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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:

Finance Act 2015

The Finance Act 2015 received Royal Assent on 26 March 2015.  The Act extends the new rules for taxing pensions and lump sums on death, as announced in the Autumn Statement 2014.  The idea is to put payments from annuities on an equal footing with other options for taking DC benefits on and from 6 April 2015.

Please see our Alert for details.

The Occupational Pension Schemes (Charges and Governance) Regulations 2015

The Occupational Pension Schemes (Charges and Governance) Regulations 2015 set out a range of measures, including minimum governance standards and a charge cap on default arrangements, aimed at protecting members of occupational pension schemes which offer DC benefits.  The majority of these provisions come into force on 6 April 2015.

For details, please see our Alert.

Additional Voluntary Contributions under the charge cap

On 25 March 2015, the DWP published the Government’s response to the short consultation on a technical change to the Occupational Pension Schemes (Charges and Governance) Regulations 2015.

With effect from 6 April 2015, regulations (see above) will introduce a charge cap of 0.75% on the default arrangements of pension schemes used for automatic enrolment.

The Government had not intended that arrangements which solely receive AVCs should be subject to the cap.  Having been made aware that the original regulations did not achieve this, it consulted on a technical amendment.

All respondents to the consultation agreed that the change would achieve the policy intention.  The amending regulations (which were laid before Parliament on 25 March 2014) will be brought into effect on 6 April 2015, when the original regulations will also come into force.

Pension Wise telephone booking system now live

TPAS has announced that the Pension Wise telephone appointment booking system is now live.

TPAS will be delivering the Pension Wise telephone guidance sessions, alongside Citizens Advice, who will provide face to face guidance appointments, and HMT, who have already launched the Pension Wise website with online guidance.

New Deputy Pensions Ombudsman appointed

On 25 March 2015, the DWP announced that Karen Johnston has been appointed as Deputy Pensions Ombudsman and Deputy PPF Ombudsman.  She will take up her post from 1 July 2015 for a three year term.

Karen Johnston was formerly strategy lawyer at TPR, where she also worked on the automatic enrolment programme.  Prior to that she was a senior consumer lawyer at the OFT and a barrister at the Independent Bar.  She is also a trustee for the Brighton and Hove Citizens Advice Bureau.

Pension flexibilities and DWP benefits

On 27 March 2015, the DWP published a fact sheet which explains how the new DC pension flexibilities can affect an individual’s future entitlement to DWP benefits.

FCA publishes its Business Plan for 2015/16 and announces details of new supervision and authorisation divisions

On 24 March 2015, the FCA set out the key areas of work that it will undertake in the forthcoming financial year, with the publication of its Business Plan for 2015/16. This work will include:

  • examination of the sales practices of pension providers to see whether these have improved since the 2014 review into annuities sales
  • looking at how firms are helping consumers make the right choice in relation to their pensions, given the new flexible pension options that are available from 6 April 2015.

The FCA has also confirmed the creation of two new divisions that will be responsible for its supervisory and authorisations work.

Commenting on the Business Plan, Martin Wheatley, Chief Executive of the FCA, said:

“The Business Plan is set against the backdrop of the most fundamental changes to pension policy we have seen in over a generation.  Therefore we will be looking at how the market is working and in particular, how the industry is adapting to this considerable change and what it means for consumers…”

FCA consultation on Pension Wise recommendation policy

A key aspect of the new pension freedoms available from 6 April 2015 is that all consumers with DC pensions should be entitled to access free impartial guidance at retirement about their options when accessing their pension savings – the “Guidance Guarantee” or Pension Wise.

Back in November 2014, the FCA, which is required to monitor the designated guidance providers (TPAS, the CAB and the Treasury), published that standards which need to be met in the delivery of Pension Wise.  The FCA is required to monitor the guidance providers’ compliance with these standards and, where the standards have been breached, make recommendations where appropriate.

