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

• Budget 2018
• Lloyds Banking Group Pensions Trustees Ltd v Lloyds Bank plc and others
• IORP II – regulations made
• Draft Occupational and Personal Pension Schemes (Amendment etc.) (EU Exit) Regulations 2018
• The Financial Regulators’ Powers (Technical Standards etc.) (Amendment etc.) (EU Exit) Regulations 2018
• Impact of Welsh income tax rates: guidance and a consultation on draft legislation
• Minister for Pensions confirms forthcoming consultations
• CMA publishes updated working paper
• FCA Handbook changes confirmed
• PPF updates guidance on valuation assumptions

Budget 2018

The Chancellor, Philip Hammond, delivered the 2018 Budget today, 29 October 2018.

While there was little in terms of pensions “news”, the following were confirmed:

• the Lifetime Allowance will increase in line with CPI for the tax year 2019-20, rising to £1,055,000
• the Government is pressing ahead with the proposed ban on pensions cold calling. HMT’s response to its July 2018 consultation was published, together with final regulations, alongside the Budget statement. The regulations will be subject to parliamentary approval and brought into force as soon as possible thereafter
• the Government will consult “later this year on the detailed design for Pensions Dashboards, and on how an industry-led approach could harness innovation while protecting consumers”. The Budget provides funding for this
• with a view to “boosting pensions for the self-employed”, the DWP will this winter “publish a paper setting out the government’s approach to increasing pension participation and savings persistency among the self-employed”
• a reduction in the discount rate for public service pension schemes, to 2.4% plus CPI, in line with established methodology to reflect OBR forecasts for long-term GDP growth. The statement notes that the valuations “indicate that there will be additional costs to employers in providing public service pensions over the long-term”

The Chancellor also announced that following a recent update of TPR’s guidance on investment governance for DC schemes considering patient capital investment:

• through the British Business Bank, the Government will support pension funds to invest in growing UK businesses
• the FCA will publish a discussion paper by the end of 2018 to explore how effectively the UK’s existing fund regime enables investment in patient capital. This will accompany the ongoing work of HM Treasury’s Asset Management Taskforce to explore the feasibility of a new long-term asset fund
• the DWP will consult in 2019 on the function of the pensions charge cap to ensure that it does not unduly restrict the use of performance fees within default pension schemes, while maintaining member protections, and
• the FCA will consult by the end of 2018 on updating the permitted links framework to allow unit-linked pension funds to invest in an appropriate range of patient capital assets.

We await publication of the Finance Bill 2019, due on 7 November 2018.

Lloyds Banking Group Pensions Trustees Ltd v Lloyds Bank plc and others

The High Court handed down its highly anticipated decision in Lloyds Banking Group Pensions Trustees Ltd v Lloyds Bank plc and others on 26 October 2018.

Mr Justice Morgan found that the Trustee “is under a duty to amend the Schemes in order to equalise benefits for men and women so as to alter the result which is at present produced in relation to GMPs”.

In reaching his conclusion, the judge took account of the “principle of minimum interference” set out in previous pensions equalisation cases.

Please see our Alert for further detail.

IORP II – regulations made

On 23 October 2018, the DWP published two sets of regulations designed to implement the second European Pensions Directive (“IORP II”) – the Occupational Pension Schemes (Governance) (Amendment) Regulations 2018 (“the Governance Regulations”), and the Occupational Pension Schemes (Cross-border Activities) (Amendment) Regulations 2018 (“the Cross-border Regulations”).

Both sets of regulations come into force on 13 January 2019 (the deadline for EU Member States to bring the IORP II provisions into their national legislation).

The Governance Regulations will update the current PA04 duty for occupational pension scheme trustees to establish and operate “internal controls”, with a new requirement for the establishment and operation of “an effective system of governance”. TPR will be required to set out the detail of the new requirement in its codes of practice.

The Cross-border Regulations will amend various pieces of legislation with the intention of helping to reduce the barriers to cross-border activity and transfers.

