Outcome – General
                           We asked our UK colleagues to describe the
                           tax requirements in the UK for all 22 elements,            Key outcomes
                           having regard to the provisions of the UK                  – A UK­NL pension scheme that meets the tax
                           Income Tax Act and Finance Act. We then                       requirements in both countries is achievable
                           identified the Dutch tax requirements looking at           – A UK­NL pension scheme can be
                           the provisions of the Dutch Wage Tax Act 1964.                administrated by an IORP (PPI, pension fund)
                                                                                         or a (multinational) insurer
                           3. Determining common features for each (tax)
                              element
                           We compared the tax requirements in the
                           UK and the Netherlands, and pinpointed the
                           common features for each element.
                                                                                                            UK
                           4. Incorporating ‘common denominator’ in UK-                     UK               +             NL
                              NL pension scheme                                                             NL
                           Based on the common features, we surveyed
                           options for incorporating them into the UK­NL
                           pension scheme.

                           5. Preparing blueprint of UK-NL pension
                              scheme (see Appendix)
                                                                                                  UK-NL pension scheme

                                                                                          Pension accrual         Coverage
                                                                                          and pension bases

                                                                                          Payment of              Personal
                                                                                          benefits                circumstances


Outcome – Pension accrual and pension bases
Comparison of (tax) requirements

Issue                      UK                                    NL                                    Common features

1. Pensionable service     – The actual service period           – The Dutch Wage Tax Act              Actual service period =
                             qualifies as pensionable              1964 stipulates which periods       pensionable service.
                             service;                              qualify as pensionable service;
                           – No statutory floor or ceiling for   – No statutory floor or ceiling for
                             pensionable service;                  pensionable service.
                           – Pensionable service is
                             commonly expressed in days
                             or in years and months.
Proposal: The actual service period qualifies as pensionable service. Pensionable service is expressed in exact
years and months.

2. Normal retirement age   – In practice, it is common for       – In practice, it is common for       Normal retirement age = 65
                             people to retire between the          people to retire at age 65
                             ages of 60 and 65.                    (normal retirement age for tax
                                                                   purposes);
                                                                 – Employers and unions set
                                                                   the normal retirement age in
                                                                   dialogue;
                                                                 – The Coalition Agreement
                                                                   proposes to adjust the tax
                                                                   requirements for pensions as
                                                                   early as in 2013.
Proposal: The normal retirement age will be 65 for the time being.
Annex C – The Fiscal Study                                                                                                         30


Outcome – Pension accrual and pension bases
Comparison of (tax) requirements

Issue                       UK                                  NL                                   Common features

3. Pensionable salary       – No statutory provisions for       – The Dutch Wage Tax Act 1964        Pensionable salary = fixed
                              qualifying elements;                stipulates which elements          annual pay, including other fixed
                            – Fixed pay is usually                qualify as pensionable salary      emoluments.
                              considered as pensionable;        – Under defined contribution
                            – No statutory cap on                 schemes, all pay components
                              pensionable salary.                 qualify except for company
                                                                  cars. Fixed pay is usually
                                                                  considered as pensionable;
                                                                – No statutory cap on
                                                                  pensionable salary.
Proposal: The fixed annual salary, including any other fixed components, qualifies as pensionable salary.


4. Pension base             – No statutory obligation to        – Statutory obligation to            Pension salary = salary in
                              integrate state pension into        integrate state pension (AOW)      excess of minimum state
                              supplementary pension.              into supplementary pension,        pension offset.
                                                                  using at least the minimum
                                                                  state pension offset (10/7
                                                                  times individual state pension
                                                                  for married persons, including
                                                                  holiday allowance).
Proposal: An employee’s pension base equals their pensionable salary net of an offset on which no pension is accrued.
The offset is set annually by the employer and will at least equal the minimum state pension offset in the Netherlands.
The pension base will be subject to an upper limit because of the cap on tax-exempt pension contributions (see issue 5).


5. Tax-exempt defined       – No tax­approved defined           – Tax­approved (age­related)       Defined contributions = tax­
contributions for old age     contribution table;                 defined contribution table;      exempt up to the relevant tax
pension                     – From 2011: if the sum of          – If the sum of employer and       limits.
                              employer and employee               employee contributions in a
                              contributions in a UK fiscal        calendar year exceeds the
                              year exceeds GBP 50,000, the        relevant contribution percentage
                              excess is subject to the top        as mentioned in the defined
                              income tax rate for individuals     contribution table, income tax
                              (up to 50%).                        is due on the contributions at
                                                                  progressive rates.
Proposal: The Dutch tax-approved defined contribution table is used to determine annual contributions.
The pension base is capped to prevent the UK ceiling from being exceeded.


6. Employee                 – No floor or ceiling for           – No floor or ceiling for employee   No floor or ceiling for employee
contributions                 employee contributions under        contributions.                     contributions under tax laws.
                              tax laws;
                            – From 2012: auto­enrolment in
                              a pension scheme under UK
                              social and employment law;
                              floors and ceilings will apply
                              to employee contributions.
                              This will not have any tax
                              implications.
Proposal: Look at social and employment law aspects of auto-enrolment at a later stage.
Annex C – The Fiscal Study                                                                                                          31


Outcome – Pension accrual and pension bases
Comparison of (tax) requirements

Issue                      UK                                   NL                                   Common features

7. Employer                – No floor or ceiling for employer   – No floor or ceiling for employer   No floor or ceiling for employer
contributions                contributions under tax laws;        contributions.                     contributions under tax laws.
                           – From 2012: auto­enrolment in
                             a pension scheme under UK
                             social and employment law;
                             floors and ceilings will apply
                             to employer contributions.
                             This will not have any tax
                             implications.
Proposal: Look at social and employment law aspects of auto-enrolment at a later stage.


8. Maximum old age         – No cap on pension benefits;        – Pension benefits do                For pension benefits that do not
pension                    – If the total value of the            not exceed 100% of an              exceed 100% of an employee’s
                             pension capital exceeds GBP          employee’s pensionable salary      last-earned pensionable salary,
                             1,500,000 (amount as from            immediately preceding their        tax relief will be granted.
                             2012), an employee will be           effective retirement date.
                             subject to an additional tax
                             charge.
Proposal: Given that the 100% limit is rarely exceeded, we propose not capping the old-age pension.




Outcome – Pension accrual and pension bases
Pension accrual and pension bases of UK-NL pension scheme in summary

UK-NL pension scheme

Pension accrual and pension bases                                                                                  Coverage
Pensionable service:                        Actual service period
Normal retirement age:                      65
Salary (“pensioengevend salaris”):          Fixed annual salary including other fixed emoluments
Pensionable salary (“pensioengrondslag”):   Salary in excess of an offset; pensionable salary is capped
Defined contributions:                      In accordance with Dutch tax­approved defined contributions
                                            table (Scale I)
Employee contributions:                     No tax requirements
Employer contributions:                     No tax requirements
Maximum old age pension:                    No cap on pension benefits




Payment of benefits                                                                                                Personal
                                                                                                                   circumstances
Annex C – The Fiscal Study                                                                                                     32


Outcome – Coverage
Comparison of (tax) requirements

Issue                    UK                                         NL                                  Common features

9. Membership            – Any employee with an employment      – Any employee with an                  – Any employee with
                           contract with the employer qualifies   employment contract with                an employment
                           for membership;                        the employer qualifies for              contract with the
                         – No statutory minimum qualifying age;   membership;                             employer qualifies for
                         – From 2012: provisions in social and  – Based on the Dutch Pensions             membership;
                           employment law forcing employers       Act it is allowed using a qualify­    – Possibility to opt out.
                           to offer each employee of 22 years     ing age, subject to the condition
                           of age and over a pension scheme       that employees of 21 years
                           unless the employee opts out.          of age and over shall not be
                                                                  excluded from pension scheme
                                                                  membership. A lower qualifying
                                                                  age (e.g. 18) is accepted;
                                                                – Opting out is possible subject
                                                                  to conditions.
Proposal: All employees with an employment contract with the employer are members unless agreed otherwise.
Optional: Although a qualifying age may be used, it cannot, under the Dutch Pensions Act, be higher than 21.