In a Policy Statement published in November 2014, the FCA outlined its proposed approach to monitoring.  It has now published a consultation on its policy for making recommendations to the guidance service providers and further information on its approach to monitoring the guidance service providers.

The current consultation closes on 8 May 2015.

FCA publishes findings of retirement income market study

On 26 March 2015, the FCA published the findings of its retirement income market study and proposed remedies.

In its report, the FCA sets out its conclusions on the effectiveness of competition in the retirement income market and details of how it intends to intervene in the market to make competition work better for consumers.  The report confirms the FCA’s provisional finding that competition in this market is not working well for consumers.  In particular:

  • many consumers are missing out by not shopping around for an annuity and switching providers, and some do not purchase the best annuity for their circumstances
  • consumers are deterred from engaging with their options by the length and complexity of wake-up packs, or because they do not believe that the sums involved make shopping around worthwhile
  • consumers’ tendency to buy products from their existing provider weakens competitive discipline on incumbent firms and makes it harder for challenger firms to attract a critical mass of customers
  • consumers are highly sensitive as to how retirement options are presented to them.  Savers reaching retirement will face a landscape that is more complex and will need support in making the right choices.

The FCA intends to support consumer choice in this market, particularly in light of the forthcoming pension reforms, by, among other things:

  • requiring firms to provide an annuity quotation ranking, so that consumers can easily identify whether they could be getting a better deal by shopping around
  • redesigning and trialling the information that consumers receive from their providers in the run up to their retirement.
  • creating a pensions dashboard to allow consumers to see all their pension pots in one place.

In addition, the FCA wants to see firms framing the options available to help consumers make good decisions, rather than to drive sales of certain products.  It will be monitoring the market and tracking consumer outcomes, as well as the take-up of the Pension Wise service.

In the next phase of its work on annuity comparisons and the replacement of wake-up packs, the FCA intends to conduct a wider review of its rules on pensions and the retirement market during the summer of 2015.

Revenue and Customs Brief 8 (2015): deduction of VAT on pension fund management costs

In the past, HMRC allowed employers to recover VAT on invoices for general administration fees for work commissioned by and delivered to the trustees of UK occupational pension schemes under Notice 700/17.  Following two CJEU cases, HMRC revised its original position on VAT and pension schemes (see our Alert for details).

In Brief 43 (published in November 2014), HMRC set out its interpretation of the legal position.  HMRC’s view was that an employer could now recover input tax in relation to the management of its pension scheme only if it:

  • is the recipient of the supply
  • is a party to the contract for those services, and
  • has paid for them.

The new brief (published on 26 March 2015) follows on from Brief 43 and outlines HMRC’s position on the use of tripartite contracts to evidence an employer’s entitlement to deduct VAT paid on services relating to the management of DB pension schemes.

Given the unique nature of DB pension arrangements, HMRC accepts that tripartite contracts can be used to demonstrate that the employer is the recipient of a supply of DB pension fund management services.  An employer may therefore be able to deduct VAT incurred on these services in line with its residual recovery position where, as a minimum, the contract with the service provider evidences that:

  • the service provider makes its supplies to the employer (albeit that the contract may recognise that, in the particular regulatory context in which DB schemes operate, the service provider may be appointed by, or on behalf of, the pension scheme trustees)
  • the employer directly pays for the services that are supplied under the contract
  • the service provider will pursue the employer for payment and only in circumstances where the employer is unlikely to pay (for example, because it has gone into administration) will it recover its fees from the scheme’s funds or the pension scheme trustees
  • both the employer and the pension scheme trustees are entitled to seek legal redress in the event of breach of contract, albeit that the liability of the service provider need not be any greater than if the contract were with the pension scheme trustees alone and any restitution, indemnity or settlement payments for which the service provider becomes liable may be payable in whole to the pension scheme trustees for the benefit of the pension scheme (for example in circumstance where the scheme is not fully funded)
  • the service provider will provide fund performance reports to the employer on request (subject to the pension scheme trustees being able to stipulate that reports are withheld, for example where there could be a conflict of interest)
  • the employer is entitled to terminate the contract, although that may be subject to a condition that they should not do so without the pension scheme trustees prior written consent (this can be in addition to any right that the pension scheme trustees may have to terminate the contract unilaterally).