Please see our Alert for further detail.

Draft Occupational and Personal Pension Schemes (Amendment etc.) (EU Exit) Regulations 2018

On 24 October 2018, the DWP published the draft Occupational and Personal Pension Schemes (Amendment etc.) (EU Exit) Regulations 2018, together with an explanatory memorandum. The draft regulations aim to make minor technical changes to UK pensions legislation to address areas where it may not otherwise work effectively following the UK’s withdrawal from the EU.

The draft regulations are due to come into force on “exit day” (11pm on 29 March 2019) in accordance with the European Union (Withdrawal) Act 2018, following formal approval by Parliament under the affirmative resolution procedure.

The Financial Regulators’ Powers (Technical Standards etc.) (Amendment etc.) (EU Exit) Regulations 2018

The Financial Regulators’ Powers (Technical Standards etc.) (Amendment etc.) (EU Exit) Regulations 2018 were made on 25 October 2018, together with an explanatory memorandum, and came into force on 26 October 2018.

The regulations aim to ensure that Binding Technical Standards and rules made by the UK’s financial services regulators (including the PRA and the FCA) under FSMA continue to operate effectively after the UK’s withdrawal from the EU.

Impact of Welsh income tax rates: guidance and a consultation on draft legislation

On 22 October 2018, HMRC published a consultation on draft legislation, together with a Technical Note on “Clarifying the scope of the Welsh rates of Income Tax”.

The Wales Act 2014 introduces Welsh rates of Income Tax which are due to be implemented in April 2019. Technical changes to legislation are required to ensure the new Welsh rates operate as intended. HMRC’s technical note sets out “the Government’s policy position in areas where the rate-setting power interacts with other areas of the Income Tax system”. The draft legislation largely makes consequential changes, including in relation to pensions relief at source. The technical note discusses various pensions tax relief issues.

Any comments on the draft legislation should be submitted by 5 November 2018.

Minister for Pensions confirms forthcoming consultations

On 24 October 2018, the DWP published the keynote speech that Guy Opperman, Minister for Pensions and Financial Inclusion, made at the PLSA Annual Conference. Amongst other things, Mr Opperman noted that:

• the response to the DWP’s consultation on TPR’s powers will be published “towards the end of this year”
• the Government hopes to announce its consultation on DB consolidation “very shortly”
• the intention is to legislate for a range of proposals from the DB white paper “as soon as possible”
• the Government is “very close to announcing the consultation on CDCs”
• the feasibility study on the pensions dashboard is “still under way”.

CMA publishes updated working paper

On 25 October 2018, the CMA published an updated working paper in connection with its Investment consultants market investigation. The paper sets out further analysis undertaken in light of representations made in response to the consultation on the CMA’s provisional decision report. Having taken the feedback into account, the CMA is now publishing its workings for consultation.

Comments on the working paper should be submitted by 5 November 2018.

The CMA also published a final notice of its intention to operate a confidentiality ring in relation to the information and data it has received, between 29 October and 5 November 2018 (inclusive).

The CMA aims to publish its Final Report in December 2018.

FCA Handbook changes confirmed

On 26 October 2018, the FCA published Handbook Notice 59, which confirms the changes made to the FCA Handbook to assist “pension advisers give suitable advice to consumers about whether to transfer from safeguarded benefits to flexible benefits.”

This follows the FCA’s publication of its final rules on the subject earlier in October.

PPF updates guidance on valuation assumptions

On 22 October 2018, the PPF published updated versions of its valuation assumption guidance for both s179 and s143 valuations (respectively used for assessing a scheme’s funding position on the PPF basis and to determine whether a scheme should enter the PPF following an insolvency event). This follows a consultation earlier this year, which proposed changes designed to keep assumptions in line with current pricing in the bulk annuity market.

The new versions of the guidance are effective for valuations with an effective date on or after 1 November 2018 (for s.179 valuations) and 13 June 2018 (for s.143 valuations).