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:

Legislation round-up
IFoA and FRC publish statement on actuarial standards
FRC issues amendments to FRS 101 and FRS 102
Banking reform: draft pensions regulations
HMT publishes information on the Equitable Life Payments Scheme
PPF publishes its annual report and accounts for 2013/14 alongside its long-term funding strategy update
PPF Responds to Consultation on Money Purchase Benefits and Releases Updated s179 Guidance
TPR publishes statement on money purchase benefits definition
TPR re-launches pension scam awareness campaign

Legislation round-up

The Pensions Act 2004 (Code of Practice) (Funding Defined Benefits) Appointed Day Order 2014

This Order will bring TPR’s revised Code of Practice No.3: Funding defined benefits into force with effect from 29 July 2014.

For further information on the revised Code of Practice, please see our Alert.

The Pensions Act 2014 (Commencement No. 1) Order 2014

This Order brings section 52 of the Pensions Act 2014 (public service pension schemes: transitional arrangements) into force with effect from 23 July 2014.

Section 52 amends the Public Service Pensions Act 2013 to enable members of the smaller public body schemes transferring into one of the eight larger new public service pension schemes to be subject to the same transitional protection, ensuring that those less than ten years from their normal pension age will not be affected by the Government’s public service pension reform programme. This avoids the need to keep these members in their old smaller schemes.

The Public Service (Civil Servants and Others) Pensions Regulations 2014

These Regulations implement reforms to public service pension schemes in respect of civil servants and other Crown employees under the powers provided in the Public Service Pensions Act 2013 (the Act).

The Act was enacted in response to the recommendations of the Independent Public Service Pensions Commission led by Lord Hutton. The Commission published its final report on 10 March 2011 (see our Alert for details). The report recommended a series of changes to public service pension provision in order to preserve the sustainability of the pension schemes in the long term together with a more balanced distribution of costs between the members of the scheme and, via the employer, the taxpayer.

The Pensions Act 2011 (Consequential and Supplementary Provisions) Regulations 2014

The Supreme Court judgment in Bridge Trustees v Houldsworth concluded that certain benefits could be considered money purchase benefits even though it was possible for them to have a shortfall in their funding (please see our Alert for details). This created uncertainty about the types of benefit structure that fall within the definition of money purchase benefits.

Section 29 of the Pensions Act 2011 aims to clarify the definition of money purchase benefits by, broadly, limiting it to those benefits that cannot have a funding shortfall (see our Alert for details). Subject to transitional provisions, section 29 will have retrospective effect back to 1 January 1997. In general the transitional provisions ensure that decisions made by trustees acting in accordance with the previous definition remain valid, despite the retrospective change.

Among other matters, these Regulations provide an alternative method of revaluation for cash balance benefits.

The provisions will not apply to the Imperial Home Décor Pension Scheme (the scheme considered by the Supreme Court) because it is an established principle that a successful litigant should receive the benefit of a decision made in their favour.

The Regulations came into force on 24 July 2014.

The Registered Pension Schemes (Accounting and Assessment) (Amendment) Regulations 2014

The FA04 makes provision for the taxation of payments to and from registered pension schemes. Where tax charges arise, the FA04 sets out who is liable for the charge.

These Regulations, which come into force on 1 September 2014, will allow HMRC to assess persons in respect of certain tax liabilities and remove the requirement for these liabilities to be included on a tax return.

The Registered Pension Schemes (Provision of Information) (Amendment) Regulations 2014

The standard LTA reduced from £1.5 million to £1.25 million on 6 April 2014. To assist individuals who have built up pension savings based on the previous LTA, protection from the LTA charge is available in the form of FP14 (please see our Alert for details) and IP14 (please see our Alert for details).

These Regulations prescribe the information requirements for scheme administrators and individuals where an individual wants to rely on IP14 to reduce or eliminate an LTA charge.

The Registered Pension Schemes and Relieved Non-UK Pension Schemes (Lifetime Allowance Transitional Protection) (Individual Protection 2014 Notification) Regulations 2014

These Regulations set out how an individual must give notice to HMRC if they intend to rely on IP14. They also set out what happens if the notice is refused or if the individual no longer meets the conditions for IP14.

IFoA and FRC publish statement on actuarial standards

Following a review of their respective responsibilities for actuarial regulation, on 24 July 2014 the IFoA and the FRC jointly published a statement to explain their respective remits.

The statement confirms that the respective standard-setting responsibilities will continue as before; with the IFoA responsible for setting the ethical and technical regulation of its international membership, and a split in the UK with the FRC responsible for setting technical standards and the IFoA responsible for ethical standards. Following the review there will, with agreement, be scope for more flexibility in the way in which these responsibilities are discharged.

In appropriate circumstances, the IFoA will now be able, with the FRC’s agreement, to issue UK non-mandatory technical guidance and the FRC will be able, with the IFoA’s agreement, to include ethical material in its standards. The FRC and IFoA have updated their Memorandum of Understanding to reflect these arrangements. Further steps have also been taken to implement the Morris Review recommendation that the FRC should have a ‘reserve ability’ to issue ethical standards in certain circumstances. This will only be used by the FRC where it reasonably considers the action to be necessary in the public interest and after the IFoA has been consulted and given a reasonable opportunity to address the issue itself.