10. Qualifying period    – No tax requirements for qualifying    – No tax requirements for              No tax requirements for
                           period;                                 qualifying period;                   qualifying period.
                         – From 2012: provisions in social and   – Under the Dutch Pensions Act,
                           employment law forcing employers        any qualifying/threshold period
                           to offer each employee of 22 years of   for membership of a pension
                           age and over a pension scheme as        scheme shall not be longer than
                           soon as their employment contract       two months.
                           takes effect.
Proposal: No qualifying period.


11. Spouse’s pension     – The sum of spouse’s pension and          – Spouse’s pension does not         – PPI has no risk cover;
                           orphan’s pension upon a member’s           exceed 70% of a member’s          – No spouse’s pension
                           death after their retirement date does     (achievable) pensionable            under the scheme;
                           not exceed 100% of the old­age             salary at the effective date        insured separately via
                           pension;                                   of retirement;                      life insurance.
                         – A pension scheme does not                – A pension scheme does
                           necessarily provide for a spouse’s         not necessarily provide for
                           pension.                                   a spouse’s pension.
Proposal: The scheme does not provide for spouse’s pension. Upon a member’s death, any accrued capital will be used to
fund surviving dependants’ benefits in accordance with then prevailing (local) laws.


12. Orphan’s pension     – The sum of orphan’s pension and          – Orphan’s pension does not         – PPI has no risk cover;
                           spouse pension upon a member’s             exceed 14% of a member’s          – No orphan’s pension
                           death after their retirement date does     (achievable) pensionable            under the scheme;
                           not exceed 100% of the old­age             salary at the effective date of     insured separately via
                           pension;                                   retirement;                         life insurance.
                         – A pension scheme does not                – A pension scheme does not
                           necessarily provide for an orphan’s        necessarily provide for an
                           pension;                                   orphan’s pension.
                         – Orphan’s pension ends at age 23 at
                           the latest, unless the orphan has a
                           chronic disability.
Proposal: The pension scheme will not offer an orphan’s pension. If required, the orphan’s pension can be covered
separately via life insurance.
Annex C – The Fiscal Study                                                                                                   33


Outcome – Coverage
Comparison of (tax) requirements

Issue                     UK                            NL                                      Common features

13. Occupational          – Medical test by a           – Supplemental to Dutch state­          – PPI has no risk cover;
disability pension          certified physician           provided disability benefits;         – No occupational disability
                            registered in the UK is     – The amount of occupational              insurance under the scheme;
                            required;                     disability pension is commensurate      insured separately via
                          – A pension scheme does         with the rate of disability as          disability risk insurance.
                            not necessarily provide       determined by the Dutch Industrial
                            for an occupational           Insurance Administration Office
                            disability pension.           (UWV);
                                                        – A pension scheme does not
                                                          necessarily provide for an
                                                          occupational disability pension.
Proposal: The scheme does not provide for occupational disability insurance.

14. Tax requirements      – A PPI qualifies as an       – A PPI qualifies as an EIORP;          A Dutch PPI is permitted to
for administration by a     EIORP;                      – A PPI will be approved as a           administrate a UK­NL pension
Dutch PPI                 – An EIORP can                  qualifying administrator under the    scheme (provided that it is
                            administrate a pension        Dutch Wage Tax Act 1964.              registered in the UK).
                            scheme in the UK
                            provided that it has been
                            notified with the UK
                            authorities.


Proposal: The UK-NL pension scheme is administrated by a Dutch PPI.
Alternative: The UK-NL pension scheme is administrated by an insurance company.




Outcome – Coverage
Coverage in UK-NL pension scheme in summary

UK-NL pension scheme

Pension accrual and pension bases                                Coverage
Pensionable service:         Actual service period               Membership:                        Any employee with an
Normal retirement age:       65                                                                     employment contract with
Salary :                     Fixed annual salary, including                                         the employer qualifies for
                             other fixed emoluments                                                 membership
Pensionable salary:          Pensionable salary in excess of     Qualifying period:                 None
                             an offset; capped pension base      Partner’s pension:                 No life insurance under the
Defined contributions:       In accordance with Dutch tax­                                          scheme
                             approved defined contributions      Orphan’s pension:                  No life insurance under the
                             table (Scale I)                                                        scheme
Employee contributions:      No tax requirements                 Occupational disability pension:   No occupational disability
Employer contributions:      No tax requirements                                                    insurance under the scheme
Maximum old age pension:     No cap on pension benefits          Administrator:                     Dutch PPI

Payment of benefits                                              Personal circumstances
Annex C – The Fiscal Study                                                                                                      34


Outcome – Payment of benefits
Comparison of (tax) requirements

Issue                     UK                                                 NL                        Common features

15. Payment of benefits   – Pensions can be paid by using any accrued        – Pensions are required   Payment of benefits =
                            capital to purchase lifelong annuities;            to be paid using the    lifelong old-age pension
                          – Pensions can also be paid by withdrawing an        accrued capital to      in accordance with
                            amount from the pension capital annually and       purchase lifelong       prevailing (local) laws on
                            continuing to invest the remaining capital (in     annuities.              the date of retirement.
                            accordance with the principle of the Dutch
                            temporary “pensioenknip”). Current tax laws
                            in the UK then effectively require that an
                            employee should purchase lifelong annuities
                            by age 77 at the latest. It has been proposed,
                            however, to abolish this rule.
                          – There are circumstances under which up to
                            25% of the pension capital can be paid out as
                            a lump sum at the effective retirement date.
Proposal: Lifelong pension in accordance with prevailing (local) laws on the date of retirement.
Optional: Tax-free lump sum payment of 25% of pension capital accrued in the UK on the effective retirement date
(pension commencement lump sum).


16. Commutation prior     – Not permitted, unless in instances of            – Not permitted,          Commutation prior
to retirement date          commutation of small pension (trivial              unless in instances     to retirement date
                            commutation lump sum).                             mentioned in or         = not permitted,
                                                                               under the Dutch         unless in instances of
                                                                               Pensions Act (such as   commutation of small
                                                                               commutation of small    pension.
                                                                               pension).
Proposal: Commutation prior to retirement date is not permitted.


17. Minimum return on     – No minimum return on investment guarantee.       – No minimum return on    No minimum return on
investment guarantee                                                           investment guarantee.   investment guarantee.
Proposal: No minimum return on investment guarantee.


18. Indexation of         – Annual benefits denominated in sterling          – No minimum increase     Indexation of pensions
pensions in payment         cannot drop in value;                              in pensions in          in payment = between
                          – Under social and employment law, the               payment required;       2.5% and 3% per
                            benefits shall be increased annually by the      – The maximum             annum.
                            lower of 2.5% or the UK price index as a           increase in pensions
                            minimum.                                           in payment is 3% per
                                                                               annum.
Proposal: The accrued pension capital is used to purchase pension benefits in accordance with prevailing (local) laws on
retirement date.
Annex C – The Fiscal Study                                                                                                        35


Outcome – Payment of benefits
Payment of benefits in UK-NL pension scheme in summary

UK-NL pension scheme

Pension accrual and pension bases                                     Coverage
Pensionable service:         Actual service period                    Membership:                        Any employee with an
Normal retirement age:       65                                                                          employment contract with
Salary:                      Fixed annual salary, including                                              the employer qualifies for
                             other fixed emoluments                                                      membership
Pensionable base:            Pensionable salary in excess of          Qualifying period:                 None
                             an offset; capped pension base           Partner’s pension:                 No life insurance under the
Defined contributions:       In accordance with Dutch tax­                                               scheme
                             approved defined contributions           Orphan’s pension:                  No life insurance under the
                             table (Scale I)                                                             scheme
Employee contributions:      No tax requirements                      Occupational disability pension:   No occupational disability
Employer contributions:      No tax requirements                                                         insurance under the scheme
Maximum OP:                  No cap on pension benefits               Administrator:                     Dutch PPI

Payment of benefits                                                   Personal circumstances
Payment of benefits:             Lifelong annuities in accordance
                                 with prevailing (local) laws on
                                 date of retirement
Commutation prior to
retirement date:                 Not allowed
Minimum return guarantee:        None
Indexation of pensions
in payment:                      Purchase of annuities in
                                 accordance with prevailing (local)
                                 laws on date of retirement




Outcome – Personal circumstances
Comparison of (tax) requirements

Issue                       UK                                         NL                                    Common features

19. State pension age       – The state pension age is currently 65    – The state pension age is            – The link between
                              for men and 60 for women. The state        currently 65 ;                        the pension age
                              pension age for women will gradually     – Coalition Agreement: state            for supplementary
                              be raised to 65 in 2020;                   pension age raising to age 66;        pensions and the state
                            – Three gradual steps will be taken to     – Employers and Unions                  pension age can be
                              raise the state pension age to 68 in       Agreement: state pension age          abandoned.
                              2046;                                      raising with life expectancy: in
                            – Recent discussions to raise the state      2020 from 65 to 66, in 2025 from
                              pension age at a faster pace.              66 to 67.
Proposal: Given that the state pension age in the UK and the Netherlands will not run parallel, the link between the
pension age for supplementary pensions and the state pension age can be abandoned.
Annex C – The Fiscal Study                                                                                                   36


Outcome – Personal circumstances
Comparison of (tax) requirements

Issue                     UK                                        NL                                 Common features

20. Bringing forward      – Supplementary pension cannot come – No statutory minimum                   Bringing the retirement
effective retirement        into payment until the employee has    retirement age;                     date forward = possible.
date of supplementary       reached age 55;                      – Bringing the retirement date
pension                   – Bringing the retirement date forward   forward is possible, only if
                            is possible, only if this option is    this option is provided in the
                            provided in the pension scheme.        pension scheme.
Proposal: The retirement date can be brought forward to no earlier than age 55.




