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:

• Pension Schemes Act 2015 receives Royal Assent
• The Occupational and Personal Pension Schemes (Transfer Values) (Amendment and Revocation) Regulations 2015
• The Occupational Pension Schemes (Consequential and Miscellaneous Amendments) Regulations 2015
• The Occupational and Personal Pension Schemes (Disclosure of Information) (Amendment) Regulations 2015
• The Guaranteed Minimum Pensions Increase Order 2015
• The Pensions Act 2004 (Code of Practice) (Governance and Administration of Public Service Pension Schemes) Appointed Day Order 2015
• The Financial Services and Markets Act 2000 (Banking Reform) (Pensions) Regulations 2015
• The Automatic Enrolment (Earnings Trigger and Qualifying Earnings Band) Order 2015
• The Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) (Pensions Guidance Exclusions) Order 2015
• Abolition of DB contracting-out: response to consultation and final regulations on statutory override
• DWP publishes draft regulations on appropriate independent advice on DB to DC transfers and conversions
• DWP publishes guidance for trustees on the default fund charge cap
• DWP publishes response on technical changes to automatic enrolment and final regulations
• FCA consults on proposed changes to pension transfer rules
• One month to pension freedoms
• PPI issues Briefing Note 73: Defined Contribution default funds and investment governance
• TPR responds to scheme list consultation
• TPR publishes draft essential guide to communicating with members about pension flexibilities
• IBM United Kingdom Holdings Ltd and another v Dalgleish and others (High Court) – 20 February 2015

Pension Schemes Act 2015 receives Royal Assent

The Pension Schemes Act 2015(the “Act”) received Royal Assent on 3 March 2015.  Originally designed to introduce a framework for defined ambition (DA) (see our Alert), these provisions are now somewhat overshadowed by those which pave the way for the new benefit flexibilities on and after 6 April 2015.

Key points include:

• from April 2015, members with “flexible benefits” will be able to request a CETV up to the date of crystallisation of benefits (rather than up until one year before Normal Pension Age (“NPA”)
• on or after 6 April 2015, all members will have a statutory right to a partial transfer in respect of a category of their pension benefits
• with effect on and from 6 April 2015, trustees must check that a member with “safeguarded benefits” (DB) has received “appropriate independent advice” in relation to DB to DC transfers or conversions
• the Act sets out the framework for “Pensions Wise” (formerly known as the guidance guarantee) and establishes a duty on the FCA to make rules to require trustees to “signpost” members, or survivors of members, with rights to flexible benefits towards the guidance service
• the Act will amend current pensions legislation with the aim of creating a “specific DA pension space”.

For further details, please see our Alert.

The Occupational and Personal Pension Schemes (Transfer Values) (Amendment and Revocation) Regulations 2015

Regulations to amend the Occupational Pension Schemes (Transfer Values) Regulations 1996 and related regulations were laid before Parliament on 9 March 2015.  These regulations have been designed to ensure that the transfer process continues to operate smoothly when the new DC flexibilities become available on 6 April 2015.  They also make a number of consequential amendments.  Please see our Alert for more details.

The majority of the provisions covered by these regulations will come into force on 6 April 2015.

The Occupational Pension Schemes (Consequential and Miscellaneous Amendments) Regulations 2015

These regulations, which were laid before Parliament on 9 April 2015, introduce a modification power allowing trustees, with employer consent, to amend scheme rules by resolution to:

• provide the new flexible benefit options, including drawdown and cash lump sums (referred to under the tax legislation as an “uncrystallised funds pension lump sum” or “UFPLS”)
• allow members to convert non-DC flexible benefits to DC in order to take advantage of drawdown
• enable members to nominate nominees and successors to receive benefits on death, in addition to dependants
• provide for the payment of a drawdown pension fund lump sum death benefit or a flexi-access drawdown fund lump sum death benefit
• ensure that trustees are not required to make a transfer of DB benefits where they are unable to carry out a check that the member or survivor concerned has received appropriate independent financial advice or, where they have carried out such a check, that did not confirm that the required advice had been received.

