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

• Overseas Pensions
• Transfers consultation published
• Council of the EU adopts IORP II
• Automatic enrolment review announced
• EIOPA publishes Financial Stability Report for December 2016
• FCA finds a third of over 75s targeted by investment scams
• FCA publishes guidance on the fair treatment of long-standing customers in life insurance sector
• Qualifying Recognised Overseas Pension Schemes statistics published
• HMRC publishes issue 21 of Countdown Bulletin
• HMRC publishes Pension Schemes Newsletter 83
• House of Commons Library briefing paper published
• ICAEW publishes updated master trust assurance framework
• PLSA Annual Survey 2016 released
• Eleventh version of the Purple Book published

Overseas Pensions

Published alongside the draft Finance Bill 2017 was a suite of documents which underlie the Bill’s measures to align the tax treatment of foreign pensions more closely with the UK’s domestic pension tax regime.

The draft Pension Schemes (Categories of Country and Requirements for Overseas Pension Schemes and Recognised Overseas Pension Schemes) (Amendments) Regulations 2017 were published on 5 December 2016, together with a draft explanatory memorandum.

Transfers of pension savings that have had UK tax relief can be made free of UK tax (up to the lifetime limit on tax-relieved pension savings) to overseas pension schemes that meet the conditions to be a qualifying overseas pension scheme or qualifying recognised overseas pension schemes. The regulations set out the changes to the conditions that a pension scheme based outside the UK must meet for an individual to get UK tax relief on contributions or transfers to such a scheme.

In relation to these changes, HMRC has published draft revised versions of its main forms for overseas pension schemes to notify HMRC that:

• a pension scheme meets the conditions to be an overseas pension scheme – form APSS250
• a pension scheme meets the conditions to be a recognised overseas pension scheme and provide the undertakings required for the scheme to be a QROPS – form APSS251.

HMRC has also published draft guidance, including Pension Tax for overseas pensions, which covers the changes to the conditions to be an “overseas pension scheme” and a “recognised overseas pension scheme”.

Transfers consultation published

On 5 December 2016, eight of the leading investment and pension trade associations (including the ABI) issued a consultation paper investigating ways to improve the process of transferring pension and investment assets, following a review process. This work was been undertaken by the industry in consultation with the FCA, DWP and TPR.

The consultation seeks feedback on five proposals designed to improve processes for the transfer and re-registration of investment and pension assets:

• the creation of clear service expectations for transfers and re-registrations, including a 48 hour standard for completing each step in the process
• the collection of high level management information and a common reporting methodology for all transfers and re-registration instructions
• the creation of a forum to identify, prioritise and implement solutions that resolve unnecessary barriers to transfer and re-registration processes
• the development of common industry standards and good practice guidelines for the retail investment and pensions industry
• the establishment of an independent governance and oversight body to oversee the implementation of the final proposals.

Responses should be submitted by 31 January 2017, with a final set of recommendations due to be published in spring 2017.

Council of the EU adopts IORP II

On 8 December 2016, the Council of the European Union adopted the second IORP Directive. It revises Directive 2003/41/EC on the activities and supervision of “Institutions for Occupational Retirement Provision”, commonly referred to in the UK as workplace pensions.

The directive has four specific objectives:

• clarifying cross-border activities of workplace pensions;
• ensuring good governance and risk management;
• providing clear and relevant information to members and beneficiaries;
• ensuring that national regulators have the necessary tools to supervise workplace pensions effectively.

The Directive will come into force 20 days after it has been published in the Official Journal of the European Union. Member States will then have two years in which to implement its provisions into national law.

Automatic enrolment review announced

On 12 December 2016, the DWP announced a review of automatic enrolment, with the aim of encouraging more people to save into a workplace pension.

The review will consider the success of automatic enrolment to date, and explore ways that the policy can be further developed. It aims to gather evidence on groups such as people with multiple jobs who do not qualify for automatic enrolment in any one job, and consider how the growing numbers of self-employed people can be helped to save for their retirement.

The 2017 review will also examine the automatic enrolment thresholds for triggering saving and the age criteria for when people will start to be automatically enrolled.

The review will be supported by an external group chaired by and made up of experts from within the pensions industry, and representatives of member and employer interests. The Government will announce membership and the terms of reference for this group in early 2017.

At the same time, the Government announced the decision to freeze the earnings trigger (for establishing eligibility to automatic enrolment) at £10,000 for the 2017/18 tax year, following completion of the annual review of the automatic enrolment thresholds of the automatic enrolment earnings thresholds.

The threshold review also confirmed that the qualifying earnings band (for calculating contributions) will continue to be aligned with NIC rates – £5,876 for the lower limit of the qualifying earnings band, and £45,000 for the upper limit. An analysis supporting the review of the triggers was also published.

Finally, the Automatic Enrolment evaluation report 2016 was published. This report evaluates the implementation of automatic enrolment into workplace pensions, bringing together the latest evidence to show what has happened to workplace pension membership and contributions since automatic enrolment began.

EIOPA publishes Financial Stability Report for December 2016

On 8 December 2016, EIOPA published its December 2016 report on financial stability in the (re)insurance and occupational pension fund sectors of the EEA.