21. Deferring effective   – Pension contributions are no longer     – Supplementary pension cannot     Deferring the effective
retirement date of          tax-exempted after an employee has        come into payment any later      retirement date =
supplementary pension       reached the age of 75;                    than at age 70;                  possible.
                          – Deferral is is possible, only if this   – If an employee’s old-age
                            option is provided in the pension         pension equals 100% of their
                            scheme.                                   salary immediately preceding
                                                                      the normal retirement date,
                                                                      the pension should come into
                                                                      payment immediately;
                                                                    – Deferral is possible, only if
                                                                      this option is provided in the
                                                                      pension scheme.
Proposal: Despite the fact that deferral of the effective retirement date is an option, we would propose, for practical
reasons, not to offer this option in the pension scheme (because of the annual 100% test).


22. Implications          – The accrued pension capital remains, – The accrued pension capital         The accrued capital
of termination of           in principle, with the pension         remains, in principle, with the     remains, in principle,
employment                  administrator until the employee’s     pension administrator until the     with the original pension
                            retirement date;                       employee’s retirement date;         administrator, but
                          – There are circumstances under which – There are circumstances under        there are options for
                            the accrued capital can be transferred which the accrued capital can       transferring accrued
                            to a different pension scheme.         be transferred to a different       benefits.
                                                                   pension scheme.
Proposal: The accrued capital remains with the pension administrator on a non-contributory basis in principle. There are
circumstances under which the accrued capital can be transferred to a different pension scheme.
Annex C – The Fiscal Study                                                                                                      37


Outcome – Personal circumstances
Personal circumstances in UK-NL pension scheme in summary

UK-NL pension scheme

Pension accrual and pension bases                                 Coverage
Pensionable service:         Actual service period                Membership:                        Any employee with an
Normal retirement age:       65                                                                      employment contract with
Salary:                      Fixed annual salary, including                                          the employer qualifies for
                             other fixed components                                                  membership
Pensionable salary:          Pensionable salary in excess of      Qualifying period:                 None
                             an offset; capped pension base       Partner’s pension:                 No life insurance under the
Defined contributions:       In accordance with Dutch tax­                                           scheme
                             approved defined contributions       Orphan’s pension:                  No life insurance under the
                             table (Scale I)                                                         scheme
Employee contributions:      No tax requirements                  Occupational disability pension:   No occupational disability
Employer contributions:      No tax requirements                                                     insurance under the scheme
Maximum OP:                  No cap on pension benefits           Administrator:                     Dutch PPI

Payment of benefits                                               Personal circumstances
Payment of benefits:         Lifelong annuities in accordance     State pension age:                 Abandoning link between
                             with prevailing (local) laws on                                         supplementary pension age
                             date of retirement                                                      and state pension age
Commutation prior to                                              Bringing forward effective
retirement date              Not allowed                          retirement:                        Option to bring effective date
Minimum return guarantee:    None                                                                    forward to no earlier than age
Indexation of pensions in                                                                            55
payment:                     Purchase of annuities in             Deferring effective retirement:    No deferral option under the
                             accordance with prevailing (local)                                      scheme
                             laws on date of retirement           Implications of termination of
                                                                  employment:                        Non­contributory pension
                                                                                                     remains with administrator /
                                                                                                     transfer of accrued benefits
Annex C – The Fiscal Study                                                                                              38


                    Points to remember                                   4. Alternative risk coverage
                                                                         From the perspective of simplicity and
                    We see no impediments from a tax perspective         understandability of the scheme, it has been
                    to a UK­NL pension scheme that is tax­               decided to offer an old-age pension only in the
                    facilitated in both countries. Apart from the tax    UK pension scheme. Risk coverage, such as life
                    aspects, we have identified the following points     insurance and occupational disability insurance,
                    to remember:                                         can be easily arranged outside the pension
                                                                         scheme via separate risk insurance policies.
                    1. Abandoning the link between the state
                         pension age and the supplementary               Two points warrant special attention. The
                         pension age                                     first point is the approach to pension capital
                    Both the UK and the Netherlands have                 that is released upon a member’s death. The
                    announced that the state pension age is set to       second point is the continuation, or not, of
                    be raised. The rise in retirement age will not run   pension accrual during a period of occupational
                    parallel in the two countries, however, because      disability and the related waiver of contributions
                    the UK has opted to raise the age by one year        that is common practice in the Netherlands.
                    every decade from 2024 onwards (in 2024­
                    2026, 2034­2036 and 2044­2046), whereas the          5. Implications of notification in the UK
                    Netherlands is expected to follow the increase       The pension scheme should be registered in
                    in life expectancy, which will result in an          the UK and the PPI should be notified in the UK.
                    adjustment every five years (in 2020, 2025, etc.).   The implications of such registration, e.g. in the
                                                                         areas of social and employment law, supervision
                    As a result of the above, the link between the       and communication, need to be studied in
                    supplementary pension age and the state              greater detail.
                    pension age will have to be abandoned. This
                    does not, in our perception, have to be an           6. Currency
                    impediment, because the link between the             The approach to the different currencies in the
                    state pension age and the supplementary              UK and the Netherlands is deserving of further
                    pension age will probably also be abandoned          attention. In the UK, for instance, pension
                    in purely national situations due to the future      benefits denominated in sterling cannot drop in
                    incongruity between the normal retirement age        value over time. If all amounts were reported in
                    for tax purposes and the state pension age.          euros, any change in exchange rate would affect
                    Moreover, we are already seeing instances of         the amount of the pension benefits.
                    the link being abandoned by members who
                    are bringing forward the effective date of their     7. Administration
                    supplementary pension.                               The administration of the pension scheme
                                                                         warrants further attention.
                    2. Social and employment law
                    Both in the UK and in the Netherlands, social
                    and employment law aspects as well as tax            Potential follow-up action by
                    law aspects play a role in designing a pension       focus group
                    scheme. That is why potential legal issues need
                    to be studied in greater detail, making allowance    Now that a UK­NL pension scheme is proving to
                    for any social and employment law requirements       be feasible from a tax perspective, we would like
                    in the UK as a result of the introduction of auto-   to address any follow-up action. We have listed
                    enrolment in 2012.                                   some (potential) follow­up steps below.

