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:

• DCLG consultation on the Firefighters’ pension scheme
• GAD guidance on the calculation of transfer shares for probation service transfers
• Draft Pensions Directive: Concerns raised with the Pensions Minister
• HMRC: Revenue & Customs Brief 22/14 – VAT on pension fund management costs
• Consultation on changes to PPF valuation guidance
• Consultation on the PPF levy for 2015/15–2017/18
• Pensions Ombudsman & Pension Protection Fund Ombudsman: Corporate Plan 2014
• TPR research: Standards in DC trust-based pension schemes

DCLG consultation on the Firefighters’ pension scheme

The DCLG is consulting on regulations to introduce a new Firefighters’ Pension Scheme from April 2015.

The consultation, which applies to England only, seeks responses from interested parties on the draft regulations for the new pension scheme for fire fighters. Among other things, the consultation covers:

• the membership and benefit structure – this is a more detailed set of draft regulations to the earlier consultation which commenced on 18 December 2013 and which covered membership and the benefit structure in the new scheme
• the valuation, financing, and public sector transfer club arrangements that will apply to the scheme
• employee contribution rates.

Separate consultation exercises will follow in relation to the detailed transitional provisions (for those current firefighter members who transfer across to the 2015 scheme) and on governance arrangements.

GAD guidance on the calculation of transfer shares for probation service transfers

New guidance came into force on 1 June 2014 on the transfer of probation staff to Community Rehabilitation Companies (CRCs) or the new National Probation Service (NPS).

Whilst employed by the Probation Trusts, the transferring staff were eligible for LGPS membership in one of a number of different LGPS funds.  Following the transfer of employment, the transferring staff will retain LGPS membership, delivered through participation in the Greater Manchester Pension Fund of the LGPS by the CRCs and the NPS. The GAD guidance is for parties involved in the transfer of pension rights occurring when the administering authority changes in connection with probation service arrangements and explains how the transfer share should be calculated.

Draft Pensions Directive: Concerns raised with the Pensions Minister

As we reported on 1 April 2014 (see our Alert: Pensions back on the EU agenda), the European Commission has published a proposal for a new Occupational Pension Funds Directive.  Following the EU Parliamentary elections in May, it is now up to the EU Parliament and the Council, by means of the “ordinary legislative procedure” (formerly the “co-decision procedure”) to consider and agree the text.

The CBI, TUC and NAPF have written jointly to Steve Webb, the Minister for Pensions, outlining their key concerns with the draft proposal. These include:

• the weak evidence base, referring to the fact that the impact assessment has been rejected twice by the EU Commission’s Impact Assessment Board
• the risk that the introduction of professional qualifications for “all persons who effectively run” pension schemes could mean the end of member representation on trustee boards
• the additional costs for pension schemes which could arise, for example, from the introduction of the proposed standardised member communications
• the decision not to remove the requirement for cross-border schemes to be fully funded at all times.  The signatories to the letter note that this requirement is a significant factor which inhibits the take-up of cross border pensions.

HMRC: Revenue & Customs Brief 22/14 – VAT on pension fund management costs

On 27 May 2014, HMRC published Revenue & Customs Brief 22/14 (RBC 22/14) in which it explains its intention to review Revenue & Customs Brief 06/14 (RBC 06/14).

Background

Until 3 February 2014, HMRC allowed employers to recover VAT on invoices for professional fees for work commissioned by and delivered to the trustees of UK occupational pension schemes.  We understand that many sponsoring employers have used the extra statutory concession from HMRC in Notice 700/17 to recover VAT on professional fees in this way.

On 3 February, HMRC published Brief 06/14 on the CJEU judgment in the PPG Holdings BV case regarding the deduction of VAT on pension fund management costs.  In this brief, HMRC stated that it is changing its policy for DB schemes as a result of the case and withdrawing Notice 700/17. As a result it appeared that VAT on invoices for professional fees in relation to DB schemes that are addressed to (and paid by) the trustees, will not be recoverable by the employer.

