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:

• State Pension and Combined Pension Statements
• Additional State Pension on divorce or dissolution of a civil partnership
• Institute and Faculty of Actuaries consults on general standards framework
• NAPF guidance
• NAPF principles for LGPS reform
• NAPF appointments
• NEST: The cost of a comfortable retirement
• PPI Report on the benefits of automatic enrolment and workplace pensions for older workers
• TPR corporate plan for 2014-17
• Clyde & Co LLP and another v Bates van Winkelhof

State Pension and Combined Pension Statements

Ahead of the introduction of the single tier State Pension from 6 April 2016, the DWP has updated its guidance leaflets to help individuals understand the information contained in their State Pension statements and Combined Pension Statements (CPS5 and CPS5T).  This guidance includes information on how the DWP works out the estimates in the State Pension Statement, as well as general information about the State Pension.

The Combined Pension Statement is a voluntary service that lets an employer combine employees’ pension information.  The single statement includes details of their State Pension and information about their workplace or personal pension.  This information is designed to help employees plan their retirement.  The Combined Pension Statement can also be used by pension providers, trustees and third party administrators, to help their scheme members.

Additional State Pension on divorce or dissolution of a civil partnership

If a married couple gets divorced, or a civil partnership is dissolved, the court may take any additional State Pension into consideration as a financial asset which may be shared as part of any financial settlement.  This means that, through the making of a pension sharing order, part of the value of any additional State Pension that has been earned by an individual could be shared with their former husband, wife or civil partner.

The DWP has published form BR20 which needs to be filled in by both parties in order to get a lump sum valuation of any additional State Pension they may be entitled to.  The lump sum valuation is then used by the court in determining the financial settlement.

Institute and Faculty of Actuaries consults on general standards framework

The IFOA is consulting on the possible introduction of a cross-practice Actuarial Profession Standard setting out the regulatory requirements applicable to members carrying out actuarial work (APS X1).

There is currently no mandatory framework setting out the extent to which standards apply to all members of the actuarial profession.  As part of the present review of its standards framework, the IFoA has recognised that there is a need to clarify the standards that apply to the work of its members.  It also considers there to be a public interest angle to this proposal, with a view to clarifying the standards that clients and users are entitled to expect in relation to actuarial work.

The consultation closes on 21 August 2014.

NAPF guidance

The NAPF has recently published two new investment guides:

• Investment Insight: Secondary property – potential investment opportunity?  This report looks into the relatively neglected secondary property market and, in particular, why pension funds might consider investing in it now.  The report covers valuations, the asset characteristics and considerations for trustees before investing in this asset class.
• Transition Management ‘Made Simple’ is designed to help pension funds fully understand transition management (the process of managing changes to a pension fund’s portfolio of assets) and outlines the factors to consider when choosing a transition manager.

NAPF principles for LGPS reform

The NAPF has outlined its key principles for reform of the LGPS, which are designed to ensure that the reforms meet the overall goal of sustainable, affordable pensions in the long-term.  Speaking at the NAPF’s Local Authority conference, NAPF Chief Executive, Joanne Segars, set out the NAPF’s principles for reform:

• the outcome of reform should focus on delivering good value for employers, taxpayers and scheme members to ensure the long-term sustainability of the fund, not just low cost
• the outcome of reform should acknowledge the benefits that can be delivered by developing new structures and solutions that leverage scale whilst also providing funds with sufficient flexibilities to invest in accordance with their local circumstances where that is shown to add value, including internal and active management approaches
• the governance of any investment structures must be aligned with the long-term interests of LGPS funds so as to continue to provide good long-term value.

