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

• Summer Finance Bill 2015
• Firefighters’ pensions: DCLG tools and guidance updated
• DWP publishes response to consultation on abolition of DB contracting-out
• DWP: Workplace pension trends and response to automatic enrolment
• DWP: further update on Greece
• Work and Pensions Committee launches inquiry into flexibilities guidance
• European Commission agrees to extend EMIR central clearing exemption
• FRC: new Technical Actuarial Standards
• FSCS annual report and accounts for 2014/15
• HMRC updated forms and guidance
• HMRC legislation laid before Parliament
• HMRC issues latest Countdown bulletin
• NEST annual report published
• PASA GMP Working Group warns trustees to check GMP data
• PPF annual report published
• TPR guidance for small employers choosing a pension scheme
• TPR launches new scam-awareness materials

Summer Finance Bill 2015

On 15 July 2015, the Government published its Summer Finance Bill (“the Bill”) with a view to introducing a number of provisions that were announced by the Chancellor in his Summer Budget.

Major points in the Bill in relation to pensions include:

• Tax on lump sums paid in respect of individuals who die aged 75 and over are set to be payable at the recipient’s marginal rate from the tax year 2016/17.

• With effect from 6 April 2016, the Government will restrict pensions tax relief for higher earners using a tapering mechanism.

Some measures announced in the Summer Budget 2015 will not be legislated for until the Finance Bill 2016. These include the reduction of the LTA to £1 million from 6 April 2016, transitional protections for those with pension rights already over £1 million, and measures to introduce the secondary market for annuities in 2017.

The Bill is expected to be discussed in Committee in the early autumn.

Guidance, including HMRC’s technical note on the transitional measures in relation to the AA will be updated after the Finance Bill 2015 receives Royal Assent.

See our Alert for further details of the Bill.

Firefighters’ pensions: DCLG tools and guidance updated

DCLG has published an updated Pensions calculator and updated user manual for implementing the newly modified pension arrangements for retained firefighters, to help fire and rescue authorities to calculate the past service costs to eligible members who are considering joining the scheme.

DWP publishes response to consultation on abolition of DB contracting-out

The DWP has concluded its consultation on changes resulting from the abolition of DB contracting-out in occupational pension schemes.

On 16 July 2015 it published its response to comments received on the Occupational Pension Schemes (Schemes that were Contracted-out) Regulations 2014, and published final regulations.

These regulations set out the rules with which schemes that are contracted out on a DB basis immediately before 6 April 2016 will need to continue to comply, on and from that date, in respect of accrued contracted-out benefits.

The regulations aim to ensure that the members’ entitlements derived from contracted out employment continue to be preserved, and make other provisions to make sure formerly contracted-out schemes continue to be operated appropriately.

The Pensions Act 2014 (Savings) Order 2015 made on 14 July 2015 saves certain provisions of the Pensions Act 1993 otherwise repealed by Schedule 13 of the Pensions Act 2014, which abolishes contracting-out for DB schemes. This includes provisions which relate to certification of contracted-out schemes, cancellation of certificates, the NI rebate, HMRC supervision of contracted-out schemes and state scheme premiums, in order to require or allow schemes and HMRC to carry out necessary tasks relating to a period of contracted-out employment which occurred before the abolition date.

DWP: Workplace pension trends and response to automatic enrolment

In analysis published on 16 July 2015, the DWP noted that 70% of eligible workers are now saving into a workplace pension – a 15 percentage point increase over the last 2 years.

The Workplace pension participation and savings trends report – the DWP’s second analysis of statistics on participation and savings trends among employees 2004 to 2014 – is based on data provided by the ONS.

Minister for Pensions, Baroness Ros Altmann noted that “the numbers of people participating are set to continue rising as automatic enrolment extends its reach to small and micro firms between now and 2018, by which time about 9 million workers will have been enrolled.”

The DWP statistics will be updated and published each year during the implementation of automatic enrolment (due to be completed in February 2018).

DWP: further update on Greece

Advice from the DWP in relation to Greece and UK pension payments into Greek bank accounts remains the same, with the site being updated on 20 July 2015 to note that Greek banks reopened on that date, but that only limited banking services are as yet available.