                    3. Transparency and communication                    Preparing a research proposal plus
                    It is essential that the UK­NL pension               business case
                    scheme should be transparent and that any            A potential following step in developing the
                    communications about the scheme should               UK­NL pension scheme would be to prepare
                    be clear and easy to understand. The UK and          a research proposal that can be represented
                    Dutch requirements of a (uniform) benefits           to the Board of HFC. A detailed business case
                    statement are deserving of more attention, for       would have to be a key element of the research
                    instance.                                            proposal, as well as an inventory of the potential
                                                                         scale of the sales market for a UK­NL pension
                                                                         scheme and a detailed description of the key
                                                                         (non­tax) aspects that we identified.
Annex C – The Fiscal Study                                                                                           39


                    Conducting market research of the potential         Blueprint of a UK-NL pension
                    sales market                                        scheme
                    It is important to find out whether the potential
                    sales market is large enough for a multinational    Article 1. Membership
                    tax­qualifying pension scheme. For this             1 Any of the employees with an employment
                    reason, we feel that a market survey should            contract with EMPLOYER’ shall qualify as
                    be conducted among enterprises with branch             a member of the pension scheme unless
                    offices in at least the UK and the Netherlands         agreed otherwise in their employment
                    (i.e. potential clients) in order identify their       contract.
                    cross-border pension scheme needs and                  Optional: qualifying age of 21
                    requirements.                                          Optional: any employee who joined the
                                                                           EMPLOYER on or after DATE.
                    Performing a feasibility test                       2. Membership shall take effect on the first day
                    In order for the UK­NL pension scheme to be            of the month in which the employee joins the
                    successful it needs to be feasible. Pension            EMPLOYER.
                    administrators can perform an initial feasibility   3. Membership shall cease on the last day
                    test using the provided blueprint.                     of the month of the member’s death or
                                                                           on the last day of the month in which the
                    Reviewing compliance with social and                   employment contract between the employee
                    employment law                                         and the EMPLOYER terminates, but no later
                    In addition to making allowance for tax aspects,       than on the effective retirement date.
                    the pension scheme should obviously also
                    take account of social and employment law           Article 2. Pensionable service
                    provisions in both the UK and the Netherlands.      1. The actual service period under the
                    This issue requires further study.                     employment contract between the employee
                                                                           and the EMPLOYER shall qualify as
                    Identifying implications of certification              pensionable service.
                    in the UK                                           2. Pensionable service shall be expressed in
                    A key element of the UK­NL pension scheme is           exact years and months.
                    that it is administrated by a Dutch PPI. To this
                    end, the PPI needs to be certified in the UK and    Article 3. Effective retirement date
                    the pension scheme itself should be registered      1. The first day of the month in which the
                    in the UK. Given the important role played             member reaches the age of 65 shall qualify
                    by the PPI, it is crucial in our opinion that the      as the normal retirement date.
                    implications of certification/registration in the   2. The effective date of the old-age pension
                    UK should be duly identified.                          can be brought forward at the (former)
                                                                           member’s request. The old­age pension
                                                                           shall not, however, take effect any sooner
                                                                           than on the first day of the month in which
                                                                           the member turns 55.

                                                                        Article 4. Pension entitlements
                                                                        1. The pension scheme shall take the form of
                                                                           a defined contribution scheme.
                                                                        2. The member shall be entitled to defined
                                                                           contributions as described in Article 6.
                                                                           The defined contributions shall be used to
                                                                           accrue pension capital, which shall be used
                                                                           for purchasing a lifelong old-age pension in
                                                                           accordance with prevailing (local) laws on
                                                                           the effective retirement date.
                                                                        3. Upon a member’s death, any accrued
                                                                           pension capital shall be used to fund
                                                                           surviving dependants’ benefits for the
                                                                           member’s surviving spouse and/or child or
                                                                           children in accordance with then prevailing
                                                                           (local) laws.
Annex C – The Fiscal Study                                                                                            40


                    Article 5. Pension base                           Article 8. Indexation
                    1. The pension base for each member shall         1. The capital that has been accrued on the
                       be determined on the effective date of            effective retirement date shall be used to
                       their membership and then every year on 1         purchase pension benefits in accordance
                       January.                                          with then prevailing (local) laws.
                    2. A member’s pension base shall correspond
                       with their pensionable salary net of an        Article 9. Termination of employment
                       offset on which no pension is accrued. The     contract for reasons other than retirement
                       pension base shall be capped at AMOUNT.        1. In the event of termination of the
                    3. The fixed annual pay, including any other         employment contract for reasons other
                       fixed pay components, that has been agreed        than death or retirement, a former member
                       between the employee and the EMPLOYER             shall continue to be entitled to the accrued
                       shall qualify as the employee’s pensionable       pension capital. The capital shall remain with
                       salary.                                           the pension administrator until the effective
                    4. The EMPLOYER shall determine the offset           retirement date in principle.
                       annually, which shall at least amount to the   2. A former member shall have the option
                       minimum state pension offset under Dutch          to transfer their pension capital to a new
                       wage tax law.                                     employer’s pension scheme subject to the
                                                                         provisions of (local) laws.
                    Article 6. Defined contribution table
                    1. The defined contributions shall be             Article 10. Funding
                       determined for the member on the effective     1. The EMPLOYER shall pay the defined
                       membership date and then every year on 1          contributions described in Article 6 to
                       January.                                          the pension administrator in 12 monthly
                    2. The defined contribution shall amount to a        instalments.
                       percentage of the pension base depending       2. The EMPLOYER shall determine once every
                       on the member’s age when the defined              three years what percentage of the defined
                       contributions are determined, in accordance       contributions described in Article 6 shall be
                       with the following table                          chargeable to the employee.

                    Age of member        Defined contributions        Article 11. Pension administrator
                                                                      1. The body administering this pension
                    15­19                 5.2%                           scheme shall be a Dutch Institution for
                    20­24                 5.9%                           Contributory Occupational Retirement
                    25­29                 7.2%                           Provision (Dutch acronym: PPI) that is
                    30­34                 8.8%                           notified in the UK.
                    35­39                10.8%                           Alternative: the body administering this
                    40­44                13.1%                           pension scheme shall be an insurance
                    45­49                16.1%                           company that is notified in the UK.
                    50­54                19.7%
                    55­59                24.4%
                    From 60              30.5%



                    Article 7. Benefits
                    1. The pension shall be paid in lifelong
                       annuities from the effective retirement date
                       onwards.
                       Optional: a lump sum payment, on the
                       retirement date, of 25% of the pension
                       capital accrued in the UK.
                    2. Any accrued pension entitlements shall
                       not be commuted, sold, relinquished or
                       pledged as security either procedurally or
                       substantively prior to the effective date of
                       retirement.
Annex D – Dutch Social and Labour Law                                                                                41




D                  Dutch Social and Labour Law
                   Relevant Dutch law applicable to Dutch pension schemes




                   Summary overview                                  –   Article 8: protection of part­time employees
                                                                         and young employees
                   Of the requirements of (A.) social and            –   Article 9: pension contracts and M&A
                   labour law, (B.) investment rules and (C.)        –   Article 10: character of a pension contract
                   information requirements applicable to                (e.g. DB, DC)
                   Dutch pension schemes run by a cross-             –   Article 11: currency denomination of pension
                   border operating IORP domiciled outside               rights, benefits and contributions
                   The Netherlands.                                  –   Article 12: reservations regarding employer
                                                                         pension contributions
                   The provision of this summary overview is part    –   Article 13: recording of conditions for
                   of the task of the Dutch pension supervisors          indexation of pension rights
                   DNB (“De Nederlandsche Bank”), respectively       –   Article 14: restriction on age discrimination
                   AFM (“Autoriteit Financiële Markten”) as being    –   Article 15: additional requirements regarding
                   the competent authorities of the host Member          old-age pensions
                   State and as follows from the IORP Directive      –   Article 16: Additional requirements re.
                   (2003/41/EC), Article 20.                             partner pensions (non­married, cohabit
                                                                         couples)
                   Below, the relevant parts of various Dutch laws   –   Article 17: proportional acquisition (time
                   are indicated by listing the subsequent Article       wise) of pension rights
                   numbers and briefly summarizing the issue dealt   –   Article 18: protection vested rights in case of
                   with by each Article.                                 reduction of salary
                                                                     –   Article 19 and 20: amendments of pension
                   Note 1: Only the original Dutch language              contract
                   versions of the Laws are legally binding          –   Article 21: information to be provided to
                                                                         scheme members upon start of membership
                                                                         and in case of amendments of the pension
                   A. Social and labour law                              contract
                                                                     –   Article 22: mandatory hearing of scheme
                   1. Pensions Act (“Pensioenwet” or “PW”)               members and beneficiaries in case of
                   Note 2: As of January 1st, 2007, the “Pensions        management of pension provisions through
                   Act” has replaced the “Pensions and Saving            an insurance undertakings
                   Funds Act” (“PSW”). The overview below
                   is based on the new legislative framework.        Chapter 3: Management contract
                   Previous overviews, based on the “PSW”, are no    – Article 23: list of permitted types of
                   longer applicable.                                  institutions for occupational pension
                                                                       provisions by whom pension contracts have
                   Chapter 1: Definitions & Scope                      to be managed
                   – Article 1 and 2: definitions used               – Article 24: pension contributions to be paid
                   – Article 4: special clauses regarding pension      by employer
                     rights in case of divorce                       – Article 25: requirements regarding the
                                                                       contents of the management contract
                   Chapter 2: Pension contract                       – Article 26 and 27: requirements regarding
                   – Article 7: information to be provided to the      payments of contributions payments
                     employee upon start of employment contract      – Article 29: insuranc e undertaking´s duty to
                     regarding possible pension provisions and         report on arrears of contributions payments
                     pension contract                                – Article 30: applicable law
Annex D – Dutch Social and Labour Law                                                                                     42


