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:

• The Registered Pension Schemes (Transfer of Sums and Assets) (Amendment) Regulations 2015
• The Registered Pension Schemes (Provision of Information) (Amendment) Regulations 2015
• ACA launches retirement income manifesto
• DWP releases latest automatic enrolment figures
• Consultation: Employer debt in non-associated multi-employer defined benefit pension schemes
• Government’s Work and Pensions Select Committee publishes report on pension reforms
• Pension freedoms to be extended to people with annuities
• IFoA warns of risks in new pensions freedoms
• Pension Liberation Industry Group publishes Code of Good Practice
• PPF sets out its plan for the next three years
• TPR urges savers to “scamproof” their savings
• TPR bans trustees for involvement in pension scams
• TPR publishes automatic enrolment compliance report

The Registered Pension Schemes (Transfer of Sums and Assets) (Amendment) Regulations 2015

The flexibilities introduced by the Taxation of Pensions Act 2014 include the removal of a number of restrictions for certain types of pension annuities (for example, to allow payments under a new lifetime annuity to be reduced beyond certain limits), but only where these annuities are issued on or after 6 April 2015.

The Registered Pension Schemes (Transfer of Sums and Assets) (Amendment) Regulations 2015 (which will come into force on 6 April 2015) are designed to ensure that individuals with annuities issued before 6 April 2015 should not be able to take advantage of the new flexibilities by transferring their existing annuity to a new annuity issued after 6 April 2015.  The regulations are intended to ensure that an annuity acquired before 6 April 2015 will only be treated as a lifetime annuity for the purposes of the pensions tax rules where it is issued on a “like for like” basis, ie the terms of the new annuity do not allow it to be reduced beyond the limits that applied to the original annuity.

The regulations aim to ensure that dependants’ annuities must be transferred on a similar “like for like” basis where the dependant became entitled to the annuity after 6 April 2015 but the scheme member became entitled to the annuity before 6 April 2015.  Dependants’ and lifetime annuities are commonly related where they are issued under a Joint Life annuity contract.

TPA14 also extends the type of death benefits that may be provided from drawdown funds beyond dependants’ short-term annuities, to include short-term annuities for nominees and successors of deceased scheme members.

The regulations also aim to ensure that nominees’ or successors’ short-term annuities are treated in the same way as dependants’ short-term annuities, so they may only be transferred to another nominees’ or successors’ short-term annuity.  If they are transferred to any other type of annuity or pension arrangement, the sums or assets transferred will be treated as unauthorised payments and therefore liable to tax charges of up to 55%.

A consultation on proposals to allow the pension freedoms to be extended to those who have already purchased an annuity is due out on 18 March – see Pension freedoms to be extended to people with annuities below.

The Registered Pension Schemes (Provision of Information) (Amendment) Regulations 2015

TPA14 removed the requirement that a DC pension should be payable for life but retained the principle that tax relieved pensions savings should not be accessed before age 55.  Changes were also made to allow death benefits paid to beneficiaries from a drawdown pension fund to be paid tax free where the member, or in some cases the beneficiary, dies before age 75.

If funds that can be paid tax free are transferred from one registered pension scheme to another, the receiving scheme administrator needs to know whether tax should be paid on that pension or not.  The Registered Pension Schemes (Provision of Information) (Amendment) Regulations 2015 (which, broadly, come into effect on 6 April 2015) are therefore intended to impose new requirements on scheme administrators (generally, the trustees) to provide appropriate information to the receiving scheme administrator when transferring pension funds.  This is to ensure that the correct tax treatment is applied to future payments.

The regulations also amend certain reporting requirements in relation to death benefits and payments from drawdown funds.

The Finance Act 2014 (see our Alert) gave HMRC new powers to help it prevent the registration of schemes used for pension scams.  However, the changes did not prevent schemes from being set up legitimately and then changing their structure so that they are more likely to be used in pension scams.  These regulations therefore amend the information that must be provided to HMRC when a scheme changes its structure, and introduce new membership bands (a move from one band to another from one tax year to the next must be reported to HMRC), with view to enhancing HMRC’s compliance strategy for combating pension scams.

ACA launches retirement income manifesto

On 12 March 2015, the ACA published a retirement income manifesto, with a view to encouraging the political parties to consider, ahead of the General Election, measures that will boost private sector retirement savings.

The ACA says that the reforms enacted in the current Parliament need to be built upon by way of a coherent strategy adopted by the incoming Government.  The incoming Government should also look to construct a long-term consensus by setting up and taking regular advice from a new Independent Retirement Income Commission.  The ACA’s retirement income manifesto also sets out a proposed remit for such a Commission.

DWP releases latest automatic enrolment figures

On 12 March 2015, the DWP released figures which show that nearly 5.2 million workers have been enrolled into a workplace pension scheme by their employer as part of automatic enrolment.

