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:

• Registered Pension Schemes (Transfer of Sums and Assets) (Amendment) Regulations 2014
• Pension incentive exercises: Code of Good Practice case studies
• ABI and NAPF call on the Government urgently to move forward on the delivery of the pensions guidance guarantee
• Pensions Ombudsman issues update on pensions liberation cases
• TPR publishes DB code of practice and annual funding statement

Registered Pension Schemes (Transfer of Sums and Assets) (Amendment) Regulations 2014

On 13 June 2014, the Registered Pension Schemes (Transfer of Sums and Assets) (Amendment) Regulations 2014 (the “Regulations”) were published.  They come into force on 1 July 2014 and will have retrospective effect in respect of transfers made on or after 6 April 2014.

The LTA sets the limit for the amount of tax relieved pension savings that an individual can make during their lifetime, with any savings above that limit being liable to the LTA charge.

To calculate the value of the benefits that are liable to the LTA charge, the FA04 sets out how and when an individual’s benefits are to be valued and measured against the LTA.  These events are referred to as benefit crystallisation events (“BCEs”).  Particular provisions of the FA04 set out how to value a pension that was being paid before 6 April 2006 (“A-Day”), the date the FA04 came into force.

Although a pension that was being paid before A-Day does not attract an LTA charge, if a BCE subsequently occurs in relation to the individual, the pension in payment at A-Day must be valued and measured against the LTA.

The Registered Pension Schemes (Transfer of Sums and Assets) Regulations 2006 set out how sums and assets of pension schemes are to be treated where there has been a transfer of sums or assets between pension schemes, for example when an individual transfers their pension fund to another pension provider or when an employer mergers one pension scheme with another.  The Regulations aim to clarify the application of the LTA where a pension that was being paid at A-Day has subsequently been transferred prior to the member’s first BCE.

HMRC has issued a Tax Information and Impact Note which explains the changes made by the Regulations.

Pension incentive exercises: Code of Good Practice case studies

On 12 June 2014, the DWP published an ad hoc research paper which looks at how employers implement and comply with the current industry code of good practice for pension incentive exercises (“the code”).

Pension incentive exercises are one-off invitations or inducements for pension scheme members to change the form of their accrued DB rights.

The code has been in place since June 2012.  It is voluntary but gives employers clear principles to follow when undertaking incentive exercises.  If it is found that the code is not working, the government will consider other measures, including legislation, to protect pension scheme members.  For further details on the code, please see our Alert.

The research was carried out over the winter of 2013 to 2014.  It consisted of 9 case studies of large employers who had recent experience of incentive exercises, or were considering starting one.

All the employers who implemented an incentive exercise reported few difficulties as a result of following the code.  On balance, they felt the benefits of complying with the code outweighed any challenges and most felt that they would have incurred many of the costs involved with compliance anyway.

The research will feed into the ongoing collection of evidence by the Incentive Exercises Monitoring Board (IEMB), an industry-led group evaluating how employers run incentive exercises.  The IEMB is responsible for producing, publicising and monitoring the Code of Good Practice.

ABI and NAPF call on the Government urgently to move forward on the delivery of the pensions guidance guarantee

The Association of British Insurers (ABI) and the NAPF have sent a joint letter to the Chancellor of the Exchequer which warns that delivering the guidance guarantee will be “at significant risk” unless decisions are taken by the Government by July 2014 on the following:

• defining what areas the guidance guarantee will cover and who it will be available to
• which organisation(s) will deliver the guidance
• who will lead in setting up the service and establishing its standards
• how the funding framework will work.

The ABI has also published a report which outlines proposed models for the guidance guarantee that could be technically deliverable by April 2015.  It considers there are three possible options:

• a utility model delivered by a third party, or a consortium of third parties
• a federated model procured and possibly delivered by providers
• a hybrid model procured and possibly delivered by providers with a utility as a default solution.

Taking the need to deliver by April 2015 into account the ABI believes that, for day 1, the guidance guarantee should be delivered through existing guidance providers whose service is available to everyone.

As the scope of the guarantee is established, and the content and standards become clear, the Government and the FCA should continue to review the role of providers and utilities, and whether providers and others with a commercial interest can deliver the guarantee themselves in a genuinely impartial way.

The ABI considers that established services such as the Money Advice Service, TPAs and Citizens Advice can fulfil this utility role.

Pensions Ombudsman issues update on pensions liberation cases

On 9 June 2014, the PO issued a statement explaining that the decisions in the pensions liberation cases are taking longer than it had hoped.  It is therefore unlikely they will be published before July 2014.

TPR publishes DB code of practice and annual funding statement

On 10 June 2014, TPR published its revised code of practice, Funding Defined Benefits, along with a number of connected documents.  The new code of practice and other documents look forward to the introduction of the sustainable growth objective for TPR included in the Pensions Act 2014, which will come into force on 14 July 2014.

Key points

• There are 9 key funding principles set out in the code, universally applicable to all schemes. There have been no fundamental changes to the principles from the draft code.
• The code places a new emphasis on all parties working in a “collaborative and transparent way” on scheme funding.
• The code seems to represent a significant softening of approach to that set out in the draft code, with a greater focus on TPR’s new objective.
• The new sustainable growth objective in the Pensions Act 2014 comes into force on 14 July and TPR anticipates that the code will come into force on 22 July 2014 (subject to the parliamentary process).
• The code will apply to schemes with valuation dates after the code comes into force, TPR having accepted that it is not practical for schemes which have already completed a “substantial amount of work” towards their valuation to use the new code

Please see our Alert for further details.