                   –   Article 31: prohibition of pawnage and other       2. Act on pension entitlements in case of
                       prohibitions                                       divorce or dissolution of marriage after legal
                                                                          separation
                   Chapter 4: Institutions for occupational               – All articles
                   retirement provisions
                   – Article 32: tasks & responsibilities                 3. Act on medical examinations
                   – Article 36: years of membership                      – Article 4
                   – Article 38 up through 50: specifies the
                       information to be provided to members,             4. Act on Equal rights
                       former members, beneficiaries and ex­
                       partners of members, format, timing and            5. Act on Equal treatment of men and women
                       transparency
                   – Article 51: digital pension database; overview       6. Act on Equal treatment in respect of age
                       of all built-up pension rights per individual.     and employment
                   – Article 52: sets the obligation for IORPs            – All articles of these three latter Acts, as far
                       if the scheme members themselves bear                  as referring to occupational pensions.
                       the investment risk (e.g. DC schemes),
                       information requirements and duty to advice
                       properly.                                          B. Investment rules
                   – Article 53: payments of benefits into other
                       EU member states.                                  In the Netherlands, no special investment rules
                   – Article 55: vesting of pension rights upon           as referred to in Article 20 paragraph 5, 6 and 8
                       termination of scheme membership                   of the IORP Directive, are applicable.
                   – Article 56: vesting of partner (non­married
                       couples, cohabition ) pension rights in case
                       of temporary employment leave                      C. Information requirements
                   – Article 57: vesting of rights in case of divorce
                   – Article 58: equal treatment (of pension rights)      Note 3: AFM (“Autoriteit Financiële Markten”) is
                       of former scheme members.                          the competent authority regarding this aspect of
                   – Article 59: prohibition of limitation (over time)    pension supervision.
                       of pension rights.
                   – Article 60 up through 62: right to swap              1. Pensions Act (“Pensioenwet” or “PW”)
                       pension rights into other forms of pension         Note 4: Parts of the information requirements, as
                       rights (e.g. partner pensions)                     described in the PW and summarized below, will
                   – Article 63: variation of pension benefits over       become applicable only as of January 1st, 2008.
                       time                                               Note 5: additional detailed requirements
                   – Article 64: alienation, pawnage and warranty         regarding contents and format of the information
                       of pension rights                                  to be provided will be set by secondary
                   – Article 65 up through 69: redemption of              legislation (to be developed).
                       pension rights
                   – Article 70 up through 92: portability of             The articles referring to information
                       pension rights                                     requirements are an integral part of the Dutch
                   – Article 93 and 94: rules regarding retrieval         social- and labour as described above and
                       and use of information from various (social        concern the following articles:
                       security) databases                                – Article 7
                   – Article 95: (transparency on) conditional            – Article 21
                       indexation of pension rights                       – Article 38 up through 50
                   – Article 97: pensions and secondments of              – Article 52
                       employees
                   – Article 98: decease of scheme member and
                       survivors´ benefits in case of limited liability
                   – Article 216 and 220: applicable court of
                       justice
Annex E – UK Social and Labour Law                                                                                                  43




E                           UK Social and Labour Law
                            Summary overview of social and labour law relevant to pensions in the UK




                            The relevant social and labour laws where               Regulation 16 specifies the laws listed in
                            the UK is the host state for an employment              paragraphs 2, 3 or 5 of schedule 2 to the
                            relationship in respect of which contributions          Regulations. For ease of reference the relevant
                            are paid to a European pensions institution             primary legislation in force in the UK is listed in
                            is that specified by Regulation 16 of the               column 1 of the table below. The descriptions
                            Occupational Pension Schemes (Cross­border              contained in columns 2 and 3 are indicative of
                            Activities) Regulations 2005, for the purposes of       the content of the sections listed in column 1.
                            s293 of the Pensions Act 2004.                          They are not intended and should not be read
                                                                                    as statements of the law or as legal advice.
                                                                                    Subordinate legislation has been made under
                                                                                    many of these sections and will also be relevant
                                                                                    where the primary legislation applies.



Provisions of the Pension     Title of the provisions          Description of the provisions
Schemes Act 1993


Part III                      Certification of Pension
                              Schemes and Effects on
                              Members’ State Scheme
                              Rights and Duties

Chapter 1                     Certification                    General requirements for certification

Section 9                     Requirements for                 Sets out conditions which must be fulfilled before an occupational
                              certification of schemes:        or personal pension scheme may be paid contributions in respect
                              general                          of employees who have contracted out of the second state pension

Section 10                    Protected rights and money       Defines the protected rights under an occupational or personal
                              purchase benefits                pension scheme

                                                               Requirements for certification of occupational pension schemes

Section 12A                   The statutory standard           A scheme must satisfy the statutory standard ie the pensions to be
                                                               provided for such persons are broadly equivalent to, or better than,
                                                               the pensions which would be provided for such persons under a
                                                               reference scheme

Section 12B                   Reference scheme                 Defines a reference scheme

Section 12C                   Transfer, commutation, etc.      Regulations may prohibit or restrict:
                                                               (a) the transfer of any liability
                                                                   (i) for the payment of pensions under a relevant scheme, or
                                                                   (ii) in respect of accrued rights to such pensions,
                                                               (b) the discharge of any liability to provide pensions under a relevant
                                                                   scheme, or
                                                               (c) the payment of a lump sum instead of a pension payable under a
                                                                   relevant scheme,
                                                               except in prescribed circumstances or on prescribed conditions
Annex E – UK Social and Labour Law                                                                                              44


Provisions of the Pension   Title of the provisions        Description of the provisions
Schemes Act 1993

Section 12D                 Entitlement to benefit         In the case of a scheme contracted out by virtue of section 9(2B) of
                                                           this Act, regulations may make provision as to the ages by reference
                                                           to which benefits under the scheme are to be paid

                                                           Requirements for certification of occupational pension schemes
                                                           providing guaranteed minimum pensions

Section 13                  Minimum pension for            (1) Subject to the provisions of this section a scheme must:
                            earners                            (a) provide for the earner to be entitled to a pension under the
                                                                   scheme if he attains pensionable age; and
                                                               (b) contain a rule to the effect that the weekly rate of the pension
                                                                   will be not less than his guaranteed minimum (if any) under
                                                                   sections 14 to 16

Section 14                  Earner’s guaranteed            Subject to provisions, the guaranteed minimum shall be the
                            minimum                        weekly equivalent of an amount equal to the appropriate percentage
                                                           of the total of the earner’s earnings factors for the relevant years,
                                                           so far as derived from earnings such as are mentioned in subsection
                                                           (1) upon which primary Class 1 contributions have been paid
                                                           or treated as paid.

                                                           Definitions:
                                                           – ‘appropriate percentage’
                                                           – ‘relevant year’

Section 15                  Increase of guaranteed         Requires a specified pro­rata increase where commencement
                            minimum where                  is deferred
                            commencement of
                            guaranteed minimum
                            pension postponed

Section 15A                 Reduction of guaranteed        Specifies the percentage reduction to be applied when pension
                            minimum in consequence of      becomes subject to a pension debit
                            pension debit

Section 16                  Revaluation of earnings        Requires the earner’s earnings factor for any relevant year to be
                            factors for purposes of s14:   increased by a prescribed percentage and provides for reference
                            early leavers, etc.            to the last service tax year when an employee leaves service

                                                           Definitions:
                                                           – ‘last service tax year’
                                                           – ‘relevant year’
                                                           – ‘final relevant year’

Section 17                  Minimum pensions for           Specifies the amount and duration of payment of guaranteed
                            widows and widowers            minimum pension to survivors

Section 18                  Treatment of insignificant     Provisions for rounding up and down
                            amounts
Annex E – UK Social and Labour Law                                                                                          45


Provisions of the Pension   Title of the provisions        Description of the provisions
Schemes Act 1993

Section 19                  Mini Discharge of liability    Subject to detailed requirements, a transaction will discharge the
                            where guaranteed minimum       trustees or managers of an occupational scheme from their liability
                            pensions secured by            to provide for guaranteed minimum pensions if it is carried out
                            insurance policies or          before pensionable service terminates and creates security under an
                            annunity contracts             annuity contract or insurance policy

Section 20                  Transfer of accrued rights     Regulations may prescribe circumstances in which and conditions
                                                           subject to which accrued rights to GMP may be transferred to
                                                           another scheme.