NAPF appointments

The NAPF has announced two new appointments:

• Jackie Wells, Head of Policy and Research.  Jackie has led a range of consultancy projects for the FSA/FCA, Government departments and other not-for-profit organisations as well financial services firms.  Her experience of working on pension policy issues is extensive, including having led consultancy teams working with DWP on the Pensions Commission reforms as well as with providers and schemes on the impact of auto-enrolment.  Jackie will be responsible for leading the NAPF’s policy and research activity.
• Alison Binks, Head of Business Development.  Alison joins the NAPF from the Chartered Institute of Public Finance and Accountancy (CIPFA) where she developed and led the business development team.  Prior to working at CIPFA Alison spent seven years in management consultancy with RSM Bentley Jennison.

NEST: The cost of a comfortable retirement

NEST has published its findings on the cost of retirement, in the report“Retirement Realities: Tomorrow’s worth saving for”.

The report takes account of a number of factors, including pensioners’ ability to afford everyday household bills, as well as their sense of satisfaction with life.  NEST pinpoints a significant shift in quality of life among pensioners living on a household income of £15,000-£20,000 per year, compared to those living on smaller incomes.  Among other things, the report notes that:

• pensioners’ overall satisfaction with life increases by an average of 7% per extra £5,000 annual household income they have
• 43% of pensioners living on a household income of £15,000-£20,000 say they are financially comfortable, compared to just 24% of those living on less than £15,000
• a third of people living on less than £15,000 find it difficult to afford their household energy bills and a quarter find it difficult to afford groceries, which drops to just 15% and 9% respectively for pensioners with a household income of £15,000-£20,000
• women are more likely than men to be living under the threshold, with 24% of women living on £10,000 or less, compared to just 10% of men.  41% of women feel their annual household income is not enough to give them the retirement they’d hoped for.

Based on these findings, NEST calculates that the average worker (automatically enrolled into pension saving at the minimum levels) should be able to save up enough over their working life to get most of the way to the £15,000-£20,000 threshold.   A worker who starts saving at age 22 should be able to double the amount of income they receive from a flat rate State Pension by the time they reach retirement age, even if they only put in the minimum level of contributions.

However, the research found that any additional income above the State Pension has a positive impact on quality of life, with wellbeing rising significantly at around £15,000-£20,000 a year and levelling off at around £40,000 a year.

PPI Report on the benefits of automatic enrolment and workplace pensions for older workers

The PPI’s latest report, “The benefits of automatic enrolment and workplace pensions for older workers” analyses the returns on pension contributions for those aged between 50 and State Pension Age, who do not opt out from their workplace pensions after being automatically enrolled.

The report finds that, under reasonable assumptions, over 95% of older workers are likely to receive good value on their pension contributions from staying automatically enrolled.  The report also finds that a very small group (fewer than 3% of those aged 50-SPA and automatically enrolled) are likely to be at high risk of automatic enrolment not being suitable for them, assuming that they do not opt out.  These are generally older workers who are automatically enrolled and who then become eligible for Guarantee Credit in retirement because of the low income of their partner.

Recent research from the DWP  found that opt out rates for those aged 50 and over, at 15%, had been higher so far than those for other age groups (at 9% on average).

TPR corporate plan for 2014-17

TPR’s corporate plan sets out its priorities for the next three years.

Among other things, the plan outlines TPR’s strategic approach to regulating DB and DC schemes and to the implementation of automatic enrolment.  It also explains how TPR intends to maximise compliance with automatic enrolment duties among medium, small and micro employers, investigate pension liberation activity and fulfil its extended remit of regulating the governance and administration of public service pension schemes.

Key activities to be delivered by TPR in the next three years include:

• promotion of good governance and administration of work-based pension schemes
• promotion of security and good outcomes for members of work-based pensions
• promotion of employer compliance with their pension responsibilities
• improvement of its organisational efficiency and effectiveness.

Clyde & Co LLP and another v Bates van Winkelhof

The Supreme Court has confirmed that members of a limited liability partnership (LLP) can be ‘workers’ for the purposes of whistleblowing legislation.  The case has wider ramifications in terms of the protections that are afforded to workers, including automatic enrolment.

Click here for a full summary of the case.