With people typically having eleven different jobs over their working lives, the Government has also announced that it will roll out a new system to help people keep their savings in one place while they move jobs.

The current intention is for a system of automatic transfers to begin in 2016.  Under this system, an individual’s pension pot would follow them as they move between companies.

Consultation: Employer debt in non-associated multi-employer defined benefit pension schemes

On 12 March 2015, the DWP issued a call for evidence on the operation of the employer debt regime for non-associated multi-employer scheme.

In particular, the DWP is looking to assess the:

• effectiveness of the current easements open to employers in such schemes
• the possible impact of changes that have been put forward.

The call for evidence, which closes on 22 May 2015, discusses the policy rationale underpinning the current regime and summarises the easements in place for employers.  It also sets out stakeholders’ views of the regime and some of the changes that have been suggested to the DWP.  The DWP wishes to explore the possible risks and benefits of the suggested changes.

The DWP is not making any proposals at this time, merely seeking views.

Government’s Work and Pensions Select Committee publishes report on pension reforms

On 10 March 2015, the Government’s Work and Pensions Select Committee released a report on “Progress with automatic enrolment and pensions reforms”, in which it calls for the establishment of a single pension regulator and an independent commission in the new parliament.

One issue which the Committee wants the new commission to explore is the minimum age at which individuals can take advantage of the new pension flexibilities.  This is currently set at age 55, in line with current tax rules, and is set to rise to 57 in 2028, when the State Pension Age increases to 67.  Dame Anne Begg, Chair of the Work and Pensions Committee, said:

“Allowing people to take advantage of the new pension flexibilities 10 years before they get their State Pension could create unrealistic expectations about the age at which they can afford to stop working.  Our view is that, given the significant tax relief provided for pensions, increased longevity, and the importance of ensuring that people do not underestimate the income they need in retirement, the age at which people should be able to access their pension pots should be changed to five years before [SPA], except where there are ill health grounds.”

The report makes a number of further recommendations, including:

• the number of individuals leaving automatic enrolment schemes after the initial opt-out period needs to be monitored, as early opt-out figures alone cannot be used as a meaningful measure of success in the longer-term
• the Government has been slow to finalise the details for the automatic transfer of automatic enrolment pension pots and this is still not expected to be implemented until autumn 2016.  The new Government should confirm plans for automatic transfers early in the new parliament and act quickly to develop workable IT solutions with the pensions industry
• the Government has made good progress in tackling some of the problems identified in the Committee’s 2013 report, including excessive and unnecessary charges in auto-enrolment qualifying schemes.  The introduction of the 0.75% cap on charges is welcomed, but the report notes that more needs to be done to address the lack of transparency in charges, transaction costs, and high charges and poor governance in legacy schemes
• the proposed independent commission should assess the impact of the new pension flexibilities on the range, suitability and accessibility of retirement products and advise on necessary interventions if the market is found not to be operating in savers’ best interests
• regulators should prioritise the introduction of a “pensions dashboard” to enable individuals to access consolidated information about all their pension savings, which would ideally include both private and state pension entitlements.  The Committee proposes that use of such a dashboard by providers should be mandatory.

Pension freedoms to be extended to people with annuities

On 15 March 2015, George Osborne, the Chancellor of the Exchequer announced that the Government will extend its pension freedoms to around five million people who have already bought an annuity.

From April 2016, the Government will remove the restrictions on buying and selling existing annuities to allow pensioners to sell the income they receive from their annuity without unwinding the original annuity contract.

Pensioners will then have the freedom to use that capital as they want, just as those who reach retirement with a pension pot can do under the pension freedoms announced in Budget 2014.  They can either take it as a lump sum, or place it into drawdown to use the proceeds more gradually.

Currently, people wanting to sell their annuity income to a willing buyer face a 55% tax charge, or up to 70% in some cases.  The government will remove this charge, so people are taxed only at their marginal rate.

To ensure people are in a position to make an informed decision, the government will be working with the FCA to introduce appropriate guidance and other consumer protection measures.

A consultation on the measures needed to establish a market to sell and buy annuities will be launched alongside the Budget on 18 March 2015.

IFoA warns of risks in new pensions freedoms

The Institute and Faculty of Actuaries (“IFoA”) has warned of the risks surrounding the new pensions freedoms coming into effect in April 2015.

There are concerns that individual members of DB pension schemes may be targeted to transfer out of their current schemes, into DC schemes, to enable them to benefit from the new freedoms.  The IFoA notes that individuals need to understand the risks this involves and has published guidance for its members ahead of the April changes.