                                                           Definition:
                                                           – ‘accrued rights’

Section 21                  Commutation, surrender and     A scheme may provide for a lump sum to be paid instead of a
                            forfeiture                     pension subject to complying with prescribed restrictions and
                                                           conditions

Section 23                  Securing of benefits           A scheme must contain a rule according priority to GMPs and state
                                                           scheme premiums on a wind up

                                                           Requirements for certification of occupational and personal money
                                                           purchase schemes

Section 27                  Identification and valuation   Where the rules of the scheme make such provision as is mentioned
                            of protected rights            in section 10(2) or (3), they must also make provision for the
                                                           identification of the protected rights

Section 28                  Ways of giving effect to       The rules of the scheme must provide for effect to be given to the
                            protected rights               protected rights of a member by purchase of an annuity or other
                                                           method which complies with the conditions imposed by this section.
                                                           Personal pension schemes may put in place interim arrangements

Section 28A                 Requirements for interim       An interim arrangement must provide for payments to be made to the
                            arrangements                   member, or where appropriate, his successor, unless they forbear to
                                                           receive them

Section 28B                 Information about interim      The trustees or mangers of a personal pension scheme must if
                            arrangements                   required to do so by the Inland Revenue produce information relevant
                                                           to the interim arrangement and the value of protected rights to which
                                                           the arrangement relates

Section 29                  The pension and annuity        Sets out the criteria concerning duration of pension payments and
                            requirements                   choice of annuity which must be complied with in order to satisfy two
                                                           of the conditions imposed by s28
Annex E – UK Social and Labour Law                                                                                                  46


Provisions of the Pension   Title of the provisions         Description of the provisions
Schemes Act 1993

Section 30                  Securing of liability for       The Inland Revenue must be satisfied that the scheme complies with
                            protected rights                any requirements as may be prescribed for meeting the whole or a
                                                            prescribed part of any liability in respect of protected rights under the
                                                            scheme which the scheme is unable to meet from its own resources

Section 31                  Investment and resources of     The scheme must comply with prescribed requirements governing
                            schemes                         the use of scheme resources

Section 32                  Suspension or forfeiture        Except in prescribed circumstances the rules of the scheme must not
                                                            permit the suspension or forfeiture of a member’s protected rights

Section 32A                 Discharge of protected rights   Sets out alternative ways of giving effect to the protected rights of
                            on winding up; insurance        a member of the scheme which is being wound up and prescribed
                            policies                        conditions are met

Section 33                  Tax requirements to             Nothing in sections 26 to 32 shall be taken to prejudice any
                            prevail over certification      requirements with which a registered scheme must comply under
                            requirements                    legislation dealing with taxation treatment of pension schemes

                                                            Alteration of rules of contracted-out schemes

Section 37                  Alteration of scheme rules      Except in prescribed circumstances, the rules of a contracted out
                            after certification             scheme cannot be altered unless the alteration is of a prescribed
                                                            description

                                                            General regulations as to administration of Part III

Section 39                  General power to make           Schedule 2 shall have effect for enabling regulations to be made in
                            regulations                     relation to the operation and administration of Part III of this Act

Chapter 2                   Reduction in State Scheme       Minimum contributions: members of appropriate personal pension
                            Contributions and Social        schemes
                            Security Benefits for
                            members of Certified
                            Schemes

Section 45B                 Money purchase and              Information held by the Secretary of State or the Inland Revenue
                            personal pension schemes:       as to the age of any individual may be disclosed to schemes in
                            verification of ages            connection with the payment of minimum contributions

Chapter 3                   Termination of Contracted-      Approval of arrangements for schemes ceasing to be certified
                            out or Appropriate Scheme
                            Status: State Scheme
                            Premiums

Section 50                  Powers of Inland Revenue        The Inland Revenue may approve arrangements for preservation or
                            to approve arrangements         transfer of accrued, protected or safeguarded rights and liabilities
                            for scheme ceasing to be        where a scheme ceases to be certified
                            certified

Section 51                  Calculation of guaranteed       Prescribes variations to the s16 calculation method to be used where
                            minimum pensions                a scheme ceases to be contracted out
                            preserved under approved
                            arrangements
Annex E – UK Social and Labour Law                                                                                                 47


Provisions of the Pension   Title of the provisions         Description of the provisions
Schemes Act 1993

                                                            Supervision of formerly certified schemes

Sections 52 to 54           Supervision of schemes          Gives the Inland Revenue power to direct scheme trustees,
                            which have ceased to be         managers and in some cases employers to take or refrain from taking
                            certified                       steps as may be specified in a notice given by them

                                                            State scheme premiums

Sections 55 to 58           Payment of state scheme         Makes provision for payment of a contributions equivalent premium
                            premiums on termination of      where an employee leaves a contracted out employment with less
                            certified status                than two years service

Sections 61 to 63           Deduction of contributions      Makes provision for an amount equal to the reduction in Class
                            equivalent premium              1 national insurance contributions to be offset against any
                            from refund of scheme           contributions equivalent premium payable in respect of an employee
                            contributions                   who is leaving with short service and is due a refund of contributions


Part IIIA                   Safeguarded Rights

Section 68A                 Safeguarded rights              Subject to the rules of the scheme, the safeguarded rights of a
                                                            member of an occupational or personal pension scheme are such
                                                            rights to future benefits under the scheme as are attributable to a
                                                            pension credit in respect of which the reference rights are or include
                                                            contracted out rights or safeguarded rights

Section 68B                 Requirements relating           Regulations may prescribe requirements to be met by an
                            to safeguarded rights           occupational or personal pension scheme in relation to safeguarded
                                                            rights

Section 68C                 Reserve powers in relation to   Gives powers to the Inland Revenue to issue directions requiring
                            non-complying schemes           the trustees or managers of a scheme to take or refrain from taking
                                                            steps as the Revenue may specify for the purpose of protecting
                                                            entitlements to safeguarded rights

Section 68D                 Power to control transfer or    Regulations may prohibit or restrict transfer of discharge of liabilities
                            discharge of liability          in respect of safeguarded rights


Part IV                     Protection for Early Leavers



Chapter 1                   Preservation of Benefit
                            Under Occupational
                            Schemes

Section 69                  Scope of Chapter 1: the         ‘The preservation requirements’ are those specified in or under
                            preservation requirements       sections 71 to 82.
                                                            They apply to an occupational pension scheme whose resources are
                                                            derived in whole/part from:
                                                            (a) payments (as specified in the legislation) made or to be made by
                                                                one or more employers of earners to whom the scheme applies;
                                                                or
                                                            (b) other payments by the earner or his employer or both as may be
                                                                prescribed for different categories of scheme
Annex E – UK Social and Labour Law                                                                                                48


Provisions of the Pension   Title of the provisions         Description of the provisions
Schemes Act 1993

Section 70                  Interpretation                  Definitions of
                                                            – ‘scheme’
                                                            – ‘relevant employment’
                                                            – ‘long service benefit’
                                                            – ‘pensionable service’

Section 71                  Basic principle as to short     Provision as to the application of short service benefit.
                            service benefit
                                                            A scheme must make provision where a member’s pensionable
                                                            service is terminated before normal pension age and he has at least
                                                            two years qualifying service, or
                                                            a transfer payment in respect of his rights under a personal pension
                                                            scheme has been made to the scheme where he is entitled to a
                                                            benefit of any description which would have been payable under the
                                                            scheme as long service benefit.

