7 days

7 Days is a weekly round up of developments in pensions, normally published on Monday afternoons. We collate this information from key industry sources, such as the DWP, HMRC and TPR.

In this 7 Days

• ACA releases pension trends survey report
• DWP launches State Pension top up scheme
• European Court rules US-EU Safe Harbor invalid
• European Commission releases Pension Adequacy Report
• FCA and HMT seek views on improving access to financial advice
• Government announces move to pool LGPS investments
• House of Commons Library publishes briefing papers on pensions taxation
• New PPI publications
• TPR issues another warning to savers in relation to pension scams
• O’Brien v Ministry of Justice; Walker v Innospec (Court of Appeal)

ACA releases pension trends survey report

The ACA has today released (12 October 2015) its first pension trends survey report, “Time to get real”.

The survey reveals that millions of workers have been enrolled into pensions since automatic enrolment was introduced in 2012, at the minimum levels required by the legislation, of combined employer and employee contributions. According to the ACA, the report highlights the need for further reforms to increase minimum contribution rates.

The ACA also believe the survey points towards a challenge to come, as opt-out rates are expected to rise amongst smaller employers who have yet to auto-enrol their employees into pensions. The report suggests that “the Government should have a ‘next steps’ strategy to head-off the danger of rising employee opt-outs including a review of spending plans, tax and NI rates and incentives so employers and employees have the wherewithal to meet the cost of much needed higher minimum pension contributions in the years ahead.”

The report also argues that a contribution rate of between 14-16% would probably be needed to reach the benchmark of the Pension Commission’s targeted replacement income of two-thirds of pre-retirement income, and argues that the eventual 2018 minimum 8% contribution should be increased, given the financial pressures of our rapidly ageing society.

DWP launches State Pension top up scheme

Also launched today (12 October 2015), is a new scheme from the DWP, which aims to help anyone reaching State Pension age before 6 April 2016 to safeguard their long-term financial security. Men aged 65 or older and women aged 63 or older are being offered a chance to increase their State Pension by up to £25 a week, by buying additional State Pension to give them “guaranteed extra income for life”.

The scheme will remain open for 18 months. Anyone interested in the scheme is advised to seek advice to ensure this option would be right for them. They can use the DWP’s online calculator and read the newly-released guidance booklet.

European Court rules US-EU Safe Harbor invalid

The CJEU has ruled that the “Safe Harbor” regime for data protection is no longer valid.

Since 2000, the US-EU Safe Harbor allowed US companies to comply with the EU Directive on the protection of personal data if they fulfilled set principles. However, the safe harbor has now been held to be invalid by the ECJ.

The ICO states that: “The judgment means that businesses that use Safe Harbor will need to review how they ensure that data transferred to the US is transferred in line with the law. We recognise that it will take them some time for them to do this.

It is important to bear in mind that the Safe Harbor is not the only basis on which transfers of personal data to the US can be made. Many transfers already take place based on different provisions.”

Pension schemes will want to ensure that adequate alternative measures are in place, and that any third party service providers who may need to transfer personal data to the US are no longer using the Safe Harbor test.

European Commission releases Pension Adequacy Report

The tri-annual Pension Adequacy report by the EU Commission’s Social Protection Committee monitors the degree to which pensions provide people with a sufficient income in old age, protecting them against poverty and allowing them to enjoy decent living standards. It assesses, at EU level, past key reform measures aimed at securing adequate and financially sustainable pensions, and identifies further reform needs.

The latest report was published by the Commission on 5 October 2015. It shows that the EU’s pension systems “have largely been maintained over the [financial] crisis” and can be expected to deliver adequate pensions to future generations of retirees – provided strong policies are in place to enable workers to stay in jobs until they reach statutory pension age are pursued, whilst noting that many people retire early for reasons such as health, unemployment, and caring duties. The report also states that it will be crucial to provide people with the necessary skills, as well as health and social support, to maintain their employability as they age.

However, the report notes that pension systems will need to provide protection for those who are unable to remain in the labour market long enough to build up sufficient pension entitlements – for example, by means of minimum pensions or other minimum income provisions for older people, and by crediting involuntary absences from employment, in order to reduce the impact on entitlement accruals of illness, unemployment and caring duties, among other things.

The report also acknowledges that pension outcomes are generally marked by big gender differences: women tend to be more exposed to poverty in old age than men, as they tend to have lower pensions owing to gender differentials in pay, working hours and duration of working life, and as they generally outlive their partners.

