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:

• ACA Paper: call for later retirement ages
• DCLG publishes statistics on LGPS funds for England 2012-13
• DWP publishes briefing paper on amendments to the Pensions Bill 2013
• Financial Ombudsman statistics show increase in pension complaints
• HMRC Issue briefing: what we are doing about pension liberation
• IFoA publishes paper considering challenges facing financial services in an independent Scotland
• Law Commission publishes Consultation on Fiduciary Duties of Investment Intermediaries
• NAPF Investment Insight: How Global Regulation affects UK Pension Fund investments
• OECD Working Paper 35: Institutional investors and green infrastructure investments: Selected case studies
• Pensions Institute study on real estate investment in pension funds
• PPI report on the level of pension contributions needed to obtain an adequate retirement income
• Pensions Minister gives evidence a range of current pensions issues
• TPR warns against ‘double-counting’ in DB schemes
• TPR issues Section 89 report in MF Global case
• Pi Consulting and Dalriada Trustees Limited v TPR and others – 21 October 2013

ACA Paper: call for later retirement ages

The ACA explains the Government’s proposals for future changes to the SPAafter the rise to age 67 in 2028. The ACA has also published a discussion paper which discusses the step-by-step approach to varying the SPA which discusses the step-by-step approach to varying the SPA set out in the Pensions Bill 2013, with the aim of ensuring that the proportion of adult life spent receiving a state pension is kept at around one-third.

According to DWP figures, by retiring just two years after SPA and continuing to save in that time, private pension income can be enhanced income by 20%. In her editorial to the paper, Catherine Love Soper therefore suggests that the only way to make the state pension more affordable, and to boost individuals’ private pension provision, is by increasing retirement ages.

DCLG publishes statistics on LGPS funds for England 2012-13

On 23 October 2013, the DCLG published details of the LGPS funds in England in 2012-13. The statistics look at information on scheme income, expenditure, membership and retirements. The latest figures reveal that LGPS expenditure on benefits in 2012-13 was £7.5 billion, almost the same as in 2011-12 and that the total expenditure was £8.5 billion, representing a reduction of £103 million (or 1.2%) from the previous year.

DWP publishes briefing paper on amendments to the Pensions Bill 2013

On 21 October 2013, the Government tabled a number of amendments to the current Pensions Bill, which are to be considered at Commons Report stage. Many of the amendments are technical and have been identified through ongoing discussions with the pensions industry and their scrutiny of the legislation.

A DWP briefing paper outlines the effect of the proposed amendments on a number of areas, including:

• charges, governance and administration requirements;
• the forthcoming single-tier State Pension;
• short service refunds; and
• the PPF.

Financial Ombudsman statistics show increase in pension complaints

New statistics from the Financial Ombudsman’s Service indicate that personal pensions attracted the most new complaints of all retirement products in the second quarter of 2013, increasing from 330 in the first quarter, to 381. Personal pensions went up one place to 18th on the overall list.

The statistics also show that SIPPs were the cause of 176 new complaints, up from 132 in the first quarter, rising two places on the list to 36th overall. Annuities attracted 125 complaints (up from 120), while SERPS and transfers from occupational pension schemes came 50th and 57th on the list, attracting 115 and 88 complaints respectively.

HMRC Issue briefing: what we are doing about pension liberation

According to HMRC, increasing numbers of pension savers are being targeted by unscrupulous companies, encouraging them to access their pension savings early. Commonly known as ‘pension liberation’, this behaviour can have significant tax consequences.

As part of its work to make it easier for HMRC customers to deal with their taxes, HMRC has published a briefing on pension liberation, which sets out its approach to tackling pension liberation.

IFoA publishes paper considering challenges facing financial services in an independent Scotland

The Institute and Faculty of Actuaries has outlined some of the key challenges facing financial services in an independent Scotland, in a paper published on 25 October 2013.

Martin Potter, leader of the Scottish Board at the IFoA comments:

“Scotland becoming an independent country would have a significant impact on financial services, including pensions and insurance, the regulation of the sector and its future growth. As an independent professional body with a Royal Charter the IFoA has a public interest duty to uphold. In raising questions that it believes to be pertinent, the IFoA looks to serve the public interest by informing the debate on these important issues ahead of next September’s referendum.”

Law Commission publishes Consultation on Fiduciary Duties of Investment Intermediaries

Following the report by Professor Kay on UK Equity Markets and Long-Term Decision Making in July 2013, the Law Commission (at the request of BIS and the DWP) has published a consultation paper on the fiduciary duties of investment intermediaries. Using pensions as an example, the consultation traces a chain of intermediaries from the prospective pensioner/saver to the registered shareholder of a UK company.

The Law Commission notes that there are well established duties on pension scheme trustees to act in the best interests of scheme members and looks at how far these duties require trustees to maximise financial return over a short timescale, and the extent to which trustees can consider other factors, such as the potential environmental and social impact of their investments. It notes that, for contract-based pensions and others in the chain, fiduciary duties are much less certain.

The Law Commission review has been welcomed by the NAPF. Will Pomroy, Corporate Governance Lead said:

“The NAPF welcomes any efforts to increase the clarity and understanding of the legal obligations arising from fiduciary duties and looks forward to engaging with the Law Commission’s review.”

The consultation closes on 22 January 2014 with a report due to be produced by the Law Commission in June 2014.

