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 Automatic Enrolment (Earnings Trigger and Qualifying Earnings Band) Order 2014
• The Guaranteed Minimum Pensions Increase Order 2014
• ABI sets out reforms to help boost retirement incomes for millions of savers
• Consultation response: The Transfer of Employment (Pension Protection) (Amendment) Regulations 2013
• Consultation response: Private pensions regulations: simplifying the administration of pension schemes
• Written statement: Local Government Pension Scheme regulations
• DWP reports biggest rise in pension saving since records began
• Children and Families Act 2014 gains Royal Assent
• Public Service pension scheme valuations
• GAD announcement regarding broad comparability work against the LGPS in England and Wales (E&W)
• TPR urges employers to check when automatic enrolment affects them

The Automatic Enrolment (Earnings Trigger and Qualifying Earnings Band) Order 2014

This Order sets out revised amounts for the 2014/15 tax year for the automatic enrolment earnings trigger and the qualifying earnings band.

The automatic enrolment (and re-enrolment) earnings trigger is the level of earnings at which employers are obliged to automatically enrol (and re-enrol) eligible jobholders into a qualifying workplace pension scheme.  The qualifying earnings band sets minimum contribution levels for DC schemes.

The Order provides for the earnings trigger to be revised in line with the income tax personal allowance for the tax year 2014/15 (£10,000).  Similarly, the qualifying earnings band will be aligned with the lower earnings limit and upper earnings limit for National Insurance (£5,772 to £41,865).

The Guaranteed Minimum Pensions Increase Order 2014

This Order specifies the amount by which the GMP element of an individual’s occupational pension entitlement must be increased with effect from 6 April 2014.

Under the Pension Schemes Act 1993, the Secretary of State is required to review the general level of prices in Great Britain for the period of 12 months commencing at the end of the period last reviewed.  Where that level has increased at the end of the review period, the Secretary of State is required to lay a draft Order before Parliament specifying a percentage by which there is to be an increase in the rate of that part of the GMP which is attributable to earnings factors for the tax years in the relevant period (the period beginning with the tax year 1988-89 and ending with the tax year 1996-97).

The level of inflation proofing is limited to the lower of the increase in the general level of prices and 3%.  CPI for the appropriate review period was 2.7%.  Accordingly, the increase in the GMP specified in the Order is 2.7%.

ABI sets out reforms to help boost retirement incomes for millions of savers

On 10 March 2014, the ABI announced that the pensions industry will put a new minimum standard for customers in place, building on work already done through the Retirement Choices Code and acting on the challenges set out in the FCA’s recent report on the annuities market.

Starting now, ABI members will implement changes over the next 18 months with completion targeted for summer 2015.  The changes will commit pension providers to:

• A conversation for customers with their pension provider or with an impartial advice or guidance service about their retirement options.  This conversation will include a high-level overview of alternatives to annuities as people approach retirement.
• A comparison of annuity quotes for customers, whereby all providers will offer a comparison or an introduction to an intermediary who will deliver the comparison early and prominently in their retirement process.  The comparison will be offered as an integral part of the process not as an optional extra.
• Ask all customers for information about their health and lifestyle, which they can use to shop around for an enhanced rate.

Consultation response: The Transfer of Employment (Pension Protection) (Amendment) Regulations 2013

On 10 March 2014, BIS published its response to the consultation on the Transfer of Employment (Pension Protection) (Amendment) Regulations 2013(the “Regulations”).  (See our Alert for details of the consultation.)

The Transfer of Employment (Pension Protection) Regulations 2005 (the “TEPP Regulations”) protect employees following a transfer of an undertaking to whichTUPE applies.

The Regulations will amend the TEPP Regulations to provide that the transferee employer will be able to meet the requirements of the TEPP Regulations by either:

• matching the employees’ contributions, up to 6% of the employee’s remuneration; or
• in specified circumstances, matching the contributions payable by the former employer immediately before the transfer.

The option of matching the former employer’s contributions will only be available where those contributions were payable to provide money purchase benefits.

The Government also considered an amendment to make clear that members had the right to choose their contribution level but has decided against this.

The Government expects the Regulations to come into force on 6 April 2014.

Consultation response: Private pensions regulations: simplifying the administration of pension schemes

On 13 March 2014, the Government published its response to a consultation on simplifying the administration of pension schemes.

The Government intends to:

• Introduce an exemption for trust-based multi-employer schemes with at least 500 participating employers (on the first day of the scheme year) to allow a person to act as scheme auditor even where he/she is prohibited from acting as statutory auditor under section 1214 of the Companies Act 2006.  This move is intended to recognise the difficulties very large schemes currently face in meeting the requirements for an appropriate degree of separation between the statutory auditor, the scheme and the employer.
• Make clear that trustees can obtain a discharge from their liability to provide pension benefits by purchasing an insurance policy or annuity contract for a member which includes an option for a tax-free lump sum, provided certain requirements are met.
• Correct a reference in the Employer Debt Regulations, which sets out what should be done when there has been criminal fraud.

