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

• Civil Service and Cabinet Office publish response to consultation on Civil Service Compensation Scheme
• DCLG publishes investment regulations response
• DWP consults on changes to the advice requirement
• DWP guidance on pension saving and retirement planning
• HMRC publishes Pension Schemes Newsletter 81
• HMRC updates rates and allowances information
• HMRC guidance on working out the tapered annual allowance
• PASA announces #GetInvolvedOctober campaign
• PPI publishes “The Future Book: unravelling workplace pensions”
• TPR blog: DB deficits – the real story

Civil Service and Cabinet Office publish response to consultation on Civil Service Compensation Scheme

The Government published the response to its consultation on proposed reforms to the Civil Service Compensation Scheme (CSCS) on 26 September 2016.

As part of its wider reforms on compensation arrangements across the public sector, the Government sought views on reforming the CSCS, whilst continuing to ensure that provisions for early access to pensions remain appropriate (see 7 Days dated 15 February 2016 for details). Having considered the responses it received to the consultation, the Government is now making a formal offer to trade unions, the terms of which include:

• only allowing employer funded pension top ups from age 55, and for this to track 10 years behind state pension age
• offering a partial buyout option for employees above minimum pension age where the cash value of the exit payment is insufficient to fully buy out the actuarial reduction, or where the full exit payment is otherwise affected by restrictions in legislation (such as the introduction of the £95,000 exit cap).

The response acknowledges that staff approaching their scheme retirement age will wish to be clear about their options, and notes that none of the proposals “will impact on the pension entitlements that members have built up from their service”.

The Government will take a final decision on the reforms once it has received the considered response of all the trade unions to its formal offer.

DCLG publishes investment regulations response

On 27 September 2016, the Department for Communities and Local Government published the response to its consultation on revoking and replacing the 2009 LGPS investment regulations. This follows the laying of the new Local Government Pension Scheme (Management and Investment of Funds) Regulations 2016 before Parliament (see 7 Days dated 26 September 2016).

The consultation set out three main areas for reform:

• removal of some of the existing prescribed means of securing a diversified investment strategy, instead placing the onus on authorities to determine the balance of their investments and take account of risk
• the introduction of safeguards to ensure that the more flexible legislation proposed is used appropriately and that the guidance on pooling of assets is adhered to
• the introduction of statutory guidance to assist administering authorities prepare for the new “Investment Strategy Statements”, including specific guidance on the extent to which non-financial factors should be taken into account when making investment decisions and how these should reflect UK foreign policy.

Some 23,516 responses were received to the consultation, 98% of which were from members of the public.

The new regulations are due to come into force on 1 November 2016.

DWP consults on changes to the advice requirement

The Department for Work and Pensions is consulting on possible changes to the requirement to take appropriate independent advice for individuals with “safeguarded benefits” (the “advice requirement”).

Valuing pensions for the advice requirement

A consultation published on 26 September 2016, together with the draft Pension Schemes Act 2015 (Transitional Provisions and Appropriate Independent Advice) (Amendment) Regulations 2017, looks at ways of simplifying the processes for determining who is required to take financial advice and ensuring that adequate consumer protections are in place. Among other things, the draft regulations are intended to:

• simplify the valuation process for calculating whether the exception to the advice requirement applies (it does not apply where the total value of the member’s (or survivor’s) safeguarded benefits is £30,000 or less)
• introduce tailored risk warnings which explain the likely impact of surrendering potentially valuable guarantees
• provide for transitional arrangements where members have requested a transfer value in the run-up to the regulations coming into force.

The consultation closes on 7 November 2016, with the regulations expected to come into force on either 6 April or 1 October 2017 (subject to Parliamentary approval).

Transfer of safeguarded benefits outside the UK

The DWP has also issued a call for evidence (on 30 September 2016) in relation to transfers of safeguarded benefits overseas. It is asking for views on:

• how members with safeguarded benefits transfer their pensions overseas
• how overseas transfers have been affected by the introduction of the advice requirement
• whether an alternative safeguard could be developed that would give this group a comparable degree of protection to that provided by advice from an FCA authorised adviser.

Submissions to the call for evidence are requested by 23 December 2016.

Please see our forthcoming Alert for more details of both the consultation and the call for evidence.

DWP guidance on pension saving and retirement planning

The DWP has today (3 October 2016) published three new guidance notes on:

• Saving for retirement if you’re aged 16 to 50
• Retirement planning for current pensioners
• Planning for retirement if you’re aged 50 or over

The guidance notes cover both state and private pensions, including workplace pensions.