NAPF Investment Insight: How Global Regulation affects UK Pension Fund investments

The NAPF considers that regulatory upheaval has become a constant feature of the pension and investment landscape and that the volume, reach and complexity of both EU and international regulations continue to increase exponentially. In its latest Investment Insight, the NAPF aims to highlight a number of the key regulatory changes facing UK pension schemes and examines how these may alter investor behaviour in the future.

For further information on the issues facing pension funds as investors, please see the October 2013 edition of our Investment Briefing.

OECD Working Paper 35: Institutional investors and green infrastructure investments: Selected case studies

The OECD has published Working Paper 35: Institutional investors and green infrastructure investments: Selected case studies. The report aims to shed light on the barriers to, as well as the opportunities and risks for, green infrastructure investment, with a view to informing government policies and decisions by institutional investors. The report presents four case studies: utility-scale solar power generation in the US; sustainable agriculture in Brazil; off-shore wind energy in the UK; and the securitisation of on-shore wind farms in Germany and France.

Pensions Institute study on real estate investment in pension funds

A new study by the Pensions Institute at Cass Business School, “Returning to the Core: Rediscovering a Role for Real Estate in Defined Contribution Pension Schemes”, has found that increased investment in real estate by DC workplace pension schemes could lead to significant growth in the real estate investment sector.

Several new DC schemes that have been specifically designed for auto-enrolment have selected real estate as the first illiquid or ‘alternative’ asset class to be incorporated as a core component of default funds, with an average weighting of 10%. The report notes that default funds are likely to be used by the majority (more than 90%) of scheme members. The report also notes that, on the basis of projected growth of the DC pensions market in the UK (largely as a result of automatic enrolment), if this trend is adopted across the market, real estate assets under management could be worth £170 billion by 2030.

Published on 22 October 2013, this is the first independent academic study on the role of real estate investment in the new world of automatic enrolment.

PPI report on the level of pension contributions needed to obtain an adequate retirement income

The PPI’s latest report, “What level of pension contribution is needed to obtain an adequate retirement income“, analyses the levels of retirement income that might be achieved from contributions to a DC pension. It looks at the contribution rates necessary for different individuals to have a “good chance” of achieving adequate income in retirement. The report also compares the contribution rates necessary to achieve adequate retirement income based on current contribution levels and discusses to what extent there may be an adequacy gap.

The report finds that if a median earner saves only at the minimum automatic enrolment contribution rate of 8% of band earnings throughout their working life, they will have less than a 50% chance of achieving an adequate retirement income.

Pensions Minister gives evidence a range of current pensions issues

On 23 October, the Pensions Minister, Steve Webb, gave evidence to the Work and Pensions Committee of the House of Commons.

Among other things, the Minister noted that:

• the Government is pleased that automatic enrolment opt out rates remain low (its latest figures indicate that these stand at an average of 9% overall), and is particularly positive by the number of younger people who have so far remained in pension saving;
• TPR is currently looking into 27 live cases of pensions liberation fraud which TPR believes are processing around £185 million worth of scheme money. Cumulatively, TPR estimates that £420 million has been affected by pension liberation fraud overall;
• there is likely be a gap between the cessation of short service refunds in 2014 and the introduction of the Government’s plans for “pot follows member”, under which an individual’s DC pension pot will follow them as they change employment; and
• the Government is aiming to publish a further document on its plans for “defined ambition” schemes “shortly”, covering a more precise set of defined ambition concepts than its 2012 paper (see our Alert: “The Government defines its ambition“, 26 November 2012). In particular, the DWP has been looking at forms of “flexible defined benefit”.

TPR warns against ‘double-counting’ in DB schemes

TPR has issued a statement on double counting in scheme funding for DB schemes. TPR reminds trustees and employers of multi-employer DB schemes that payments under a schedule of contributions cannot also be considered payments towards ‘section 75’ debts, or vice versa.

When an employer leaves a multi-employer DB scheme, legislation requires any section 75 debt that is triggered to be treated as a separate payment from ongoing contributions that are payable to repair the pension scheme’s deficit under a recovery plan.

TPR is currently dealing with a number of cases in which section 75 debt repayments and ongoing recovery plan payments have been ‘double counted’, contrary to legislation.

TPR’s statement flags up the risks of double counting, explaining how it can occur and how it can be avoided. It also explains how a section 75 debt arising on the departure of an employer from a multi-employer DB scheme can be properly dealt with and accounted for under the scheme funding framework.

TPR issues Section 89 report in MF Global case

On 22 October 2013, TPR issued a report under Section 89 of the Pensions Act 2004 setting out its regulatory actions in respect of the MF Global UK (MFGUK) Pension Fund.

The MF Global group operated a DB pension scheme in the UK, which had a deficit of around £35 million on a buy-out basis at the time of the group’s insolvency in October 2011.

TPR explains how it worked closely with the scheme trustees to finalise a warning notice which made out the case for a Financial Support Direction, which it had intended to issue by 30 October this year. However, on 16 October 2013, the trustees accepted a sum of money that was sufficient to buy out members’ benefits with an insurance company at a broadly similar level to those promised prior to MFGUK’s administration. In the circumstances TPR no longer intends to proceed with regulatory action.

Pi Consulting and Dalriada Trustees Limited v TPR and others – 21 October 2013

In this case, concerning nine potential pension liberation vehicles, the High Court has ruled that the schemes concerned were established as “occupational pension schemes”. This means that the schemes fall within the jurisdiction of TPR and ensures that its appointments of independent trustees to the schemes were validly made.

To read a full summary of the case please click here, and for further information please see our latest Alert.