In addition to the above, evidence that the pension scheme trustees agree that it is the employer who is entitled to deduct any VAT incurred on the services will reduce the potential for disputes.

The transitional period announced in Brief 43 will continue until 31 December 2015.  In the meantime, businesses may continue to use the VAT treatment outlined in VAT Notice 700/17: Funded Pension Schemes should they choose, provided that both employer and pension scheme trustees agree the same treatment.

HMRC publishes draft legislation

On 25 March 2015, HMRC published three sets of draft regulations:

The three sets of regulations are intended to have effect from 6 April 2015.  However, consultation on the regulations is open until 29 May 2015.

New Pensions Tax Manual (PTM)

HMRC published its new PTM on 27 March 2015.  This manual provides guidance on the taxation of pension schemes and related issues affecting members, including the new pension flexibilities.  The manual is currently in draft, to allow time for comments to be provided.  However, it does reflect HMRC’s current view.

Any comments on the draft guidance should be sent to the Pensions Technical Team.

HMRC intends to update the PTM to incorporate comments received, with a view to publishing updated guidance in the summer of 2015.

Insolvency Service publishes summary of guidance on undrawn entitlements

The Insolvency Service has published a summary of the guidance it has issued to official receivers and Debt Relief Order (DRO) intermediaries on how to deal with undrawn pension entitlements in the light of the recent case of Horton v Henry.  In this case, the High Court rejected an application from a trustee in bankruptcy for access to a bankrupt’s pensions which are not yet in payment.

In summary:

  • Official receivers must not include an undrawn pension fund in any calculation for an Income Payments Order/Income Payments Agreement (IPO/IPA).  Only pensions which are in payment at the date of the bankruptcy order may be considered in this calculation.  Where an election is made to draw a pension before discharge then the income, including any lump sum, may be included in any calculation or revision of the IPO/IPA.  The official receiver may not influence the bankrupt individual in making the election.
  • Similarly, intermediaries in DRO proceedings should not consider an undrawn pension fund, which might be drawn as the debtor is 55 or over, in the calculation of income.  Only funds which are in payment as income should be included when considering surplus income.
  • Where the debtor is 55 or over and has access to an undrawn personal pension fund, both official receivers and intermediaries are asked to consider whether the insolvency test has been met and, whether at the date of the application or petition, the debtor is unable to meet their debts.
  • In bankruptcy, the official receiver will consider whether it would be appropriate to seek an annulment of the order.  In a DRO, an intermediary who is concerned that the available fund is considerably higher than the outstanding debt is asked to contact the DRO Team to establish whether the official receiver will in the circumstances grant the application.
  • Official receivers should continue to challenge payments made into a pension scheme where such payments were to the detriment of creditors.  This is particularly important where the bankrupt individual holds a SIPP and the main asset of the SIPP is property.
  • Where a bankruptcy order was made on a petition presented before 29 May 2000, pension arrangements continue to vest in the trustee of the bankruptcy estate.  All such cases where the official receiver is trustee are dealt with by the Insolvency Service’s Long Term Asset and Distribution Team pensions unit.  Steps will be taken to realise the maximum amounts available for creditors in these cases, applying the changes in pension rules which will come into effect this April.

NEST reaches two million members

On 25 March 2015, NEST announced that it has now enrolled over two million members.

NEST CEO, Tim Jones, commented:

“Just two and a half years ago auto enrolment entered the pension scene, helping millions of workers get started in a workplace pension.  I’m delighted to see pension saving becoming the norm for the many, not just the few.  NEST is doing what it was set up to do alongside the private sector – we have now enrolled over 2 million members and are working with over 13,000 employers.  This is a great start and we are continuing to develop our tools and services to meet employer demand.”