FRC issues amendments to FRS 101 and FRS 102

On 23 July 2014, the FRC issued amendments to new UK GAAP. These changes aim to improve the accounting for certain financial transactions, which should also improve ease of use of the standards and reduce the cost of compliance. The amendments to FRS 102:

relate to financial instruments:
- updating the requirements on hedge accounting, making hedge accounting more readily available to entities where it is consistent with their risk management processes
- relaxing the conditions for regarding financial instruments as ‘basic’, with the effect that more financial instruments will be measured by reference to cost rather than fair value
make transition to FRS 102 less costly and
are effective from the same date as FRS 102, 1 January 2015.

FRS 101 allows entities to apply IFRS with exemptions from some disclosures. The amendments to FRS 101 are the result of its first annual review to ensure those disclosure exemptions are updated on a timely basis as IFRS develops.

Our note on the 2015 changes sets out more detail on the effect of the new accounting standards on pensions.

Banking reform: draft pensions regulations

The Financial Services (Banking Reform) Act 2013, which received Royal Assent in December 2013, implements the key Independent Commission on Banking (ICB) recommendation of ‘ring-fencing’ the deposits of individuals and small businesses, separating important everyday banking activities from investment banking.

In line with ICB recommendations, the Financial Services (Banking Reform) Act 2013 includes provisions allowing the Treasury to require by regulation that ring-fenced banks ensure that they cannot become liable for the pension schemes of the rest of the group or other entity.

This consultation seeks views on the draft Banking Reform Pensions Regulations, which implement this requirement on ring-fenced banks to ensure that they are not, and cannot become, liable for the pension liabilities of other entities (except other ring-fenced banks in their group, or wholly owned subsidiaries of ring-fenced banks).

The consultation closes at 12am on 16 October 2014. Once it has considered the responses, the government will seek to introduce final versions of the draft regulations into Parliament as soon as time allows.

HMT publishes information on the Equitable Life Payments Scheme

On 22 July 2014, HMT announced that, since April 2014, the Equitable Life Payments Scheme (ELPS) has issued payments to a further 17,000 policy holders. This means that over 877,000 (out of 1 million) eligible policyholders have now had payments issued to them.

The figures are broken down as follows:

407,141 payments to individual investors have been issued totalling £547.6m
37,379 initial payments to With-Profits Annuitants (WPAs) or their estates have been issued by the Scheme, totalling £74.6m. Subsequent annual payments totalling £193m have also been issued to annuitants
432,894 payments totalling £161m have been issued to those who bought their policy through their company pension scheme.

HMT also published example calculations which are intended to help policyholders gain a better understanding of the payment calculation the ELPS has carried out.

PPF publishes its annual report and accounts for 2013/14 alongside its long-term funding strategy update

On 24 July 2014, the PPF published its 2013/14 Annual Report and Accountsalongside its latest funding strategy update.

The report and accounts revealed a £2.4 billion surplus and a funding ratio of 112.5 per cent which increase the likelihood of the PPF being financially self-sufficient by 2030 to 90 per cent.

PPF Responds to Consultation on Money Purchase Benefits and Releases Updated s179 Guidance

In response to its consultation, on 25 July the PPF called for schemes to consider the effect of the amended definition of money purchase benefits (see above for details) on s179 valuations.

Following a six week consultation (from 28 May 2014), the PPF announced that schemes should consider whether they have any benefits that are affected by the change in definition of money purchase and, if so, ask their scheme actuary to assess the impact on funding. If the impact is material they may need to carry out an out-of-cycle s179 valuation.

The PPF’s Chief Actuary, Stephen Rice, commented: “It is important that trustees review their schemes’ benefits. If any scheme determines that its valuation position significantly worsens as a result of the amended definition of money purchase then it will need to act quickly. We encourage those where the impact is material to work with their scheme actuaries to ensure the valuation reflects the amended definition of money purchase benefits and is recorded on [TPRs]’ Exchange database by 31 March 2015.”

The PPF defines a material impact as an increase in the latest s179 valuation’s deficit or a reduction in the latest s179 valuation’s surplus that is more than 10% in relative terms and more than £5 million in absolute terms. This is different from the original proposal, following responses received to the consultation.

In line with the amended definition of money purchase benefits, the PPF have updated and released guidance on the approach to use when undertaking a valuation in accordance with Section 179 of the Pensions Act 2004.

TPR publishes statement on money purchase benefits definition

On 25 July 2014 TPR published a statement on the changes to the statutory definition of a money purchase benefit. The statement advises trustees on the steps to be taken should their scheme be affected by this change.

TPR re-launches pension scam awareness campaign

On 24 July 2014, TPR re-launched its “scorpion” campaign, the awareness campaign on the risks of being drawn into a pension liberation scam. The “refreshed” campaign marks a change in emphasis in TPR’s approach, in view of the number scams that have come to light in recent months. TPR is keen to ensure that the significant risks to pension savers are widely known.

For details, please see our Alert.