The report concludes that the European macroeconomic environment remains fragile, while insurers and pension funds continue to be challenged by prolonged low interest rates and a number of geopolitical risks.

FCA finds a third of over 75s targeted by investment scams

New research released by the FCA reveals that 22% of over 55s, with above average incomes, suspect they were targeted by a fraudulent investment scam in the past three years, rising to 32% of those aged 75 and over. On average, victims of investment fraud lost £32,000 each last year.

The report was released on the same day that DWP and HMT jointly launched a consultation seeking views on measures to tackle pension scams, including a ban on cold calling in relation to pensions. This followed the announcement made in the autumn statement. For further information on this consultation, please see our Alert.

FCA publishes guidance on the fair treatment of long-standing customers in life insurance sector

On 9 December 2016, the FCA published guidance setting out its expectations on the actions life insurance firms should take to treat their closed-book customers fairly. The products covered by the guidance include individual personal pensions (including SIPPs and Retirement Annuity Contracts), endowments, investment bonds and whole-of-life policies.

Under the new guidance, companies will be expected keep customers well informed about the product they are invested in, being clear about the policy’s performance and the charges applied. Customers should also not face unreasonable barriers to exit or unfair charges: the FCA expects pension providers to consider whether contracts that incur charges when contributions reduce or cease, or the policy exits ahead of a retirement date selected at outset, continue to meet the needs of customers, particularly in light of current pension reforms and continuing changes to employment patterns.

Qualifying Recognised Overseas Pension Schemes statistics published

On 6 December 2016, HMRC published statistics on the number of transfers made to QROPS and the total amount of those transfers each year since 2006/07, as reported to HMRC.

According to the report, 13,700 transfers worth £1,500m were made in the tax year 2015/16.

HMRC publishes issue 21 of Countdown Bulletin

On 6 December 2016, HMRC published issue 21 of its Countdown Bulletin, the latest in its series of updates to provide guidance and information to pension scheme administrators in relation to the abolition of DB contracting-out on 5 April 2016.

Bulletin 21 gives information about the reconciliation of current members, and the closure scan due to run in December 2016. The scan will automatically close open periods of contracted out employment held on HMRC records, using the Scheme Contracted-out Number (SCON) provided by employers. Schemes are asked to submit closure scan request forms as soon as possible to obtain the data.

HMRC publishes Pension Schemes Newsletter 83

Published on 12 December 2016, HMRC’s Pension Schemes Newsletter 83  sets out its latest updates and guidance on pension schemes.

Among other things, this newsletter covers measures from the Autumn Statement 2016, updates to the Lifetime Allowance Online Service, guidance on unauthorised borrowing, reporting on serious ill-health lump sums, and information on QROPS.

House of Commons library briefing paper published

The House of Commons Library has published a paper summarising trends in pensioners’ incomes. Among other findings, the report states that over the decade to 2014/15, average net pensioner income grew by 19% in real (RPI-adjusted) terms, compared to a 10% real fall in average full-time earnings over the same period.

ICAEW publishes updated master trust assurance framework

On 8 December 2016, the ICAEW published its revised Master Trust Supplement to ICAEW’s AAF 02/07, along with its response to the responses received on the consultation which ran earlier in the autumn.

The changes bring the voluntary assurance framework up to date with current legislation and TPR’s DC guidance and code of practice, and provide for greater trustee responsibility of control processes related to governance.

Andrew Warwick-Thompson, Executive Director at TPR, said: “The master trust assurance framework continues to provide an important tool for schemes to demonstrate they are well governed and sustainable and so we welcome the changes announced today by ICAEW that reflect our new DC Code. I am also pleased that the changes to the framework encourage trustees to take greater responsibility for governance processes, something we are also calling for in our work to drive up standards of trusteeship. The framework allows Trustees to assess their governance systems and processes and to prepare for the changes announced in the Pension Schemes Bill.”

PLSA Annual Survey 2016 released

The PLSA has published its 42nd Annual Survey. The survey covers key themes across both DB and DC schemes, including investment, governance and funding.

The 2016 survey revealed, amongst other findings, an increase of 37% on reported running costs for DB schemes (from £400 in 2015 to £546 in 2016 per member), largely driven by increases in fund management and custody costs. Smaller schemes, with 5,000 or fewer members, had seen the greatest rise in running costs with an average increase of 63%, to £787 per member.

Eleventh version of the Purple Book published

The PPF has published the eleventh edition of the Purple Book, which “gives the most comprehensive picture of the risks faced by defined benefit pension schemes in the UK”, reviewing the 5,794 private DB schemes eligible for the PPF. The data is based on information that eligible schemes are obliged to provide to TPR, and covers the period from 1 April 2015 to 31 March 2016.

The latest Purple Book shows trends were stabilising after a decade of major changes in the DB universe, with scheme funding little changed over the 12-month period. However, as Andrew McKinnon, Chief Financial Officer of the PPF noted, “while scheme funding remained largely stable in the year to March, there have been large swings in funding since June. When we look back at what progress schemes have made over the last decade it appears that many schemes are just treading water. The average recovery plan length, at around eight years, has barely improved, which brings home the challenge we now face. The current economic backdrop, as well as scrutiny faced by the entire industry, suggests conditions will remain tough in 2017”.