FCA and HMT seek views on improving access to financial advice

On 12 October 2015, the FCA and HMT launched joint consultation exploring what can be done to improve customers’ access to affordable financial advice. The consultation is the first major milestone of the Financial Advice Market Review (see 7 Days dated 3 August 2015 for details), which examines how financial advice could work better for consumers. This consultation focusses on questions such as what advice consumers want, what gaps exist between the advice wanted and what can be accessed affordably, and how these gaps can be closed.

The consultation will be open until 22 December 2015, with a final report due to be published ahead of Budget 2016. The initial evidence gathering will have a broad scope before narrowing down to consider those areas where the advice gap may be most acute.

Government announces move to pool LGPS investments

Chancellor George Osborne announced on 5 October 2015 that the assets of the existing 89 Local Authority pension funds will be pooled into six new British Wealth Funds, each with assets of over £25 billion. This follows the announcement in the Summer Budget 2015 that the government intended to work with LGPS administering authorities to ensure that they pooled investments.

The aims of the move are to save “millions of pounds every year in costs and fees”, and that the new funds will invest in major infrastructure projects. The Chancellor notes that “Currently, small local pension funds lack the expertise to invest in infrastructure. Overall, across £180 billion of assets, only 0.5% is invested in such projects. In countries with larger pooled public pension funds up to 8% of assets are infrastructure and 17% are housing and infrastructure”.

House of Commons Library publishes briefing papers on pensions taxation

The House of Commons Library published two briefing papers on 5 October 2015, looking at tax issues for pension schemes.

The first report looks at measures restricting pensions tax relief over recent years, including those announced in the Summer Budget, through reduced AA and LTA limits. The second examines the changes to the tax treatment of unused pension funds on death which were introduced with effect from 6 April 2015.

New PPI publications

On 8 October 2015, the PPI published “The Future Book: unravelling workplace pensions [2015 Edition]”.

The Future Book is the first edition of an annual PPI publication, commissioned by Columbia Threadneedle Investments, which sets out data on the DC landscape, explores emerging trends and contains the PPI’s projections of future asset levels, scheme distribution and median DC pot sizes. The Future Book aims to provide commentary and analysis on DC trends “by leading thinkers in the pensions policy world, all with an end-consumer focus”.

Amongst other observations, the 2015 edition remarks that “while more people are saving in a private pension, saving levels are not yet high enough for many to achieve an adequate level of income in retirement”.

The PPI also released its latest Briefing Note (77) – “Measuring adequacy under the new pension flexibilities”, on 12 October 2015.

The briefing note outlines some of the opportunities for and approaches to the management of retirement income. These include the issue of inadequate retirement incomes, UK debt levels, and appropriate “replacement rates” (the extent to which retirement income allows individuals to replicate the standard of living they had in working life), as a measure of adequacy.

TPR issues another warning to savers in relation to pension scams

On 9 October 2015, TPR published details of its investigation into a suspected multi-million pound pension scam case and warned savers to remain vigilant against the ongoing threat of scams.

In the case in question, TPR believes that “a pension scam had taken place in which funds totalling around £13.7 million belonging to 242 members have all but disappeared – including through the payment of exorbitant fees and commission payments”.

The report explains how TPR’s Determinations Panel appointed an independent trustee to administer 17 pension schemes to prevent further loss and to claim back funds.

TPR noted that the case featured many “hallmarks” that people should watch out for to protect themselves from pension scams. Warning that savers must remain vigilant against the threat of scams, Andrew Warwick-Thompson, Executive Director of TPR, said “Our message is clear: if you’re cold called or texted by people claiming they can help you to get early access to the cash in your pension or unusually high investment returns, stop, don’t be tempted, and put the phone down. You’re likely to lose all your money and may face a considerable tax charge.”

O’Brien v Ministry of Justice; Walker v Innospec (Court of Appeal)

As the outcome of both O’Brien v Ministry of Justice and Walker v Innospec turned on the same principles of EU law, the Court of Appeal (CA) delivered a joint judgment.

The CA dismissed both appeals, finding that it is not possible to claim rights retrospectively, when there is a subsequent change in legislation.

This will no doubt come as a relief to those occupational pension schemes which take advantage of the ability to restrict survivors’ benefits for same sex couples (see our Alert for details).  For now at least, they may continue to do so.

See our case report for full details.