06 July 2020

A focus on pension schemes in Guernsey and Jersey

Working as a pensions lawyer in both Jersey and Guernsey, Carey Olsen's Julie Currie is perfectly placed to provide an insight into the pensions industry in each of the islands. Here, she sets out a few of the key recent developments impacting pension schemes in Jersey and Guernsey.

Jersey

Pension scheme regulation

In Jersey, there has been a shift in thinking on the island’s approach to the regulation of pension schemes. Unlike Guernsey, there is currently no specific regulation of pension schemes in Jersey, although pension providers are regulated indirectly through the regulation of trustees, insurers and banks.

The Government of Jersey first consulted on pensions regulation in November 2018. A follow-up consultation was launched in December 2019 seeking further views from the pensions industry on the proposed regulation of pensions

business. In addition, the Government has been meeting with those who work in and advise the pensions sector to get their specific insight. The regulatory proposals aim to further protect the rights and interests of pension scheme members and beneficiaries while supporting business growth in the pensions sector and ensuring that the framework is proportionate.

International savings plans

In January 2019, Jersey launched a new trust-based savings vehicle known as the international savings plan (ISP). ISPs are intended to provide employees of multinational businesses with flexible savings arrangements. Unlike international pension schemes, there are no age restrictions applicable to the payment of benefits sand employers have the flexibility to design savings plans (including end-of-service gratuity benefits that are appropriate for their workforce.

ISPs will generally be tax-neutral in Jersey, as no income tax on the investments of, or benefits payable to, non-Jersey residents will arise. ISPs will need to have a trustee regulated by the Jersey Financial Services Commission (JFSC) and comply with the JFSC’s annual reporting requirements.

While many unapproved (tax-neutral) savings plans are already in operation under Jersey and Guernsey law, it may be that certain employers will be attracted by the ‘approved’ status of ISPs.

Guernsey

Secondary pension scheme

In 2016, Guernsey approved the introduction of a secondary pension scheme, which will require employers to automatically enrol their qualifying employees into a suitable workplace pension scheme from 2022. 

Auto-enrolment will be phased in over a six-month period, starting with larger employers. Smart Pension, an auto-enrolment workplace pension provider, has been announced as the preferred partner by Guernsey to provide the secondary pension Island Plan’ (the Plan). Alternatively, employers will be able to put their own workplace pension scheme in place or use an existing scheme, provided it meets certain criteria.

It is proposed that qualifying employees, who will need to be auto-enrolled into a workplace pension scheme, will include those between the ages of 16 and retirement age who earn a salary in excess of the ‘lower earnings limit’ for social security purposes (currently GBP144 per week). Employees who do not satisfy these criteria will be able to participate in the Plan on a voluntary basis.

Individuals will be able to opt out of their workplace pension scheme but will be automatically re-enrolled by their employers every three years and will have to opt out again if they do not wish to participate.

Contributions to the workplace pension scheme will be phased in and will initially require both employers and qualifying employees to contribute 1 per cent of qualifying earnings. By 2030, employer contributions will increase in stages to  3.5 per cent and employee contributions to 6.5 per cent.

Revised pension rules

The Guernsey Financial Services Commission has, with input from Guernsey’s pensions industry, published revised Pension Scheme and Gratuity Scheme Rules and Guidance 2020 (the Rules) in order to enhance the jurisdiction’s regulatory framework for pensions.

The Rules are intended to clarify certain aspects of Guernsey pensions regulation and, in particular, the classification of investment approaches that can be adopted by licensees of pension schemes and the obligations that follow.

Licensees will be required to comply with the provisions of the Rules from  1 January 2021.

Approval of tax-exempt retirement savings schemes

Guernsey has long been able to provide tax-exempt occupational and personal retirement savings plans to provide pensions, savings and, in the case of occupational schemes, end-of-service gratuity benefits These schemes are established for international rather than local clients and, prior to June 2017, could not obtain tax-approved status in Guernsey.

Since 30 June 2017, these schemes now qualify for approved status, thereby enhancing their attractiveness for certain employers and individuals.

 

An original version of this article was first first published in the STEP Journal, June 2020.

© Carey Olsen 2020.