With two million members enrolled in just under two and half years, this means that NEST has enrolled, on average, one new member every 40 seconds.

PPF publishes revised actuarial factors and technical news

On 27 March 2015, the PPF published revised actuarial factors to take effect from 1 April 2015, together with the latest issue of its Technical News.

The new actuarial factors relate to:

  • the PPF compensation cap
  • commutation of pension
  • early retirement
  • late retirement
  • pension equivalent of lump sum.

Issue 7 of the PPF’s Technical News covers the impact of full benefit commutation under the new flexible pension rules from 6 April 2015, and an update on the revised accounting standard for pension schemes – “Financial Reports of Pension Schemes – A Statement of Recommended Practice (2015)”.

TPR warns better record-keeping vital ahead of pension changes

On 26 March 2015, TPR warned that the forthcoming pension flexibilities, minimum governance standards for DC schemes, and the end of contracting out for DB schemes will make record-keeping vital to deliver quality outcomes for savers.

In a report published on the same day, TPR outlined how its thematic review into record-keeping and subsequent intervention has helped schemes improve their data processes.

As part of the review, TPR worked closely with schemes, as a result of which a number subsequently undertook data cleansing exercises.  TPR has also worked with scheme administrators to improve processes.

TPR is calling on schemes to manage record-keeping as part of their internal controls framework, understand the risks and potential high costs associated with poor data, and take action to address any issues.

Awareness of automatic enrolment high but TPR warns employers to act now

On 26 March 2015, TPR warned tens of thousands of small and micro employers that they must start preparing for their automatic enrolment duties.

New research published by TPR shows that, while levels of awareness of automatic enrolment remain high among all employers, more than 20% of those due to stage between June and November this year had not yet drawn up plans to meet their duties.

Every employer is given a date set in law (their staging date) when automatic enrolment will first apply to them.  TPR recommends that employers start to prepare for auto-enrolment a full twelve months ahead of their staging date.

TPR launches consultation on the need for a basic automatic enrolment assessment tool

On 25 March 2015, TPR launched a consultation on whether to provide a basic automatic enrolment assessment tool for employers who use HMRC’s Basic PAYE Tool (BPT).

Currently around 200,000 small and micro employers use the BPT.  However, the BPT does not provide the required functionality to allow employers to meet their automatic enrolment duties.

Whilst using payroll software is not an automatic enrolment requirement, TPR’s experience indicates that using appropriate payroll software can help employers to comply.  However, this runs alongside research which indicates that around half of employers with fewer than nine staff would be unwilling to pay to upgrade their software for automatic enrolment.

TPR is now seeking views, particularly from pension providers, payroll providers, business advisers, employer groups and users of HMRC’s BPT, on what support is available for employers who use BPT, to help it identify gaps and consider whether a basic assessment tool is necessary.

The consultation will close on 19 May 2015; TPR intends to publish its response in the summer.

TPR publishes its corporate plan for 2015 – 2018

On 25 March 2015, TPR published its latest corporate plan, setting out how it intends to continue to improve standards in workplace pension schemes and enable good outcomes for retirement savers.

The plan sets out how TPR will work over the next three years to:

  • establish and run a regulatory regime for public service pension schemes
  • embed the regulatory regime around the government’s DC pension reforms and flexibilities
  • provide guidance to over a million small and micro employers as they provide workplace pensions for the first time, and to those employers at the triennial anniversary following initial compliance with their employer duties so that they are equipped to deal with automatic re-enrolment and their ongoing duties
  • disrupt the evolving models of pension scams
  • regulate DB schemes
  • engage with developing policy initiatives such as defined ambition and automatic transfers, and in Europe with the Pensions Directive as a member of EIOPA.
  • 30/03/2015

For more information

Georgina Jones

+44 20 7615 9596

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