What are ”money purchase benefits”?
The Supreme Court has today given its judgment in Houldsworth v Bridge Trustees on the interpretation of the phrase “money purchase benefits” under pensions legislation.
The key questions decided by the Court (upholding the decision of the Court of Appeal) were:
– benefits subject to a guaranteed rate of return can still be considered to be money purchase benefits; and – where money purchase pots were used to provide pensions from the scheme, rather than to purchase annuities from an insurer, the conversion process did not mean that they ceased to be money purchase benefits.
The Government has immediately responded saying that it is considering the implications of the case carefully as it “will result in some schemes being regarded as providing money purchase benefits under the current legislation, even if it is possible for funding deficits to arise in respect of those benefits”. Such schemes would be outside the scope of the funding regime, section 75 (employer debt), the PPF (Pension Protection Fund) and the Financial Assistance Scheme and could potentially face problems with the distribution of assets on a winding-up.
The Government intends to introduce amending legislation as soon as possible with the intention “that the legislation will have retrospective effect at least from the date of the judgment. The legislation will make it clear that benefits cannot be regarded as money purchase benefits if it is possible for a funding deficit to arise in respect of any of those benefits. The Government will consider transitional protection in respect of events occurring between the date from which the legislation is effective and the date of this statement if, for example, this retrospective change would have adverse consequences for individuals.”
The impact that any amendment will have will depend very much on the form it takes but may mean that schemes or sections of schemes which have never previously had to comply with the scheme specific funding regime or the PPF levy requirements may need to do so in the future.