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

• DWP publishes green paper on DB pensions
• DWP updates State Pension guidance
• FRC to review the UK Corporate Governance Code
• Briefing papers published
• QROPS Online Service closing in April 2017
• HMRC publishes guidance on disguised remuneration schemes
• PPF opens consultation on levy rule for new arrangements with no substantive sponsor
• TPR publishes blog on helping trustees stop pension scams

DWP publishes green paper on DB pensions

On 20 February 2017, the DWP published its keenly awaited green paper on “Defined benefit pension schemes: security and sustainability”.

The green paper sets out the Government’s evidence on the key challenges facing DB pension schemes. It notes that while there is no evidence of a systemic issue, the Government recognises that recent high profile cases have raised concerns regarding pensions. It is therefore looking to improve confidence in the sector and hear from a wide range of experts, employers and consumers about what action should be taken.

In particular, the green paper focuses on four broad areas in which the DWP wants to build consensus on what, if anything, it should do to further support the private DB pensions sector. These are:

• funding and investment
• employer contributions and affordability
• member protection
• consolidation of schemes.

Consultation on the green paper closes on 14 May 2017 (a Sunday).

Please see our forthcoming Alert for further details.

DWP updates State Pension guidance

On 15 February 2017, the DWP updated its guidance on State Pension deferral for those who reached SPA before 6 April 2016.

People in this category who choose to defer their State Pension can select from one of two options – a higher weekly State Pension (if the State Pension is deferred for at least five weeks), or a one-off taxable lump sum payment (available if the State Pension is deferred for at least 12 months). The update clarifies how such extra payments and lump sums are calculated, adds information for people who reached SPA before 6 April 2005 (for whom special rules apply), and provides information about the inheritance of deferral payments.

The DWP also updated its guidance for pension advisers on the State Pension top up on 17 February 2017. The State Pension top up is the scheme available to pensioners who reached SPA before 6 April 2016, which gives them the option of boosting their additional State Pension (also known as SERPS or S2P) by up to £25 a week, an index-linked return to protect against inflation and offer protection to a surviving spouse or civil partner. The guidance includes a reminder that applications for the top up scheme must be made by 5 April 2017.

FRC to review the UK Corporate Governance Code

On 16 February 2017, the FRC announced plans for a “fundamental review of the UK Corporate Governance Code”.

The review will take account of work done by the FRC on corporate culture and succession planning, and the issues raised in BEIS’ corporate governance inquiry. The review will consider the appropriate balance between the Code’s “principles and provisions and the growing demands on the corporate governance framework”.

The FRC will commence a consultation “later in 2017”, seeking input from a wide range of stakeholders.

Briefing papers published

The House of Commons Library published a briefing paper on 15 February 2017, looking at the ways in which forming a civil partnership affects rights to State, occupational and personal pensions, and at the relevant provisions in legislation. The paper covers the case of Walker v Innospec, due to be heard in the Supreme Court in March 2017.

The Library also published a paper on 17 February 2017, looking at the development of survivors’ pensions for opposite sex cohabiting couples, particularly in public service pension schemes, including the recent decision of the Supreme Court on the application for judicial review by Denise Brewster.

QROPS Online Service closing in April 2017

As set out in HMRC’s Pension Schemes Newsletter 84, HMRC have confirmed that the online service for managing QROPS will close on 5 April 2017. From 6 April 2017, administrators of pension schemes are directed to use the existing forms and reference material instead.

HMRC publishes guidance on disguised remuneration schemes

On 14 February 2017 HMRC published “Spotlight 35” in relation to a specific form of disguised remuneration tax avoidance scheme. HMRC states that it will investigate anyone who employs a scheme that uses annuities as a payment method in order to avoid Income Tax and NICs, noting that it believes that “this and other similar schemes don’t work”.

“Spotlight 36”, published on the same date, discusses schemes that claim to avoid the “loan charge” on disguised remuneration, announced at Budget 2016 and included in Finance Bill 2017.

PPF opens consultation on levy rule for new arrangements with no substantive sponsor

On 20 February 2017, the PPF published an additional consultation document inviting comments solely on new rules for schemes without a substantive sponsor. The finalised rule will complete the changes to the Pension Protection Levy for 2017/18.

The PPF’s standard methodology for calculating levies, a key element of which is an assessment of the insolvency risk posed by the sponsor, would not be appropriate for a scheme which ceases to have a substantive sponsor after a restructuring of its pension arrangements. The PPF had indicated its intention to issue a further consultation on this issue in the December 2016 levy policy statement for 2017/18, and the levy rules were published provisionally at that time to allow the PPF to do so.

David Taylor, Executive Director and General Counsel at the PPF, commented: “A key principle of the PPF levy is that it is as reflective of risk as possible. Schemes without a substantive sponsor present a different risk to the PPF from that posed by other schemes. We have developed a new approach to charging such a scheme an appropriate risk-reflective levy, not least to ensure there is no risk of cross-subsidy from existing levy payers.”

The new proposed charging methodology is based on a commonly used pricing model for valuing put options, which has then been adapted to the PPF’s particular circumstances. The use of a methodology that is widely used to price comparable risks aims to ensure that such a scheme will be charged an appropriate levy, reflecting the true risk it poses. The methodology also recognises that a scheme with no sponsor will always pose a bigger risk than an identical scheme which has a sponsor, however weak, and should therefore always pay at least the same levy.

David Taylor added: “We will always operate in the best interests of our members and levy payers. This is new and evolving terrain and we need to be able to react with an appropriate levy if it is needed.  Few if any schemes would themselves be directly affected by this rule in 2017/18 but we are keen to hear the views of stakeholders to inform the development of the framework.”

The deadline for comments is 5pm on 6 March 2017 and finalised rules will be published by 31 March 2017. More substantial changes will be considered for the next triennium, starting in 2018/19, on which the PPF plans to consult in spring 2017.

TPR publishes blog on helping trustees stop pension scams

On 14 February 2017, TPR published its latest blog, entitled “Helping trustees stop scams – why we need a ‘safe scheme list’ and a SSAS transfer ban”.

The blog, by TPR Executive Director for Regulatory Policy Andrew Warwick-Thompson, discusses how to “narrow the open goal presented to scammers by the current occupational pension regime”.

His suggestions include an outright ban on pensions cold calls, texts and emails; developing a “safe schemes list” that trustees and managers can rely on as legitimate transfer destinations; and a ban on pension transfers to SSAS arrangements.