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:

• Pensions Minister announces campaign to raise awareness of State Pension changes
• More than 1 million over 65s now choose to stay in work
• State Pension £1,300 a year top up: the countdown begins
• Automatic enrolment two years on: NEST publishes findings
• PensionsEurope publishes position paper on IORP II
• PPI publishes briefing note on risk sharing pension plans: the Canadian experience
• PPF Levy estimate published
• TPR: Two years of automatic enrolment: A good start, but more to do

Pensions Minister announces campaign to raise awareness of State Pension changes

On 4 October 2014, Steve Webb, the Pensions Minister, announced that a new campaign which aims to ensure today’s workers understand what the new State Pension will give them in retirement is to be launched.

Under the tagline, ‘Your future, your pension’, the communications drive will aim to broaden the public’s understanding of how the State Pension is being changed from April 2016, and what the reforms mean for their household. Advertisements will start appearing later this year.

A new service giving people a personalised written estimate of what they can expect to receive under the new system, based on their work history and NI contributions to date was also launched on 4 October 2014. Initially available to the approx 2.5 million people who reach State Pension age in the first 5 years of the new scheme – currently between April 2016 and August 2021 – the service will be expanded gradually, eventually becoming available to all working age people.

More than 1 million over 65s now choose to stay in work

Nearly a quarter of a million more people aged 65 and over have opted to stay in work since the default retirement age – a form of legal discrimination in the workplace – was abolished on 1 October 2011 (see our Alert for details).

In October 2011 there were 526,000 men over 65 in work. There are now 643,000. And there are currently 460,000 women in work, compared to 348,000 in October 2011.

State Pension £1,300 a year top up: the countdown begins

People can pre-register now and from 12 October 2015 until 5 April 2017 they will be able to make a contribution for a State Pension top up, allowing them to increase the value of their State Pension.

This scheme is open to all those who will have reached State Pension age before 6 April 2016 and will be a one-off opportunity.

The top ups can be inherited, with a surviving spouse or civil partner entitled to at least 50% of the Additional State Pension. The opportunity is being introduced with the intention of creating a fair option for existing pensioners to increase their pensions ahead of the introduction of the new State Pension in April 2016. (The new State Pension will only apply to those retiring on or after 6 April 2016.)

An online calculator is now available to help pensioners weigh up the options.

Automatic enrolment two years on: NEST publishes findings

New data released by NEST shows that:

• younger workers have the highest participation in automatic enrolment, with only a 5% opt out rate among workers under 30 years old
• highest opt out rates are among older workers, with more than 28% opting out among those age 60 and over
• evidence of advisers upskilling indicates that a “new breed” of automatic enrolment expert is emerging to help employers who are staging in 2015 to get to grips with the new duties
• there is a potential pension paradox at play among small and micro business in the UK. Small and micro employers have the lowest pension provision, with 74% failing to offer a workplace pension. Despite that, a majority (69%) think that every worker in Britain should have access to a workplace pension scheme.

PensionsEurope publishes position paper on IORP II

On 6 October 2014, PensionsEurope published a detailed position paper on the proposal for an IORP II Directive.

PensionsEurope welcomes the Commission’s commitment to high standards of pension scheme governance and communications, but is convinced that important features of the occupational pension sector need to be adequately taken into account in the Directive proposal.

The paper provides a detailed analysis and amendment proposals.

PPI publishes briefing note on risk sharing pension plans: the Canadian experience

On 6 October 2014, the PPF published the first in a series of two briefing notes on other countries’ experience of risk sharing pension plans.

Briefing note 69 draws on the experience of running DA style pension plans in Canada and highlights the potential lessons for the UK, to help inform the debate around the Government’s proposals in the Pension Schemes Bill 2014 (for details, please see our Alert). As the individual provinces in Canada are responsible for setting their own pensions legislation, and as there are a number of existing pension plans already in operation that could fit within the new legislative framework that the government is establishing through the Bill, Canada provides an informative case study of how these plans could operate in practice.

Mel Duffield, Deputy Director of the Pensions Policy Institute said: “The Canadian risk sharing plans have generally been introduced to address funding risks for employers with existing DB pension plans, and are most commonly found where there are unionised workforces with mandatory pension participation. This differs from the context within the UK, where many employers have already moved away from DB plans to DC arrangements and where pension participation is optional under automatic enrolment. However, certain features of these plans, including the sophisticated approaches to risk management used, how their target benefits are being structured and communicated to members, and the potential for multi-employer arrangements to be set up under common regulatory frameworks, are likely to still be of interest to the UK pensions industry and to employers who may be reviewing their own pension arrangements”.

A second briefing, exploring the experience of risk sharing pension plans in the Netherlands, will be published in the coming weeks.

PPF Levy estimate published

On 6 October 2014, the PPF announced that the levy estimate for 2015/16 will be set at £635m, nearly ten per cent lower than the 2014/15 estimate. The levy estimate was published as the PPF announced the proposed levy rules for 2015/16 following its consultation that ran between May and July this year.

Alan Rubenstein, Chief Executive Officer of the PPF, commented: “We recently said in our Funding Strategy Update that we remain on course to meet our long term funding target of self-sufficiency by 2030, but substantial risks remain.  We have therefore chosen to continue our approach from the first triennium in setting the overall levy rate for the coming year. This means we have sought to neutralise the wider levy changes, allowing the impact of improved funding to bring the quantum down. As a result we will seek to collect a reduced amount in 2015/16 in line with changes in current risk that we have seen. While the future is inevitably uncertain, levy estimates for the following two years appear likely to fall further rather than rise, based on the expected path of asset values and yields.”

The PPF announcement confirmed that there was strong stakeholder support for the move to Experian (the PPF’s new insolvency risk provider) and the new PPF specific model for assessing insolvency risk, confirming the PPF approach. All feedback was considered carefully and some changes have been implemented to further enhance the proposals.

The enhancements include:

• amended rules on how the model reflects mortgages – ensuring mortgages that are not relevant to insolvency risk are excluded
• revised approach to  asset backed contributions (ABCs) – the PPF will now recognise all asset types not just UK property, provided the ABC is valued in a way that reflects the value to the PPF in the event of insolvency.

Alongside the levy estimate the PPF also published the draft Levy Rules. As part of the consultation, the PPF is seeking specific feedback on the identification of secured charges which are immaterial and an extension to guidance in relation to ABCs. The consultation on the levy rules runs to 13 November 2014.

TPR: Two years of automatic enrolment: A good start, but more to do

On 1 October 2014, TPR marked the second anniversary of the start of automatic enrolment by acknowledging its success to date and warning this is no time to rest.

In summer 2015, tens of thousands of small employers will need to be ready to meet their automatic enrolment duties and TPR is now writing to all of them urging them to act to ensure their staff get the pension savings they are entitled to.