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:

• Reminder: change to definition of money purchase benefits
• EU Council publishes new draft of European Pensions Directive
• FRC updates UK Corporate Governance Code
• HMRC issues reminder about pension statements and the AA
• HMRC publishes pensions newsletter 65
• NAPF publishes 2014 AGM Season Report
• PensionsEurope publishes position paper on Shareholder Rights Directive
• Staff Determinations procedure published by TPR
• Mr Ramsey (PO Determination, 1 August 2014)

Reminder: change to definition of money purchase benefits

Schemes which will need to start to comply with the scheme funding legislation after the change to the definition in money purchase benefits have until 6 October 2014 to appoint an actuary.

If you are unsure if this change applies to your scheme please talk to your usual Sackers contact.

EU Council publishes new draft of European Pensions Directive

On 17 September 2014, the EU Council published the text of a Presidency compromise proposal which updates the draft Pensions Directive that was published on 27 March this year (see our Alert for details). The publication of the recast draft Directive comes ahead of a meeting of the Council’s Working Party on Financial Services on 23 September, at which the draft is due to be discussed.

A number of the proposed changes appear to be in line with the Commission’s stated intention to adopt a proportionate approach to the rules for workplace pension schemes and seek to accommodate existing pension rules in certain Member States, such as auto-enrolment in the UK. Other amendments serve to tidy up and clarify the wording of the first draft. However, there are a few key changes to note.

Requirement for cross-border schemes to be fully funded at all times

In early 2014, a leaked draft indicated that the “fully funded” requirement might be removed from the Directive, so the March draft was greeted with some surprise and disappointment when it was revealed that the full funding requirement had been retained. In the present draft, however, the provision has been amended so that, whilst schemes would need to be fully funded at the outset of any new cross-border activity, they would then be able to make use of a recovery plan in the event that full funding is not maintained.

Professionalisation of trustees?

The March 2014 draft appeared to require trustees to have qualifications. This has been a key concern in the UK. Most criticism of the provision in the UK focuses on the fact that the EU Commission’s attempt to professionalise the role of trustees fails to take account of the important role played by lay trustees in running UK schemes. An amendment in the current draft suggests that at least some account has been taken of these concerns. As the draft stands, trustees would need “qualifications, knowledge and experience” that are adequate “in relation to the activities performed” for the scheme. This would allow for the fact that, in practice, much of the day-to-day running of the scheme is outsourced to trustee sub-committees or appropriately qualified third parties.

Risk management

The current draft introduces a new “internal control function” which is not dissimilar to existing UK requirements under the Pensions Act 2004. It also includes more detailed provisions on risk management and lists a number of records that schemes would be required to keep. Again, much of this is already standard for well-governed UK schemes.

Next steps

There is, of course, some way to go before the draft Directive becomes law. With further negotiations between the European Parliament, Council and Commission ahead, we can expect more lobbying by Member States before the Directive is finalised.

FRC updates UK Corporate Governance Code

On 17 September 2014, the FRC issued an updated version of the UK Corporate Governance Code. It aims to enhance the quality of information investors receive about the long-term health and strategy of listed companies, and raise the bar for risk management.

The FRC has confirmed proposals for boards to include a “viability statement” in the strategic report to investors. This is intended to provide an improved and broader assessment of long-term solvency and liquidity. It is expected that this statement will look forward significantly longer than 12 months.

The Code has also been changed in relation to remuneration. Boards of listed companies will now need to ensure that executive remuneration is designed to promote the long-term success of the company and demonstrate how this is being achieved more clearly to shareholders.

Commenting on the UK Corporate Governance Code, FRC CEO Stephen Haddrill said:

“The changes to the Code are designed to strengthen the focus of companies and investors on the longer term and the sustainability of value creation. The changes on going concern implement the reforms proposed by Lord Sharman whose work has stimulated a sea change in thinking about the assessment and reporting of risk and business prospects.

The changes also reflect and have benefitted from extensive consultation. Recognising the different circumstances for business, companies are allowed to choose the period over which they look forward but we are clear this should be more than a year and reflect the nature of the business. Crucially the directors should explain their reasoning to investors. If included in the Strategic Report their statements will be subject to a safe harbour in accordance with companies’ legislation.

The changes on remuneration also focus companies on aligning reward with the sustained creation of value.

The Code will continue to operate on the principle of ‘comply or explain’, which has served investors and the UK corporate sector well for over 20 years.”

The revised Code will apply to accounting periods beginning on or after 1 October 2014.

HMRC issues reminder about pension statements and the AA

HMRC issued a reminder to individuals that pension providers will soon be sending AA pension statements for the 2013 to 2014 tax year to all scheme members who contribute more than £50,000 per year to a pension scheme.

To help Individuals check calculations, HMRC provides:

• an AA checking tool
• standard or enhanced pension savings AA calculator
• pension input amount calculator

as well as guidance on the AA.

HMRC publishes pensions newsletter 65

On 15 September 2014, HMRC published the sixty-fifth edition of its pension newsletter. This issue includes:

• A reminder that the deadline for submitting the form for “relief at source” for the tax year 2013 to 2014 is 6 October 2014. Failure to submit by this deadline will result in any subsequent monthly repayment claims being suspended pending receipt of the completed form
• Information on the transfer of pension schemes services web content to gov.uk
• Signposting of guidance on the new fit and proper person requirements for scheme administrators of registered pension schemes
• Details of how to apply for IP14 (please see our Alert for details of this protection from an LTA charge).

NAPF publishes 2014 AGM Season Report

On 16 September 2014, the NAPF published its second annual report on the AGM season.

Due to recent regulatory change in the areas of remuneration and audit, these two topics feature prominently in this year’s report.

PensionsEurope publishes position paper on Shareholder Rights Directive

On 19 September 2014, PensionsEurope published a position paper on the Shareholder Rights Directive.

In brief, PensionsEurope welcomes the intention of the Commission to encourage and facilitate long-term shareholder engagement with investee companies. An engaged shareholder base alongside high standards of governance, transparency and protection of minority shareholder rights should enhance the attractiveness of the EU market for both investors and issuers. However, PensionsEurope is concerned that some of the proposals might be too prescriptive for schemes.

Staff Determinations procedure published by TPR

Following a six week consultation, on 18 September 2014 TPR published a new Staff Determinations procedure.

The procedure sets out how decisions (on issues such as certain trustee appointments and issuing clearance and improvements notices) are made by the executive arm of TPR, rather than the Determinations Panel. It is aimed at providing more detail about determinations made by members of staff in order to promote greater transparency and to enhance TPR’s interaction with the industry.

Mr Ramsey (PO Determination, 1 August 2014)

The Deputy PO found that, in the circumstances, a company, trustee and administrator did not have a duty to inform a member that opting to take his benefits at a certain time would have detrimental personal tax consequences.

Click here for the full summary.