The regulations which make the above changes were published on the same day.  They come into force on 6 April 2014.

Written statement: Local Government Pension Scheme regulations

On 11 March 2014, a written ministerial statement was issued by Brandon Lewis on the Local Government Pension Scheme (“LGPS”).

The statement explains that the Government has laid regulations which make the transitional provision between the existing LGPS and the new scheme which will come into force on 1 April 2014.  The regulations preserve benefits already accrued by scheme members under the existing scheme and make provision to ensure that members within ten years of their normal retirement age on 31 March 2012 do not suffer any detriment.

In addition, these regulations will abolish taxpayer funded pensions for new councillors in England and other elected office holders from 1 April 2014, and will terminate access to the LGPS for existing councillors at the end of their current fixed term of office.

DWP reports biggest rise in pension saving since records began

On 14 March 2014, the DWP announced that the latest statistics from the Office for National Statistics indicate that the Government’s reforms to workplace pensions are working.

According to the statistics, participation in pensions increased in 2013 for the first time since 2006 and represented the largest rise since records began in 1997.

The figures were collected in April 2013 when automatic enrolment had been running for just 6 months and enrolment figures stood at just 500,000.  The latest figures released by TPR show that auto-enrolment has now climbed to 3.2 million.

In 2013, 50% of all employees were a member of a pension scheme (up from 47% in 2012).

Children and Families Act 2014 gains Royal Assent

The new Children and Families Act received Royal Assent on 13 March 2014.  Among other matters, the Act aims to help people to better balance their work and home lives by introducing the following measures:

• from April 2015, mothers, fathers and adopters can opt to share parental leave around their child’s birth or placement.  This is intended to give families more choice over taking leave in the first year – fathers and mothers’ partners can take up to a year, or parents can take several months at the same time
• from 1 October 2014, prospective fathers or a mother’s partner can take time off to attend up to two antenatal appointments
• from April 2015, adoption leave and pay will reflect entitlements available to birth parents
• extending the right to request flexible working to all employees from 30 June 2014
• replacing the current statutory procedure, through which employers consider flexible working requests, with a duty on employers to consider requests in a “reasonable” manner.

Public Service pension scheme valuations

On 13 March 2014 the Chief Secretary to the Treasury, Danny Alexander, set out the final elements of the Government’s public service pension reform programme.

The Public Service Pensions Act 2013 provides the legal framework for regular actuarial valuations of the various public service pension schemes to measure the costs of the benefits being provided.  These valuations will inform the future contribution rates to be paid into the schemes by employers.  The Act also provides for the establishment of an employer cost cap mechanism to ensure that the costs of the pension schemes remain sustainable in future.  HM Treasury has issued a note which provides further details on its policy with regard to valuations and the cost cap, and on the Directions and Regulations made under this Act which implement this policy.

The reforms are part of wider changes which aim to deliver better value for the taxpayer while keeping the pensions offered to public service workers among the best available.

The Government confirmed that the near final valuations by GAD are expected to reveal that the current contribution rates are insufficient to meet the full costs of the schemes in the future.  If current rates were allowed to continue, the shortfall would be nearly £1 billion a year across the Teachers’, Civil Service and NHS schemes.

The final results will be published over the coming months and changes to employer contributions rates will come into force in 2015.  Where the new valuations show that they have not been paying enough into the schemes, employers will need to increase their contributions in line with the results of the new valuations.

The Government has also issued a command paper which sets out its preferred scheme design and cost ceilings for the 4 largest public sector schemes.

GAD has also issued a technical bulletin which provides an overview of these announcements.

GAD announcement regarding broad comparability work against the LGPS in England and Wales (E&W)

On 12 March 2014, GAD issued an announcement to explain that, with effect from 10 March 2014, existing broad comparability certificates issued by GAD against the LGPS (E&W) cease to be valid for transfers of employment which take place on or after that date.  This includes situations where contractual terms have been agreed but the transfer of staff has not yet taken place.  Certificates for such transfers will need to take account of the new LGPS (E&W) regulations.

GAD will now accept applications for passport certificates against the LGPS (E&W) which take into account the 2014 reforms.

GAD certificates which cover just the LGPS in Scotland and/or Northern Ireland (but which do not cover LGPS (E&W)) are not affected by this announcement.

TPR urges employers to check when automatic enrolment affects them

On 11 March 2014, TPR urged small and medium sized employers to find out when their new workplace pensions duties begin after research showed that many have yet to check when automatic enrolment will affect their business.

TPR’s executive director of automatic enrolment, Charles Counsell said: “It really is time to act.  Too many employers still think they can leave it as late as possible and don’t understand the actions they need to take.”

TPR has also published two more automatic enrolment case studies which include tips from employers who have implemented the new duties.