                                                            Definition of
                                                            – ‘short service benefit’

Section 72                  No discrimination between       Subject to other provisions (for example discretion) a scheme must
                            short service and long          not contain any rule which results, or can result, in a member being
                            service beneficiaries           treated less favourably for any purpose relating to short service
                                                            benefit then he is, or is entitled to be, treated for the corresponding
                                                            purpose relating to long service benefit

Section 73                  Form of short service benefit   Subject to other alternative provisions a members short service
                            and its alternatives            benefit must be:
                                                            (a) payable directly out of the resources of the scheme; or
                                                            (b) assured to him by such means as may be prescribed

Section 74                  Computation of short service    A scheme must provide for short service benefit to be computed on:
                            benefits                        the same basis as long service benefit

Section 75                  Credits                         Categories of credits and definitions:
                                                            – ‘supplementary credits’
                                                            – ‘purchased credits’
                                                            – ‘bonus credits’
                                                            – ‘the appropriate proportions of the credits’

Section 76                  Pension increases               A scheme which by its rules provides for increases of long service
                                                            benefit from time to time (whether by way of upwards revaluation
                                                            or otherwise) must provide for corresponding increases of short
                                                            service benefit in the case of members whose pensionable service
                                                            terminates at any time after the coming into force of any such rule

Section 81                  Discharge of liability where    A transaction to which section 19 applies discharges the trustees or
                            short service or alternative    managers of an occupational pension scheme from their liability to
                            benefits secured by             provide for short service benefit or any alternative to short service
                            insurance policies or annuity   benefit
                            contracts

Section 82                  Supplementary                   Regulations may provide that a scheme is not to be treated as
                            regulations                     conforming with the preservation requirements
Annex E – UK Social and Labour Law                                                                                               49


Provisions of the Pension   Title of the provisions        Description of the provisions
Schemes Act 1993

Chapter 2                   Revaluation of Accrued
                            Benefits (Excluding
                            Guaranteed Minimum
                            Pensions)

Section 83                  Scope of Chapter 2             Provisions for revaluing:
                                                           (a) benefits payable to or in respect of a member of an occupational
                                                               pension scheme; and
                                                           (b) benefits payable to or in respect of a member of a personal
                                                               pension scheme (which does not include a scheme which is
                                                               comprised in an annuity contract made before 4 January 1988)

Section 84                  Basis of revaluation           Subject to other provisions (for example average salary benefit or
                                                           flat rate benefit or money purchase benefit) any pension or other
                                                           retirement benefit payable to the member and any pension or other
                                                           benefit payable to any person in respect of him is to be revalued by
                                                           the final salary method

Section 85                  Revaluation not to apply       Provisions not to be construed as requiring the revaluation of
                            to substituted benefit         any pension or other benefit provided by virtue of section 72(2)
                                                           (b) or section 101D(2)(b) by way of complete substitute for another
                                                           pension or benefit

Section 86                  Supplementary provisions       In making any calculation for the purposes of revaluation in relation to
                                                           an occupational pension scheme:
                                                           (a) any commutation, forfeiture or surrender of
                                                           (b) any charge or lien on, and
                                                           (c) any set­off against, the whole or part of a pension shall be
                                                               disregarded

                                                           In addition the same money may not be treated as providing both
                                                           the increase in benefit required under revaluation and the benefit
                                                           required by guaranteed minimum pensions

Chapter 3                   Protection of Increases
                            in Guaranteed Minimum
                            Pensions (‘Anti-Franking’)

Section 87                  General protection principle   Application were there is an interval between:
                                                           – the date on which an earner ceases to be in employment which is
                                                             contracted-out by reference to an occupational pension scheme
                                                             which is not a money purchase contracted out scheme ; and
                                                           – the date on which his guaranteed minimum pension commences

                                                           Definition of:
                                                           – ‘the cessation date’
                                                           – ‘the commencement of payment date’
                                                           – ‘the relevant aggregate’

Section 88                  The relevant sum               Definition of:
                                                           – ‘the relevant sum’

Section 89                  The appropriate                Definition of:
                            addition                       – ‘the appropriate addition’
Annex E – UK Social and Labour Law                                                                                              50


Provisions of the Pension   Title of the provisions         Description of the provisions
Schemes Act 1993

Section 90                  The later earnings              Definition of:
                            addition                        – ‘the later earnings addition’

Section 91                  Special provision where         If an earner’s employment ceases to be contracted-out by reference
                            employment continues after      to an occupational pension scheme but the scheme continues to
                            it ceases to be contracted      apply to it or
                            out by reference to scheme      An earner transfers from employment which is contracted-out
                                                            by reference to an occupational pension scheme to employment
                                                            to which the scheme applies but which is not contracted out by
                                                            reference to it
                                                            The amount of any short service or other benefit which has accrued
                                                            shall be computed for the purpose of section 88(1)(a)(ii) as it would
                                                            be computed if he had ceased on the cessation date to be in
                                                            employment to which the scheme applies

Section 92                  Supplementary                   In making any calculation for the purposes of protection of increases
                            provisions                      in Guaranteed Minimum Pensions:
                                                            (a) any commutation, forfeiture or surrender of
                                                            (b) any charge or lien on, and
                                                            (c) any set­off against
                                                            the whole of part of a pension shall be disregarded
                                                            Provisions for the earnings factor, cessation date, and weekly rate of
                                                            a pension

                                                            Definition of:
                                                            – ‘final relevant year’

Chapter 4                   Transfer Values

Section 93                  Scope of Chapter 4              Application of Transfer Values will apply
                                                            (a) to any member of an occupational pension scheme:
                                                                – whose pensionable service has terminated at least one year
                                                                   before normal pension age and
                                                                – who on the date on which his pensionable service terminated
                                                                   had accrued rights to the benefit under the scheme
                                                                   (exceptions apply)
                                                            (b) to any member of a personal pension scheme (except a scheme
                                                                which is comprised in an annuity contract made before 4 January
                                                                1988) who has accrued benefits under the scheme

Section 93A(1) to (3)       Salary related schemes: right   Provides the right for a member to receive on application a statement
                            to statement entitlement        of entitlement from the trustees or managers of a salary related
                                                            scheme.

                                                            Definition of:
                                                            – ‘the applicable rules’
                                                            – ‘the guarantee date’

Section 94                  Right to cash equivalent        Provisions setting out when the right to a cash equivalent arises for
                                                            occupational and personal schemes

                                                            Definition of:
                                                            – ‘applicable rules’
                                                            – ‘the guarantee date’
                                                            – ‘the relevant date’
                                                            – ‘the relevant application’
Annex E – UK Social and Labour Law                                                                                                51


Provisions of the Pension   Title of the provisions         Description of the provisions
Schemes Act 1993

Section 95                  Ways of taking right to cash    Provisions setting out the procedure for taking a cash equivalent and
                            equivalent                      defining the permissible transfer destinations.

                                                            Definition of:
                                                            – ‘the last option date’

Section 96                  Further provisions              A member may exercise the option conferred by section 95(1) in
                            concerning exercise of          different ways in relation to different portions of his cash equivalent
                            option under section 95

Section 97                  Calculation of cash             Cash equivalents are to be calculated and verified in the prescribed
                            equivalents                     manner. Power to make regulations setting out detailed provisions
                                                            including allowance for increase or reduction in cash equivalents in
                                                            prescribed circumstances.

                                                            Definition of:
                                                            – ‘appropriate date’

Section 98                  Variation and loss of           Regulations may provide provisions as to the variation and loss of
                            rights under section 94         rights in relation to members of occupation and personal pension
                                                            schemes
                                                            A member of an occupational or personal scheme loses the right to a
                                                            cash equivalent under this Chapter if the scheme is wound up

Section 99(1) to (4A),      Trustees’ duty after exercise   Timescales for complying with applications for transfers. Provisions
(7A) & (8)                  of option                       discharging trustees from obligations to provide benefits (subject to
                                                            certain exceptions) when they have done what is needed to carry out
                                                            the member’s requirements

Section 100                 Withdrawal of                   Subject to certain other provisions a member of a scheme may
                            applications                    withdraw an application under section 95 by giving the trustees or
                                                            managers notice in writing, unless the trustees or managers have
                                                            already entered into an agreement with a third party

Section 101                 Supplementary                   In making any calculation for the purposes of a transfer value:
                            provisions                      (a) any charge or lien on, and
                                                            (b) any set­off against
                                                            the whole or pay of a pension shall be disregarded

Chapter 5                   Early leavers: Cash Transfer
                            Sums and Contribution
                            Refunds

Section 101AA               Scope of Chapter 5              These sections make provision for cash transfer and contribution
                                                            refund entitlements for people whose pensionable service terminates
                                                            before pensionable age, who have three months qualifying
                                                            pensionable service, but no accrued rights to benefit

Section 101AB               Right to cash transfer          On termination of his pensionable service, a member of an
                            sum and contribution refund     occupational scheme to which this chapter applies acquires a right to
                                                            elect between a cash transfer sum or a contribution refund
Annex E – UK Social and Labour Law                                                                                              52