Latest developments

HMRC’s RBC 22/14 explains that HMRC is now further reviewing the VAT treatment of pension scheme administration and fund management services. Since the publication of RCB 06/14, HMRC has had discussions with various industry representatives as to how the new policy will apply. HMRC is now planning  to take account of both the PPG and ATP decisions and to consider whether to make any to make any changes to the guidance outlined in Brief 06/14.

HMRC intends to issue further guidance in the autumn on how both judgments are to be implemented, including a transitional period in which to make any changes.

As before, scheme sponsors should discuss arrangements for recovering VAT with their tax advisers.

Consultation on changes to PPF valuation guidance

Consultation on the PPF levy for 2015/15–2017/18

The PPF has launched a consultation on the introduction of a new, PPF-specific insolvency risk model for determining levy payments, developed with global information solutions company, Experian, and drawing on input and expertise from the pensions industry and employers’ representatives.  Experian has replaced D&B as the PPF’s insolvency risk provider – see our Alert: PPF Risk Based Levy changes – move to Experian (25 March 2014).

The consultation paper sets out details of the proposed new model, and analyses anticipated changes to levy bands and rates.  Following discussions with pensions industry representatives, the PPFs intention is that the PPF-specific model will provide much greater precision and discriminatory power in assessing employers’ insolvency risk, and that it will reflect more accurately the fact that the PPF employer universe is very different to the broader UK corporate landscape that generic models look at.

The bespoke model has been independently assessed against nine success criteria identified by the PPF’s Industry Steering Group, and found to be as effective as more generic models in four of them, and superior in five, including the ability to predict insolvency.  It is anticipated that the new scores will not be used until October 2014 to calculate the levy from 2015/16 onwards, reflecting the PPF’s commitment to allow schemes the opportunity to understand and, where necessary, challenge scores, before they are used.

The consultation closes on 9 July 2014.

Pensions Ombudsman & Pension Protection Fund Ombudsman: Corporate Plan 2014

The Pensions Ombudsman has published its corporate plan for the three years from April 2014.  Highlights from the corporate plan include:

• news of the amalgamation, during 2014, of the websites of the PO and PPFO, to create a single source of information on what it does and the decisions it makes.  Going forward, the two organisations will work under the name of “the Pensions Ombudsman Service”, albeit they remain independent bodies for the time being.  These changes will not affect the statutory roles of the PO and PPFO but are designed to simplify the experience for those needing to make contact with either the PO or PPFO
• plans to work with the Financial Ombudsman Service to ensure existing signposting arrangements work effectively between the two bodies
• forthcoming work with TPAS and others to respond to the recommendations in the DWP’s Triennial Review of pensions bodies, in particular to review the “customer journey”.

TPR research: Standards in DC trust-based pension schemes

TPR has published the key findings of research conducted in 2014 into the presence of DC quality features in trust-based pension schemes. The 31 DC quality features underpin the DC code of practice and DC regulatory guidance.

Master trusts

• All 17 master trusts surveyed were aware of the DC quality features. Of these, eight had reviewed their scheme against them, while six had plans to review in the next year and three were unsure of what their plans were

• 11 master trusts stated they were being used for automatic enrolment. All of these had either reviewed their feature presence or planned to in the next six months
• on average, all master trust schemes had 22 of the 29 features measured present. The figure was higher for master trusts being used for automatic enrolment, with 25 present on average.

DC and hybrid schemes

• Awareness of the quality features is highest among large DC and large hybrid schemes (98% and 100% respectively) and lowest among small DC schemes (68%)
• there was variation in presence of the DC quality features by scheme size.  Among the 30 features measured, large hybrid schemes had 25 on average, large DC schemes had 24, medium schemes had 21, and small schemes had 15 features present on average.  Only 7% of small DC schemes had 24 or more of the features present.