HMRC publishes Pension Schemes Newsletter 81

Published on 27 September 2016, HM Revenue and Customs’ Pension Schemes Newsletter 81  sets out HMRC’s latest updates and guidance on pension schemes. Among other things, this latest newsletter covers:

The tax treatment of serious ill-health lump sums

Since 16 September 2016, individuals who have reached age 75 who are paid serious ill-health lump sums are now taxed at their marginal rate of Income Tax, rather than 45% as previously. This change was brought into force by the Finance Act 2016 and took effect the day after it gained Royal Assent – see our Alert for details.

The last accounting for tax return (AFT) on which these payments should be reported will be for the period 1 July to 30 September 2016 (due to be submitted to HMRC by 14 November 2016). Going forward, payments should be reported through real time information (RTI).

HMRCs new pension annual allowance calculator

HMRC’s new AA calculator can be used by individuals to check whether tax is payable on their pension savings and whether they have any unused pension annual allowances from the last four years that can be used for carrying forward and offsetting any tax owed. The calculator includes the transitional allowance rules for the tax year 2015/16.

The calculator has been launched as a “beta version” which means that HMRC plans to review and improve the calculator. HMRC therefore welcomes feedback from users of the calculator.

Pension scheme administrator look up service

HMRC is currently working on a “look up” service for pension scheme administrators to check the protection status of their members, as well as an “amend” function so that pension scheme members who have IP 2014 or IP 2016 can amend their protection details online. HMRC had hoped to launch these in October 2016 but delivery has been “delayed slightly”. They are now due to be available “later in the year”.

HMRC updates rates and allowances information

HMRC updated its guidance and information on pension scheme rates for the tax year 2016/2017 on 27 September 2016. Among other things, the guidance sets out details of the standard lifetime allowance, the annual allowance and the money purchase annual allowance.

In this update, the rates for the serious ill-health lump sum charge have been revised to reflect the change noted above, that from 16 September 2016, the 45% charge no longer applies when paid in respect of individuals aged 75 and over, such individuals now being taxed at their marginal rate.

HMRC guidance on working out the tapered annual allowance

Also on 27 September 2016, HMRC published a guidance note designed to help those who might be subject to the tapered annual allowance.

Using threshold and adjusted income, the guidance explains how individuals can work out how much annual allowance they get for 2016/17 and subsequent tax years.

PASA announces #GetInvolvedOctober campaign

The Pensions Administration Standards Association has announced the launch of its latest campaign, “#GetInvolvedOctober”, with a call to individuals and organisations in the pensions industry to get involved in raising standards of administration.

The campaign will focus on a different group each week:

• PASA experts: PASA experts provide research, articles and content which can be used as public information and guidance, and by way of an exchange of knowledge with PASA’s Policy and Strategy Committee. Current areas of focus include: GMP guidance; the pensions dashboard; data governance; DC governance and best practice; transfer processing; and improving member experience through administration
• Committee members: PASA is looking for new members to join its five committees on: standards; accreditation, industry policy, membership and funding; and PR
• Workgroup members: workgroups made up of pensions professionals assist the committees for specific programmes of activity or projects. Recent examples are the GMP and best practice workgroups
• Becoming a member: In the final week, PASA will ask organisations to consider membership. It considers the growth of its membership as vital towards driving up standards for pension administration.

PPI publishes “The Future Book: unravelling workplace pensions”

The Pensions Policy Institute has published the second edition of “The Future Book: unravelling workplace pensions”, commissioned by Columbia Threadneedle Investments. This is a report which outlines the available data on the DC pensions landscape, sets out the PPI’s projections of the future aggregate value of DC assets, and explores current trends.

Daniela Silcock, Head of Policy Research at the PPI said: “The second edition of the Future Book confirms that following the new freedom and choice reforms, people are accessing DC savings in riskier ways. More people are taking their DC pension savings through lump sum withdrawals than through annuities or drawdown, both of which offer some in-built protections. On top of this, fewer of those who are purchasing annuity and drawdown products are using independent advice; and interest in transferring pension savings from safer Defined Benefit pensions into Defined Contribution schemes has more than doubled.”

“While for some people, with very small pots, this behaviour may not carry much risk, those who are very dependent on their DC savings could end up with a lower income in retirement if they make choices unsuited to their circumstances.”

Given the increasing risks, the PPI explains that it is important that comprehensive statistics and analysis of DC pension trends are available to help monitor and inform future policy.

TPR blog: DB deficits – the real story

Andrew Warwick-Thompson, TPR’s Executive Director for Regulatory Policy, published a blog on 29 September 2016, in which he looks at the story behind media reports that DB schemes are “in crisis” and that the DB system is “unaffordable”.

Whilst Warwick-Thomson agrees that a minority of DB schemes and their sponsors are in distressed circumstances, he explains why, in his view, “the data doesn’t bear out the argument that in general DB schemes are unaffordable – nor that they are about to fail”, bankrupt their sponsors or overwhelm the PPF.