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

• DWP confirms ambition to remove AE lower earnings limit
• FCA publishes feedback statement on barriers to patient capital investment
• FCA updates guidance on how to avoid pension scams
• HMRC issues pension schemes newsletter 117
• HMRC and HMT publish conclusions on review of off-payroll working rules
• Partial response to LGPS consultation
• TPR responds to DWP letter on climate change
• TPR blog on a maturing and innovating landscape for DB pensions

DWP confirms ambition to remove AE lower earnings limit

On 27 February 2020, the DWP stated, in relation to its review of the AE earnings trigger and qualifying earnings band for 2020/21, that it “is the government’s ambition” to remove the AE lower earnings limit (so that contributions are eventually calculated from the first pound earned) “in the mid-2020s” and “following full discussions and consultation”.

The DWP also confirmed that, for auto-enrolment in 2020/2021:

• the earnings trigger will remain at £10,000, which “represents a real terms decrease in the value of the trigger when combined with assumed wage growth and will bring in an additional 80,000 individuals into the target population”
• the lower limit of the qualifying earnings band will be set at £6,240 (increased from £6,136) and
• the upper limit of the qualifying earnings band will remain at £50,000.

FCA publishes feedback statement on barriers to patient capital investment

On 28 February 2020, the FCA published a feedback statement on whether there are unnecessary barriers to investing in “patient capital” (less liquid assets such as smaller and medium-sized unlisted firms, housing, green energy projects and other infrastructure) through authorised funds.   The FCA has “not found any significant barriers to investing into patient capital assets through funds available for professional investors”. It did find “some barriers” within its authorised funds regime for broad retail distribution, but says that these are not barriers “which are unnecessary and can be relaxed without introducing a degree of risk that is inappropriate for retail investors”.  The FCA says that it “will be considering any rule changes with regards to authorised funds holding illiquid assets…later this year”.

Recently, TPR suggested in its response to the “future of trusteeship and governance” consultation (see our Alert) that a response to DWP’s consultation on investment in patient capital by occupational DC schemes (see 7 days) is on its way. For more information, please see our forthcoming DC briefing.

FCA updates guidance on how to avoid pension scams

The FCA updated its guidance on how to avoid pension scams on 28 February 2020. The guidance now gives extra information on how scam schemes work and on identifying scams.

HMRC issues pension schemes newsletter 117

On 28 February 2020, HMRC published pension schemes newsletter 117. The newsletter covers:

• relief at source (including information on income tax rates, members’ residency status for relief at source and the annual return of information)
• guidance from TPR on pension scams, noting that TPR has published a transfer checklist for schemes
• the GMP equalisation newsletter published on 20 February 2020 – see our Alert.

HMRC and HMT publish conclusions on review of off-payroll working rules

On 27 February 2020, HMT and HMRC published a joint response on their review (see 7 days) of reforms to the off-payroll (IR35) working rules, which they confirm will come into force on 6 April 2020.

The response “outlines a number of changes the Government has identified to address concerns and support the smooth and successful implementation of the reform”, including that:

• businesses will not have to pay penalties for inaccuracies relating to off-payroll in the first year, except in cases of deliberate non-compliance and
• the Government will place a legal obligation on clients to respond to requests for information, and update the legislation to address concerns raised over the rules as they apply to off-shore companies.

HMRC also confirms its commitment that information resulting from changes to the rules will not be used to open new investigations into Personal Service Companies for tax years prior to 6 April 2020, unless there is reason to suspect fraud or criminal behaviour.

The Government has updated its Employment Status Manual to reflect the changes, and provided communications resources to help to explain them.

The report also states that “the Government will continue to listen to stakeholders, and monitor and evaluate the operation of the rules. HMRC will commission external research into the impacts of the reform six months after implementation, including on how status assessments are being made”.

Partial response to LGPS consultation

On 27 February 2020, the MHCLG published a partial response to its consultation on proposals to amend the rules of the LGPS in England and Wales (see 7 days). The response covers reform of exit credits (credits due where an employer leaves the LGPS if their pension liabilities have been overfunded at their date of exit). The response explains that “where scheme employers had outsourced services or functions to service providers…it became clear that service providers were becoming entitled to exit credits where this would not have been the intention”.

Following consultation, the MHCLG has decided to put into place amending regulations (which were made on 25 February 2020) so that “administering authorities may determine, at their absolute discretion, the amount of any exit credit payment due, having regard to any relevant considerations”.

TPR responds to DWP letter on climate change

On 28 February 2020, TPR published its response to the DWP’s letter on climate change (see 7 days). The response acknowledges that TPR “has an important role to play to ensure that those that advise or manage pension schemes clearly understand the nature of the challenge and furthermore have the appropriate processes and mitigations in place in respect of climate change”. It states that TPR is developing a “strategy for dealing with the financial risks arising from climate change” and that it is “working alongside DWP colleagues, Government and industry bodies on guidance that will help trustees identify, assess and disclose their scheme’s exposure to climate risk…which is based on the framework of the Taskforce on Climate-related Financial Disclosures (TCFD)”.

TPR blog on a maturing and innovating landscape for DB pensions

TPR has published a blog on the “maturing and innovating landscape for defined benefit pensions”. The blog discusses the first stage of the DB funding code consultation, expected this month (see 7 days), and says that TPR will be “setting out options for a clearer funding standard and talking to schemes about how to manage their long-term objectives. This will put more onus on schemes to assess all their options and pursue strategies that are suitable for their circumstances”.

The blogpost also references DB superfunds, stating that while TPR “can see that there could be benefits to this for some schemes … protecting savers must be at our core, and we expect trustees to think very carefully about whether this is in their members’ best interests.” TPR notes that it has already set out its “expectations of DB superfunds that intend to operate before any authorisation regime is put in place”.

Finally, the blog calls for “industry innovators” who may be “beginning to explore and promote novel business models” (including structures to consolidate benefits (including superfunds), increase scale and share risk, and solutions for schemes with no substantive business attached or there is a risk of insolvency) to get in touch with TPR, so that they can “understand these models and support innovation in the market where it can improve outcomes for savers”.