Work and Pensions Committee launches inquiry into flexibilities guidance

The Work and Pensions Committee announced on 16 July 2015 that it will undertake an inquiry into “whether people are adequately supported in making good, informed decisions about their retirement savings in light of the changes on access to pensions and pension drawdown introduced in April 2015”.

The deadline for written submissions is 28 August 2015.

European Commission agrees to extend EMIR central clearing exemption

As covered in our 7 Days of 8 June 2015, the European Commission adopted a Delegated Regulation on 5 June 2015 extending the current EMIR exemption for pension schemes (from derivative contracts having to be cleared through central counterparties) for a further two years until August 2017.

On 16 July 2015, the Council of the EU confirmed that it will not object to the proposed extension. The Regulation (as a delegated act) may now enter into force, unless the EU Parliament objects.

FRC: new Technical Actuarial Standards

The FRC on 16 July 2015 published an update on its November 2014 consultation into a new framework for the Technical Actuarial Standards (TASs).

The proposed changes are intended to ensure that users of actuarial information, which includes trustees and scheme employers, can rely on the quality of actuarial work. Following their review of the responses to the consultation, the FRC have also agreed to defer the introduction of TAS 100 (the generic technical actuarial standard which is proposed to replace the existing standards) until changes to specific TASs are ready to be introduced, in order to avoid two sets of changes in a short period of time.

FSCS annual report and accounts for 2014/15

The FSCS published its annual report and accounts for 2014/15 on 16 July 2015.

Amongst other things, the report states that the average compensation payout for claims relating to SIPPs have increased by approximately 50% to £16,375, with these figures anticipated to “rise steeply” again during 2015/16.

The report also notes that, in relation to the new flexibilities, the FSCS is ‘very keen’ to discuss protection limits with the FCA and the PRA, as part of their forthcoming review of FSCS protection and funding. It states that “it is extremely important that consumers understand fully the choices involved in accessing their pensions savings, particularly as there is the potential for individuals to move funds from an FSCS protected environment into a position where there is far less (or no) protection. We are working closely with the regulatory bodies and consumer advisers, including the free and impartial service Pension Wise to keep consumers closely informed about FSCS’s role and the benefits of FSCS protection. PRA and FCA rules also place responsibility on the industry to tell consumers about FSCS and the protection in place for different products and services.”

HMRC Updated forms and guidance

HMRC has published updated forms and notes, including documentation for claiming tax refunds on small pension lump sums received and for reclaiming an overpayment of tax having flexibly accessed part of a pension pot.

HMRC legislation laid before Parliament

The following regulations were laid before Parliament on 16 July 2015:

• The Registered Pension Schemes (Audited Accounts) (Specified Persons) (Amendment) Regulations 2015, which prescribe the persons who may be the auditors of the accounts of a registered pension scheme and provide an exemption for very large trust-based multi-employer schemes (those with 500 or more employers) from the prohibition on sponsoring employers being an auditor.

• The Registered Pension Schemes (Provision of Information) (Amendment No.2) Regulations 2015, which require scheme administrators to tell beneficiaries where the payment of an annuity is subject to an LTA charge.  They also require certain information to be provided when beneficiaries’ annuities are transferred between insurance companies, so that the correct tax treatment can be applied following transfer.

• The Registered Pension Schemes (Transfer of Sums and Assets)(Amendment No.2) Regulations 2015, which ensure that nominees’ and successors’ annuities (which were introduced on and from 6 April 2015) are treated in the same way as dependents’, nominees’ and successors’ short-term annuities, so that they may only be transferred to another nominee’s or successor’s annuity respectively.  If they are transferred to any other type of annuity or pension arrangement, the sums or assets transferred will be treated as unauthorised payments, liable to tax charges of up to 55%.

HMRC issues latest Countdown bulletin

On 15 July 2015, HMRC issued its latest countdown bulletin.   This issue gives responses to queries raised, and an update on the online self-service ‘GMP Micro Service’ by which it will be possible to access, from April 2016, GMP and contribution and earnings information for scheme members.

