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:

• Trivial and small commutation exercises are covered by Code of Good Practice
• HMRC’s December Countdown Bulletin
• ACA 2014 Smaller Firms’ Pension Survey
• Horton v Henry (High Court, 17 December 2014)

Trivial and small commutation exercises are covered by Code of Good Practice

The Incentive Exercises Monitoring Board (the Board) has published a note in its “Q&A” section, in which it clarifies the application of the Incentive Exercises Code to one-off trivial / small pension commutation exercises.

Broadly the Code deals with two types of incentive exercise:

• “Transfer Exercises” – for example, involving a transfer out of a DB scheme on an enhanced basis or in return for some other inducement (as distinct from a normal individual transfer request); and
• “Modification Exercises” – for example, a pension increase exchange exercise (involving an enhancement to pension income in return for surrendering all or part of future pension increases).

The Board’s view is that it is reasonable to treat a one-off trivial / small pension exercise as a “Modification Exercise”. It is not expected that the Code will apply where members are not given a choice.

The consequences of applying the Code and treating an exercise as a Modification Exercise include:

• offering “Guidance” (as defined in the Code) to members if the deal is a 100% Balanced Deal (ie one in which members benefits are valued and compared before and after the Modification Exercise using the framework set out in section 67 of the Pensions Act 1995)
• complying with the Code’s requirements on “Vulnerable Customers” (those who may be particularly vulnerable by virtue of age, health, understanding etc and who may require special treatment).

The Board intends to conduct a major review of the Code in 2015 once government policy, legislation and market developments have become clearer.

For further information on the Code please see our Alert.

HMRC’s December Countdown Bulletin

HMRC has published the fourth edition of its Countdown Bulletin, which aims to help scheme administrators and trustees deal with technical queries in the run-up to the abolition of DB contracting-out in April 2016.

This edition focusses on encouraging use of HMRC’s Scheme Reconciliation Service.  This is a service which is designed to help pension scheme administrators and trustees reconcile their records against those of HMRC.  It also highlights the potential consequences for schemes of not doing so.  HMRC explains that using the service will help schemes to ensure that their records are accurate and the correct level of pension is paid.

The Scheme Reconciliation Service will identify non-active members only and does not contain details of current members.  Queries relating to current members should be directed through the business as usual process.  The deadline for assistance from the Scheme Reconciliation Service is April 2016, although queries will continue to be dealt with until December 2018.

HMRC will identify and close all active member entries held on their records in December 2016 and will notify schemes when their records have been closed.  As for scheme reconciliation, schemes will have until December 2018 to agree / query their active membership records.

The Bulletin also notes that when the new State pension is introduced in April 2016, HMRC will not need to track GMPs.  As a result, it will no longer issue GMP statements to individuals and schemes.

ACA 2014 Smaller Firms’ Pension Survey

The ACA has published a survey report into pension savings in smaller employers (those employing between 1 – 249 employees).

Among the key findings are that:

• low pension contributions are a feature of those newly enrolled into workplace pensions
• whilst 56% of employers with pre-existing schemes have kept those arrangements for existing employees, generally non-joiners and new entrants have been enrolled into multi-employer arrangements, including NEST
• where small and micro employers (micro employers are those with between 1-4 employees) have made decisions (most have not), by far the majority have decided to enrol all eligible jobholders into NEST or another multi-employer scheme. Amongst those employing between 10-49 employees, 57% are proposing this route; whilst among those with between 1-9 employees, the figure reaches 70%
• 14% of larger employers (those with between 150-249 employees) show some interest in the longer-term in new risk-pooling and collective arrangements that are being introduced by way of the 2014/15 Pension Schemes Bill (see our Alert for details). However, none are interested in the near term, probably due to the fact that they have only recently automatically enrolled their employees into “traditional” DC schemes.

Horton v Henry (High Court, 17 December 2014)

The High Court has rejected an application from a trustee in bankruptcy for access to a bankrupt’s pensions which are not yet in payment.

This decision is in direct contrast to the 2012 case of Raithatha v Williamson, in which the High Court held that the pension benefits of a bankrupt, who is entitled under the rules of his / her scheme to draw their pension but who has not yet done so, can be the subject of an Income Payments Order.

You can read a full summary of this case here.