In addition, the regulations will introduce changes to the preservation and contracting-out regulations to ensure that flexible benefits can be paid.

The regulations will come into force on 6 April 2015.

The Occupational and Personal Pension Schemes (Disclosure of Information) (Amendment) Regulations 2015

These regulations, which were laid before Parliament on 9 March 2015 and which will come into force on 6 April 2015, outline the responsibilities for trustees and providers in communicating the new flexibilities for DC pensions.

For more information, please see our Alert.

The Guaranteed Minimum Pensions Increase Order 2015

On 2 March 2015, the Guaranteed Minimum Pensions Increase Order 2015 was laid before Parliament.  It will come into force on 6 April 2015.

The Order specifies the amount by which the GMP element of an individual’s occupational pension entitlement must be increased – 1.2% with effect from 6 April 2015.

The Pensions Act 2004 (Code of Practice) (Governance and Administration of Public Service Pension Schemes) Appointed Day Order 2015

This Order will bring TPR’s Code of Practice No. 14: Governance and administration of public service pension schemes (“the Code”) into effect on and from 1 April 2015.

The Code is particularly directed at scheme managers and pension board members of public service pension schemes.  It sets out the standards of conduct and practice expected of them and includes practical guidance to help them comply with legislation, including new requirements, which will come into force in April 2015.

The Financial Services and Markets Act 2000 (Banking Reform) (Pensions) Regulations 2015

As the Government explains, the financial crisis of 2007-2009 revealed the urgent need for structural reform of the UK banking system to tackle the problem posed by banks seen as “too big to fail”.  A central element of the Government’s programme of structural reform of the UK system is the ring-fencing of retail from wholesale / investment banking.  Ring-fencing is intended to insulate retail banking services (whose continuous provision is essential to financial stability and to the wider economy) from shocks originating elsewhere in the global financial system.  The idea is that ring-fenced retail banks should be simpler and easier for the authorities to manage, and that the perception of an implicit government guarantee for systemically important banks will be reduced.

A key principle of ring-fencing is that the ring-fenced bank must be economically independent of other entities in its banking group, to the extent that the failure of another group member cannot threaten the viability of an otherwise healthy ring-fenced bank.  In order to ensure this economic independence, the Government must require ring-fenced banks to ensure that they are not, and cannot become, liable for the future pension liabilities relating to other members of their group or outside companies.  Government intervention is necessary as the PRA’s existing rule-making powers would not enable it to make rules covering all aspects concerning the separation of pension liabilities – the PRA does not have the power to make rules for pension scheme trustees or managers.

The Financial Services and Markets Act 2000 (Banking Reform) (Pensions) Regulations 2015 (which came into force on 5 March 2015) are therefore intended to ensure that ring-fenced banks will be economically independent of the rest of their corporate group, and that they will not be liable for funding any deficit in any group-wide pension schemes.  They aim to achieve this by requiring ring-fenced banks to make arrangements to ensure that they cannot be liable for the future pensions liabilities of other group members (except other group ring-fenced banks, or wholly owned subsidiaries of group ring-fenced banks) or of outside companies.

The Regulations also:

• allow affected pension schemes’ trustees to make the necessary changes to implement the ring-fencing
• set out that ring-fenced banks must apply to TPR for a clearance statement for any restructuring that is likely to be materially detrimental to the relevant pension scheme
• set out the relevant roles for TPR and the PRA.

The Automatic Enrolment (Earnings Trigger and Qualifying Earnings Band) Order 2015

The Automatic Enrolment (Earnings Trigger and Qualifying Earnings Band) Order 2015 sets out revised automatic enrolment thresholds for the 2015/16 tax year.

The Order confirms that, from 6 April 2015:

• the earnings trigger will remain at £10,000.  This is the minimum level of earnings payable for an individual to qualify as an “eligible jobholder” for automatic enrolment (or re-enrolment) into a qualifying workplace pension scheme.  Maintaining the earnings trigger at this level means that it will no longer match the income tax personal allowance, which will rise to £10,600 in 2015/16
• the qualifying earnings band will increase to £5,824 – £42,385, remaining in line with the lower and upper earnings limits for National Insurance contributions in 2015/16.

The Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) (Pensions Guidance Exclusions) Order 2015

This Order, which will come into force on 26 March 2015, makes provision in connection with the implementation of the pensions guidance service, Pension Wise, to ensure that persons providing the service are not carrying out an activity regulated by the FCA.

Abolition of DB contracting-out: response to consultation and final regulations on statutory override

On 4 March 2015, the DWP published aresponse to the consultation on the Occupational Pension Schemes (Power to Amend Schemes to Reflect Abolition of Contracting-out) Regulations, together with the final regulations.

The response and regulations confirm a number of elements of the abolition of contracting-out for DB schemes, including:

• DB contracting-out will come to an end with effect from 6 April 2016
• the Pensions Act 2014 provides employers with a unilateral power to amend their schemes to take account of the increase in their NICs resulting from the abolition of contracting-out
• the Regulations set out the detail of how the statutory power may be used
• sponsors of schemes providing DC benefits with a DB underpin will not be able to use the power to reduce DC benefits.

For further details, please see our Alert.

DWP publishes draft regulations on appropriate independent advice on DB to DC transfers and conversions

With the Government’s reforms allowing DC pension savers greater freedom and choice over their retirement options due to come into force from 6 April 2015, on 2 March 2015 the DWP published a further set of draft regulationsdesigned to protect DB members when transferring to, or converting their benefits into, DC.

Among other things:

• the draft regulations will require trustees to check that a member (or survivor) has received “appropriate independent advice” in relation to DB to DC transfers or conversions
• although the member (or survivor) will generally have to pay for that advice, the employer will be on the hook in certain circumstances
• the new requirements do not apply where the total value of the member’s (or survivor’s) DB benefits under the pension scheme is £30,000 or less
• the regulations are due to come into force on 6 April 2015.

For further details, please see our Alert.

DWP publishes guidance for trustees on the default fund charge cap

On 4 February 2015, the government published the responseto its October 2014 Command Paper regarding governance and charges in occupational pension schemes providing DC benefits (see our earlier Alert).  The final regulationswere laid before Parliament on the same day.

In order to protect members who have not made an active choice about their pension investments, with effect from 6 April 2015, subject to certain exceptions, the regulations will impose a 0.75% charge cap on default funds in qualifying schemes.

On 2 March 2015, the DWP published guidance for trustees on the default fund charge cap.  The guidance is intended to explain how the charge cap works, with particular emphasis on identifying the default arrangement and how to assess charges.

DWP publishes response on technical changes to automatic enrolment and final regulations

The Pensions Act 2014 includes a number of measures which are designed to further simplify automatic enrolment and reduce burdens on employers.  These measures are designed to:

• introduce an alternative quality requirement for DB schemes
• simplify the information requirements on employers
• create exceptions to the employer duty in certain circumstances.

Back in December 2014, the DWP published a consultation on draft regulations which set out the detail of these measures (see our Alert for details).   In particular, the DWP sought views on whether the draft regulations achieve the overarching policy intent of simplifying the process for employers, whilst ensuring that those with the most to gain from pension saving continue to be automatically enrolled without giving rise to unintended consequences for individual savers.

The DWP published its response to the consultation on simplifying the automatic enrolment process and reducing burdens on employers on 9 March 2015.  Responses were broadly supportive of the aims of the regulations.

The final Occupational and Personal Pension Schemes (Automatic Enrolment) (Amendment) Regulations 2015, which will amend the existing Occupational and Personal Pension Schemes (Automatic Enrolment) Regulations 2010 were laid before Parliament on 9 March 2015 and will come into force on 1 April 2015.

FCA consults on proposed changes to pension transfer rules

On 4 March 2015, the FCA published a consultation on proposed changes to its pension transfer rules.  Its proposals are designed to support the Government’s new flexible pensions regime.

The FCA already regulates advice on transfers to personal pensions.  The new regime will bring advice on transfers from DB schemes to occupational DC occupational schemes into the FCA’s remit.

