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

• Second FCA consultation on review of FSCS funding
• HMRC consults on draft overseas transfers regulations
• HMRC publishes Countdown Bulletin issue 30
• HMRC pension schemes newsletter 92 published
• HMRC guidance on protecting lifetime allowance updated
• Briefing paper on pension integration published
• IA publishes pay principles for FTSE companies
• PLSA publishes report on diversity
• TPR publishes blog on pension cold callers
• TPR reviews value for member assessments in DC schemes
• RP Medplant Limited v TPR (Upper Tribunal)

Second FCA consultation on review of FSCS funding

On 30 October 2017, the FCA published its second consultation in relation to funding of the FSCS. The initial consultation took place in December 2016.

The FCA is now consulting on proposals developed from the initial consultation, and on proposals to increase FSCS compensation limits. The paper also contains the final rules for changes to FSCS funding (consulted on in December 2016), and seeks “views on other options for reducing harm to consumers”.

The FCA had asked whether the amount of protection available for consumers in the investment market needed to change following the introduction of the pension freedoms. Having considered the responses, the FCA was “not convinced that a pensions specific proposal would work”. However, it does propose an increase in the compensation limit for all investment business from £50,000 to £85,000, in line with the current FSCS limit for deposits.

HMRC consults on draft overseas transfers regulations

On 3 November 2017, HMRC published the Pension Schemes (Application of UK Provisions to Relevant Non-UK Schemes) (Amendment) Regulations 2018 for consultation, alongside a draft explanatory memorandum.

UK tax relief can arise in foreign pension schemes in two ways. The first is that individuals who come to the UK can benefit from UK tax relief on contributions or benefit provision which they or their employer continue to make to a foreign pension scheme they were a member of before coming to the UK. The second is that UK pension savings that have received tax relief can be transferred free of UK tax, or, subject to the overseas transfer charge, to foreign pension schemes that meet certain conditions.

Following the introduction of legislation in the Finance Act 2017 to implement the overseas transfer charge (from 9 March 2017) and revised member payment provisions (from 6 April 2017), the Government is now consulting on changes to the payment rules for relevant non-UK schemes (RNUKS). This consultation is not intended to introduce new policy, rather the regulations are designed to ensure that the Finance Act 2017 provisions operate as intended. The changes are needed to determine how funds benefiting from UK tax relief are calculated, and how payments out of those funds reduce the amount that is subject to UK tax charges.

The draft regulations cover:

• calculation of the new “ring-fenced transfer fund” (ie funds transferred on or after 9 March 2017)
• calculation of the associated “ring-fenced taxable asset transfer fund” (the total of the amount crystallised by virtue of BCE 8 on the transfer from a registered pension scheme to the RNUKS, and so much of the member’s taxable asset transfer fund previously held under any other RNUKS as has been transferred into the current scheme if it was transferred without being subject to the unauthorised payments charge), and
• the rules for determining the order in which reductions are made.

HMRC’s website notes that this technical consultation closes on 15 December 2017, but the draft explanatory memorandum refers to a closing date of 28 November 2017. We are checking the correct date with HMRC.

HMRC publishes Countdown Bulletin issue 30

On 6 November 2017, HMRC published issue 30 of its “Countdown Bulletin”, which provides important information about the ending of contracting-out.

This latest edition of the bulletin includes information on timings and processes related to the Scheme Reconciliation Service. It notes, amongst other things, that HMRC will not now issue individuals with statements of their contracted-out history, due to “developments in the provision of pension scheme information”. Individuals can instead use the State Pension Forecast service ‘Check your State Pension’.

HMRC is encouraging all schemes to participate in the Pensions Dashboard (which is planned to be available from 2019), “to make as much information as possible available to scheme members”.

HMRC pension schemes newsletter 92 published

Pension schemes newsletter 92 was published by HMRC on 31 October 2017. Among other things, it includes:

• scheme registration and pension flexibility statistics
• information on relief at source for Scottish Income Tax
• information on using drawdown pension tables
• reminders of the new pensions online service due in 2018.

HMRC guidance on protecting lifetime allowance updated

HMRC has updated its guidance on protecting lifetime allowance, with information on LTA protection reference numbers.

Members receive a reference number following an online application for protection and must retain this to evidence their protection(s).

Briefing paper on pension integration published

The House of Commons Library has published a briefing paper looking at the rules referred to as “clawback” or “pensions integration”.