NEST annual report published

NEST published its annual report on 14 July 2015. Some key statistics from its report were as follows:

• As at the end of March 2015 NEST had over 2 million members (up from 1 million in 2013/14).
• The average opt out rate was 8 per cent on average, and lower for younger members.
• NEST had nearly £420m assets under management (£104m in 2013/14), with 99% of members invested in the default (Retirement Date) funds.

PASA GMP Working Group warns trustees to check GMP data

PASA’s GMP working group issued a press release on 14 July 2015 warning trustees to check GMP data ahead of de-risking projects and permitting flexible access.

According to the group, which is responsible for setting industry standards and guidance in the area, schemes which are embarking on de-risking exercises such as commutation exercises and pension increase exchanges, or those who offer flexible access to defined contribution benefits which have an underpin, could be storing up problems for the future if members’ rights include GMP elements.

Matt Ashton-Smith, Chair of the working party, commented; “If schemes allow members to commute or access their benefits without properly verifying GMP data, there is a real risk that benefits will be incorrectly calculated – or that they should not be paid at all. Trustees may not be protected by a member discharge where benefits have been calculated incorrectly […] Correcting problems like this in the future will be complicated and expensive, so the advice to schemes is to take their GMP data seriously now, in relation to their current dealings with members.”

PPF annual report published

The PPF have published their latest annual report on 19 July 2015, stating that it had “marked its tenth anniversary with a strong financial performance thanks to impressive investment returns, which have helped increase its surplus to £3.6 billion and its funding ratio to 115.1 per cent”.

Commenting on the Report, Lady Barbara Judge, PPF Chairman said: “The PPF is a success story of which we should all be proud. We not only provide peace of mind for the 220,000 members it compensates now, but also to the 11 million people who belong to defined benefit pension schemes in the UK.”

PPF CFO Andy McKinnon noted however that the PPF “cannot afford to be complacent.  The global macro-economic environment and pension scheme funding remain volatile which is reflected in the change in our probability of success which decreased from 90 per cent in March 2014, to 88 per cent in March 2015.”

The report notes that, between 1 April 2014 and 31 March 2015:

•  new claims on the PPF were lower than in previous years, with 61 schemes bringing a combined deficit of £322.3 million compared to £618.5 million for 2013/14;
• the PPF protected an additional 23,470 people, making a total of 222,597 deferred and pensioner members; and
• 30,084 people were members of schemes that completed the PPF assessment period during the year

TPR guidance for small employers choosing a pension scheme

On 16 July 2015, TPR published new guidance designed to help the 1.3 million small and micro businesses preparing for automatic enrolment find a good quality pension scheme. It is also updating its suite of auto-enrolment information and tools.

TPR’s research suggests one in five (290,000) employers will not seek advice when choosing a pension scheme, while one in ten (130,000) do not know how to select a scheme, or think it will be difficult.

New content includes, for the first time, a list of ‘master trust’ pension schemes open to employers of all sizes, which have been independently reviewed to prove they are administered to a high standard. The voluntary master trust assurance framework was developed by the ICAEW in association with TPR to enable auditors to provide independent assurance on scheme quality. TPR’s communications materials will continue to signpost employers to NEST, the NAPF’s PQM READY site and the ABI’s list of automatic enrolment providers.

In addition, a quick guide for small and micro employers on what to look out for when choosing a scheme suited to their needs, and updates to website pages for IFAs and accountants, have also been published.

TPR launches new scam-awareness materials

On 20 July 2015, TPR released new information on its website as part of its ongoing scorpion campaign, in support of Scams Awareness Month. This includes a new infographic poster explaining typical pension scammer tactics and ways in which members can scamproof their savings, and a new guidance video . TPR notes that it is working with other government organisations to disrupt scamming activity.

In addition guidance is available for trustees, including a checklist of scam hallmarks. The campaign also signposts the code of good practice (published in March 2015 – see our Alert) that sets out due diligence processes to combat pension scams. It calls on trustees to encourage members to contact Pension Wise, the new government service aimed at helping those approaching 55 to understand their options.