The new regime will also make advising on pension transfers significantly more complex.  The FCA therefore now wishes to require the Pension Transfer Specialist qualification for advice on all transfers from DB schemes to DC arrangements, regardless of when the transferred benefits are being accessed.

The FCA proposes to:

• amend its rules to incorporate the new specified activity of advising on conversions or transfers of safeguarded benefits to flexible benefits
• require that all advice on DB to DC pension transfers be provided or checked by a Pension Transfer Specialist.

The consultation closes on 15 April 2015.  This shortened consultation period is intended to enable the FCA to have updated rules in place for June 2015.

One month to pension freedoms

Friday 6 March 2015 marked one month to go until the Government’s radical pension reforms come into effect.  HMT issued a press release which stated that interim pension changes have already proved popular and that the pensions industry is developing products that will meet people’s needs.

PPI issues Briefing Note 73: Defined Contribution default funds and investment governance

On 6 March 2015, the PPI published Briefing Note 73, “Defined Contribution default funds and investment governance”.  The note looks at some of the issues surrounding the investment governance of DC pension schemes and, in particular, considers how new tools, such as DC strategy benchmarks, might be used to improve standards of governance.

TPR responds to scheme list consultation

On 5 March 2015, TPR issued its response to consultation on proposals to publish a list of pension schemes that are directly available to all employers for automatic enrolment, irrespective of how many workers they have or how much they pay them.

TPR consulted at the end of 2014 on proposals for publishing such a list, with a view to addressing the risk of non-compliance amongst employers struggling to find a scheme, particularly those employers that do not intend to seek an adviser to help them.

Whilst the majority of responses to the consultation were supportive, the feedback also presented a number of significant challenges relating to setting objective entry and exit criteria that could be applied fairly and evenly to schemes.

These concerns were expressed against a backdrop of proposed new legislation setting minimum governance standards for DC schemes, and other governance initiatives at an early stage of implementation, such as the master trust assurance framework and the requirement for IGCs contract based schemes.

TPR notes that, without commonly agreed criteria, it would be difficult for it to manage a list in an objective and transparent way, including providing appropriate levels of scrutiny, and managing the entry and exit of schemes from the list.  At present, this could only be achieved with substantial upfront and ongoing assessment of schemes intending to enter and remain on the list, which could be disproportionately onerous for those schemes and TPR.

In light of these challenges, TPR will not be pursuing its proposal for a list at this time, but it will continue to keep this position under review.  TPR intends to work with the pensions market to look for alternative ways to help small and micro employers to find a suitable scheme, and will strengthen its existing guidance to employers in this area.

TPR publishes draft essential guide to communicating with members about pension flexibilities

On 5 March 2015, TPR published a new draft essential guidewhich aims to help pension scheme trustees communicate with their members about the impact and possible risks of their DC retirement choices.

Key points outlined in the guide include:

• proposed changes to the Occupational and Personal Pension Schemes (Disclosure of Information) Regulations 2013 (“the Disclosure Regulations”) will alter the timing and content of communications to members of occupational pension schemes with both a right to and an opportunity to transfer “flexible benefits” (broadly, DC or cash balance benefits)
• the new duty for trustees to “signpost” the availability of the guidance guarantee, Pension Wise, in certain specified circumstances.
• trustees are encouraged to provide members with generic risk warnings in respect of the four main retirement options
• trustees must be careful not to give advice.  For example, they should not provide specific risk warnings based on a member’s circumstances.

For further details, please see our Alert.

IBM United Kingdom Holdings Ltd and another v Dalgleish and others (High Court) – 20 February 2015

In 2014, the High Court (Mr Justice Warren) decided that IBM was in breach of the implied duty of good faith, as well as its contractual duty of trust and confidence, owed to members in relation to decisions taken by the employer as to the future of its DB Plans in 2008/09 (see our Alert).  Following on from that case, this latest decision from Mr Justice Warren focuses on the remedies available to members in respect of that breach.

Click here to read the full summary.