Provisions of the Pension   Title of the provisions         Description of the provisions
Schemes Act 1993

Section 101AC               Notification of right to cash   Sets out the information trustees or managers must give when a
                            transfer sum or contribution    member of an occupational scheme leaves pensionable service and
                            refund                          the time within which they must give it

Section 101AD               Exercise of right under         Requires the member to give notice in writing by a certain date of
                            section 101AB                   which option he is electing and how he wants any cash transfer sum
                                                            to be used

Section 101AE               Permitted ways of using         Defines permitted cash transfer destinations (pensions or purchase
                            cash transfer sum               of annuities)

Section 101AF               Calculation of cash transfer    Provides power for regulations to prescribe detailed calculation
                            sum and contribution refund     method including making provision for administration costs and
                                                            variations to reflect fund value

Section 101AG               Duties of trustees or           Sets a timescale for complying with applications for transfers.
                            managers following exercise     Provisions discharging trustees from obligations to provide benefits
                            of right                        (subject to certain exceptions) when they have done what is needed
                                                            to carry out the member’s requirements

Section 101AH               Powers of trustees or           Permission to pay a refund after lapse of time and provision for
                            managers where right            discharge of further duty
                            not exercised

Section 101AI               Rights under section 101AB:     A member of an occupation scheme loses any right acquired by
                            further provision               him under s101AB if the scheme is wound up or if he fails to exercise
                                                            his right to elect before the reply date and the trustees allow no
                                                            further time


Part V                      Annual Increases of
                            Pensions in Payment

Chapter 2                   Guaranteed Minimum
                            Pensions

Section 109                 Annual increase of              Gives power to the Secretary of State to make annual price
                            guaranteed minimum              indexation provision by Order
                            pensions

Section 110                 Requirement as to resources     Except as permitted by s53 of the Pensions Act 1995, the trustees
                            for annual increase of          or managers may not make an increase in a person’s guaranteed
                            guaranteed minimum              minimum pension out of money which would otherwise fall to be
                            pensions                        used for payment of benefits under the scheme to that person


Part VIII                   Relationship Between
                            Requirements and
                            Scheme Rules

Section 129                 Overriding                      The extent to which provisions of a scheme are overridden when they
                            requirements                    conflict with statutory requirements.

                                                            Definition of:
                                                            – ‘protected provision’
Annex E – UK Social and Labour Law                                                                                               53


Provisions of the Pension   Title of the provisions          Description of the provisions
Schemes Act 1993

Section 130                 Extra-statutory                  Provisions of a scheme may provide benefits greater than required by
                            benefits                         statute

Section 131                 Relationship of preser-vation    The preservation requirements of Part IV are not directly applicable
                            requirements and scheme          and set minimum standards
                            rules

Section 132                 Duty to bring schemes into       Duty placed on trustees, managers or other bodies responsible to
                            conformity with indirectly-      bring the rules of the scheme into conformity with the preservation
                            applying requirements            requirements



Part XI                     General and                      Avoidance of certain transactions and provisions
                            Miscellaneous Provisions



Section 159                 Inalienability of guaranteed     Except as prescribed by Regulations, any assignment of or charge
                            minimum pension and              over an actual or prospective entitlement to a guaranteed minimum
                            protected rights payments        pension or protected rights payment gained by reference to
                                                             contracted out employment is void




Provisions of the           Title of the provisions          Description of the provisions
Pensions Act 1995


Part 1                      Occupational Pensions            Resolution of disputes

Section 50(1)-(5)           Resolution of disputes           Sets out a detailed procedure by which disputes between
and 50(7)                                                    scheme trustees
                                                             or managers and scheme members must be resolved

                                                             Indexation

Section 51                  Annual increase in the rate of   Provisions setting out the application of annual increases in the rate
                            pensions                         of pensions.

                                                             For the purposes of subsection (3) the relevant percentage is:
                                                             (a) the percentage increase in the retail prices index for the reference
                                                                 period, being a period determined, in relation to each periodic
                                                                 increase, under the rules, or
                                                             (b) the percentage for that period which corresponds to ­
                                                                 (i) in the case of a category X pension, 5% per annum, and
                                                                 (ii) in the case of a category Y pension, 2.5% per annum

Section 51ZA                Meaning of ‘the appropriate      Definition of:
                            percentage’                      – ‘the appropriate percentage’

Section 51A                 Restriction on increase          No increase under section 51 is required to be made, at any time on
                            where annuity tied to            or after the relevant date.
                            investments
                                                             Definition of:
                                                             – ‘the relevant date’
Annex E – UK Social and Labour Law                                                                                        54


Provisions of the    Title of the provisions        Description of the provisions
Pensions Act 1995

Section 52           Restriction on increase when   Subject to provisions, no increase under section 51 is required to be
                     member under 55                paid to or for a member of a scheme whose pension is in payment
                                                    but who has not attained the age of 55 at the time when the increase
                                                    takes effect

Section 53           Effect of increases above      Makes provision for offsetting increases above those required by
                     the statutory requirement      statute against subsequent years



Section 54           Sections 51 to 53:             Definition of:
                     supplementary                  – ‘annual rate’
                                                    – ‘the appointed day’
                                                    – ‘the commencement day’
                                                    – ‘pension’

                                                    Assignment forfeiture, bankruptcy, etc.

Section 91           Inalienability of              Provisions relating to assignment; commutation; surrender; lien and
                     occupational pensions          set off of a right to a pension or future pension

Section 92           Forfeiture, etc.               Provisions relating to forfeiture of a right to a pension or future
                                                    pension

Section 93           Forfeiture by reference to     Forfeiture may not be prevented if some monetary obligation has
                     obligations to the employer    been incurred which is due to the employer and arising out of a
                                                    criminal, negligent or fraudulent act or omission by the person

Section 94           Sections 91 to 93:             Regulations may make modifications.
                     supplementary
                                                    Definition of:
                                                    – ‘pension’
                                                    – ‘charged’
                                                    – ‘assign’




Provisions of the    Title of the provisions        Description of the provisions
Welfare Reform and
Pensions Act 1999


Part II              Pensions: General              Pensions and bankruptcy

Section 11           Effect of bankruptcy on        Provisions where a bankruptcy order is made against a person on
                     pension rights: approved       a petition presented after the coming into force of this section, any
                     arrangements                   rights of his under an approved pension arrangement are excluded
                                                    from his estate.

                                                    Definition of
                                                    – ‘approved pension arrangement’
                                                    – ‘related annuity’
                                                    – ‘exempt approved scheme’
                                                    – ‘approved personal pension arrangement’
                                                    – ‘estate’
                                                    – ‘the Taxes Act’
Annex E – UK Social and Labour Law                                                                               55


Provisions of the    Title of the provisions   Description of the provisions
Welfare Reform and
Pensions Act 1999

Section 12           Effect of bankruptcy      Regulations may make provision for or in connection with enabling
                     on pension rights:        rights of a person under an unapproved pension arrangement to
                     unapproved arrangements   be excluded, in the event of a bankruptcy order being made against
                                               that person, from his estate for the purposes of Parts VIII to XI of
                                               the Insolvency Act 1986.

                                               Definition of:
                                               – ‘prescribed’
                                               – ‘qualifying agreement’
                                               – ‘unapproved pension arrangement’

Section 13           Section 11 and 12:        Application of provisions to Scotland
                     application to Scotland


Part IV              Pension Sharing

Chapter 1            Sharing of rights under   Indexation
                     Pension arrangements

Section 40           Other pension schemes     Regulations may make provision for a pension to which sub-
                                               section (2) applies (eligible pension credit rights and safeguarded
                                               rights under a personal pension) to be increased as a minimum by
                                               reference to retail prices index but not exceeding 5% per annum.
                                               Not applicable to money purchase benefits and pensions in payment
                                               on or after the commencement day.

                                               Definition of:
                                               – ‘maximum percentage’
                                               – ‘commencement day’
                                               – ‘eligible’
                                               – ‘money purchase benefit’
                                               – ‘pension credit rights’
                                               – ‘qualifying occupational pension scheme’
                                               – ‘relevant pension credit’
                                               – ‘safeguarded rights’

				
DOCUMENT INFO
Shared By:
Categories:
Tags:
Stats:
views:11
posted:7/2/2011
language:English
pages:55