The report explains that when the State Pension was introduced in 1948, it was recognised that some employees in the public and private sectors already had occupational pensions. A state pension paid in addition could provide them with incomes in retirement which would not be not far short of retiring salary. Also, where the occupational scheme was contributory, the total contributions required might be quite heavy.

Provision was therefore made for occupational pension schemes to take account of the new State Pension. Public service schemes included a reduction in pensions at SPA to avoid duplication of benefits. These ‘national insurance modification’ rules were abolished from 1980. Private sector occupational schemes also include such rules, which took account of (or ‘integrated’) the State Pension into the occupational scheme either by means of a deduction in pensionable earnings or a deduction from the pension at SPA.

The briefing paper explains the background to the rules and the campaign against them in the early 2000s.

IA publishes pay principles for FTSE companies

On 6 November 2017, the Investment Association published its 2018 Principles of Remuneration in an open letter to the Chairs of Remuneration Committees of FTSE 350 companies. The Principles are revised annually to reflect current best practice for listed companies when setting the pay of their top executives.

In its letter, the IA also outlined areas that its 250 UK-based members, who between them manage almost £7trillion of assets globally, should be focusing on during the 2018 AGM season. These include levels of executive pay, pay for performance, pay ratios, and clarity on incentives. This follows the Government’s summer announcement of a “world-leading” package of corporate governance reforms aimed at increasing boardroom accountability and enhancing the public’s trust in business, with legislative reforms to bring this into effect by June 2018.

In relation to pensions, the letter notes that for a number of years, the IA and its members have highlighted the disparity between Executive Director and wider workforce pension provision. It goes on to reiterate its view that Executive Directors should have contribution rates at the same level as the general workforce.

Andrew Ninian, Director of Stewardship and Corporate Governance at the Investment Association, said “A majority of FTSE 350 companies sought shareholder approval for their new pay policies and many of the UK’s top 20 companies have started to address investors’ concerns on executive pay levels. We now expect this trend to be extended across the wider FTSE, with more companies showing restraint on bonuses, long-term incentives and overall executive pay levels.”

According to the IA, its members manage the pensions of 75% of UK households.

PLSA publishes report on diversity

A new report from think tank New Financial in collaboration with the PLSA, Diversity from an Investor’s Perspective, looks at why and how asset owners (such as pension funds, insurers and sovereign wealth funds) are addressing diversity and inclusion. The research follows on from the PLSA’s Breaking the Mirror Image campaign to encourage trustee board diversity.

The research found that diversity is moving up asset owners’ agendas, with three-quarters mentioning diversity in their annual reports and nearly half expressing their motivations for tackling diversity. Their top three reasons were to improve decision making, to attract and retain talent, and to innovate and compete.

TPR publishes blog on pension cold callers

TPR has published a blog on pension cold callers.

Anthony Raymond, Acting Executive Director of Regulatory Policy, states that “rather than wait for the new legislation to come into force, we should embed the concept that pensions cold calling is criminal into the national psyche now, to prevent more people losing their savings.”

TPR asks advisers and trustees to stay vigilant to scams, those targeted to report scam attempts, and the media to continue to publicise the issue.

TPR reviews value for member assessments in DC schemes

TPR announced on 6 November 2017 that it is launching a review into whether trustees are carrying out adequate assessments of the costs and charges paid by members. TPR believes many trustees of small and micro schemes may not be properly assessing value for members.

The thematic review will consider the explanation of the value for member assessments made by 100 small and micro schemes in their chair statements. A report on the findings is expected to be published by summer 2018.

Anthony Raymond, Acting Executive Director of Regulatory Policy at TPR, said “Poor value for members is one of the key risks that trustee boards need to manage. […] We are concerned about a tail of sub-scale pension schemes and strongly believe that it is unacceptable to have two classes of DC pension saver – those that benefit from the premium of scale and good governance and administration, and those that do not.”

TPR will use the findings of the review to understand the challenges trustees face when conducting the assessment. Any examples of good practice highlighted by the review may be used to help develop targeted guidance for this sector, supporting trustees of small and micro schemes to achieve value for members.

RP Medplant Limited v TPR (Upper Tribunal)

A challenge against TPR’s ability to appoint independent trustees to schemes suspected of pension liberation has been struck out by the Upper Tribunal.

Please see our case report for further details.