Desmond Hudson, Chair of the IFoA’s Regulation Board comments:

“There is a danger that unscrupulous selling or advice to the unwary could see individuals suffering financial loss.  People who transfer benefits out of their existing DB schemes and into DC schemes may be accepting more risk than they realise by giving up a lifetime income.  The IFoA also encourages life insurance companies to develop products for the new retirement market that are fit for purpose for the individuals who are likely to purchase them, and do all they reasonably can to ensure that individuals make well informed decisions.”

The IFoA considers that the public should feel reassured by the fact that actuaries have professional responsibilities when providing advice, including an obligation to observe the principles of the Actuaries’ Code, promoting confidence in the work of actuaries and the actuarial profession.

The IFoA expects its members working in both the pensions and life insurance industries to ensure any advice given is objective and that it considers all relevant risks.  This includes any advice given to employers providing DB schemes, providers of retirement products, individual scheme members, scheme trustees and potential clients.

Pension Liberation Industry Group publishes Code of Good Practice

The Pension Liberation Industry Group has today (16 March 2015) published a Code of Good Practice on Combating Pension Scams.

The Code is a voluntary, non-statutory code which is designed to set an industry standard for dealing with requests from members to transfer their pension scheme benefits from one UK registered pension scheme to another or to a QROPS.  Among other things, the Code provides guidance on:

• pension scheme members’ transfer rights
• different types of pension scam
• the due diligence process, including initial analysis and further information requests
• refusing a transfer
• reporting scam activity
• record keeping.

The Code also includes a number of example communications, including letters to members and discharge form wording, as well as an example pension scam decision sheet.

The Code is not intended to replace or override existing requirements or guidance by TPR, HMRC or the FCA in connection with transfers and pension scams.  It is available for use in any transfer request processed on or after 16 March 2015, even if the request for a transfer was received before 16 March 2015.

PPF sets out its plan for the next three years

On 11 March 2015, the PPF launched its Strategic Plan, setting the course for the next three years.  As the PPF approaches its 10^th anniversary, the Strategic Plan for 2015/18 highlights the extent of change and growth in the organisation since 2005 and sets out how the PPF will meet its business objectives as it continues to grow in size, scale and complexity.

TPR urges savers to “scamproof” their savings

Pension savers are being urged to “scamproof” their pension savings as part of a campaign launched by TPR on 16 March 2015, ahead of the introduction of the new pension freedoms on 6 April 2015.

TPR notes that, to date, individuals under age 55 have been the primary target for scammers who promise to be able to release their pensions as loans or upfront cash.  But, from April 2015, the new flexibilities will give people aged 55 and over more freedom over how they access their pension pots.

People approaching age 55 may be contacted by scammers seeking to exploit people’s interest in the change in law, for example by enticing them to move their cash into bogus, unregulated investments or other forms of scams.

With a view to helping members, trustees, providers and administrators spot possible scam arrangements, TPR has refreshed its scorpion campaign to alert people to the risks.

TPR’s guidance offers advice for savers on how to spot a scam, and what to do if they have been contacted by a potentially suspicious organisation.  The scorpion campaign also includes guidance for pension scheme trustees, including a checklist of scam hallmarks, and signposts the new Code of Good Practice (see above) which sets out industry standard due diligence processes to combat pension scams.

TPR also calls on trustees to encourage members to contact Pension Wise, the new Government service aimed at helping those approaching 55 to understand the available options for turning their pension pot into income for retirement.

TPR bans trustees for involvement in pension scams

TPR has banned two individuals and a trustee company from acting as pension trustees, following a pension scams investigation.

TPR’s determinations panel prohibited David Fellowes, Francine Becker and a company they controlled, Avalon Pension Trustees Limited, from acting as trustees of trust schemes in general.  Mr Fellowes and Ms Becker had acted as trustees of nine pension schemes investigated by TPR in relation to pension scams activity.

The panel appointed independent trustee company Dalriada to take control of the schemes to ensure that they were being administered properly.

The reasons for the panel’s decision are set out in a determination notice published on 10 March 2015.

TPR publishes automatic enrolment compliance report

TPR publishes monthly information on automatic enrolment derived from information submitted by employers when they complete their declaration of compliance (registration), supplemented by annual reports including additional analysis and commentary.

The initial monthly report for the cumulative period to the end of February 2015 has now been published.  Among other things, the report indicates that during the period July 2012 to the end of February 2015 a total of 44,969 employers have confirmed to TPR that they have met their duties by completing their declaration of compliance during the period.  This represents some 19,997,000 workers, of whom:

• 5,178,000 have been automatically enrolled into an automatic enrolment scheme
• 9,279,000 were already active members of a qualifying scheme on the staging date
• 427,000 were eligible jobholders who have had the DB or hybrid transitional arrangements applied to them
• workers who do not fall within any of these categories.