7 days

On 27 March 2014, the FAS (Qualifying Pension Scheme Amendments) Regulations 2014 were laid before Parliament.  They came into force on 28 March 2014.

The PPF is responsible for dealing with underfunded schemes with insolvent employers from 6 April 2005.  As a general principle, FAS deals with schemes with insolvent employers where the scheme began to wind up before this date, although exceptions exist.

A particular scheme was brought to the Government’s attention which appears to fall between FAS and the PPF because, while the scheme began to wind up after 6 April 2005, the employer attached to the scheme at that time does not meet the definition of a statutory employer needed for entry to the PPF.  Rather than leave the members of that scheme ineligible for both the PPF and FAS, the Government has decided to extend the qualifying conditions for the latter.

These regulations therefore redefine a qualifying pension scheme to include a DB scheme which began to wind up after 23 December 2008 and before these regulations come into force, whose connection with a statutory employer was lost before 10 June 2011, and where that statutory employer became insolvent before 6 April 2005.

On 26 March 2014, the ACA published a paper on collective DC (CDC) pension schemes.

ACA Chairman, Andrew Vaughan, who also heads the Defined Ambition Industry Working Group set up by the DWP to provide input to the November 2013 consultation on Reinvigorating workplace pensions (see our Alert for details), said that: “the ACA has been a strong supporter of allowing greater freedom in workplace pension design and risk sharing, which is why we welcomed the “Defined Ambition” initiative and consultation, which includes proposals to encourage CDC and a more flexible approach to DB arrangements.  These workplace pension reforms, if enacted, would complement and support the Chancellor’s latest proposals to boost pension savings in a more flexible environment”.

On 27 March 2014, the DWP published a Command Paper which proposes a comprehensive range of measures that are designed to improve the quality of workplace DC schemes, with particular emphasis on protecting those who have been automatically enrolled into private pension saving.  These measures include:

• New minimum quality standards for DC workplace pension schemes.  The DWP proposes that Independent Governance Committees (IGCs) are set up to protect members’ interests in contract-based schemes.  Together with more stringent requirements for trust-based schemes, these measures are designed to improve accountability and ensure compliance with the new quality standards
• A charge cap on default funds of DC arrangements that are used as “qualifying schemes” for automatic enrolment.  The cap, which is due to come into force from April 2015, will be set at 0.75% of funds under management and will apply to all management charges (excluding transaction costs).  Consultancy charges will also be banned in qualifying schemes from this date.  The Government plans to examine the level of the cap in 2017 and to consider whether some or all transaction costs should be included within it
• The elimination of charges on members that incompatible with automatic enrolment.  For example, adviser commissions and Active Member Discounts will be banned in qualifying schemes from April 2016
• Greater transparency in workplace schemes.  From April 2015, trustees and IGCs will have new duties to consider and report on costs and charges.  The Government then intends to introduce new standardised requirements for the mandatory disclosure of all pension costs and charges.  This information will be disclosed to trustees and IGCs in a format that enables comparison between schemes, as well as being made available to employers, scheme members and regulators.

The Command Paper forms the Government’s official response to the DWP consultations on charges (please see our Alert: Charges Cap Proposed for DC Schemes) and quality standards and the OFT’s market report.  The Pensions Bill, currently going through Parliament, contains primary powers to deliver this package of measures.  Assuming the Bill receives Royal Assent, secondary legislation setting out the detail of the measures is expected to be laid in the latter part of 2014.

To support automatic enrolment and to give employers, schemes and providers time to adjust to the new requirements, the Government intends to adopt a phased approach to implementation.  The first wave of measures is planned to come into force in April 2015, with the second wave in force from April 2016.  In 2017, the Government will consider whether the level of the default fund charge cap remains appropriate, as well as transaction costs should be included within the cap.

We will be publishing an Alert on the Command Paper shortly.

On 27 March 2014, the European Commission published a proposal for a new Occupational Pension Funds Directive, with a view to bringing workplace pensions into the more transparent era of good governance that is emerging from the ashes of the global financial crisis.

The Commission’s proposals are underpinned by four main objectives:

• Ensuring the soundness of occupational pensions and better protections for pension scheme members and beneficiaries
• Better information for pension scheme members and beneficiaries
• Removing obstacles for cross-border provision of services so that occupational pension funds and employers can fully reap the benefits of the single market
• Encouraging occupational pension funds to invest long-term in growth, environment and employment enhancing economic activities.

Some of the most controversial elements of the original proposals for reform, including the “Holistic Balance Sheet” (a measure for valuing pension schemes which would require liabilities to be balanced by a mixture of assets, contingent assets, sponsor support and possible access to compensation schemes), were taken off the table in 2013 in the wake of considerable opposition from around the EU and do not feature in the draft Directive.  However, they are the subject of ongoing work by EIOPA and we expect to see further consultations on these measures in autumn 2014.

We will be publishing an Alert on the draft Directive shortly.

On 27 March 2014, HM Treasury announced the publication of the Finance Bill 2014.  The Bill will implement various tax changes that have been announced during the last year, including:

• Increasing the tax-free Personal Allowance to £10,000 in 2014-15 and legislating for a further increase to £10,500 from 2015-16
• Reducing the starting rate of income tax on savings from 10% to 0% and extending the band to which it applies from £2,880 to £5,000.  The Government’s analysis suggests that this move will benefit around 1.5 million people
• Taking the first steps towards bringing in the Budget’s major pension reforms, with a view to giving individuals much greater choice about how they access their DC pensions savings from April 2015 (see our Alerts:“Budget 2014: Never a quiet year for pensions” and “Budget changes for pensions: What’s happening on 27 March 2014?” for details).

Since the launch of the new QROPS online service on 16 December 2013, UK pension scheme administrators can use this facility to report the transfers of sums and assets from UK registered pension schemes to QROPS.  Scheme administrators can access the online registered pension scheme record using the relevant pension scheme tax reference (PSTR).

For those pension schemes, such as Retirement Annuity Contracts (RAC) and Executive Pension Plans (EPPs), that were approved before 6 April 2006 and have no PSTR, separate online registration is required before transfers can be reported online.  However, scheme administrators can continue to use the paper form APSS262.  When completing APSS262, scheme administrators should use the contract number of the RAC or EPP instead of the PSTR.

On 28 March 2014 the PO issued an announcement regarding a recent change in the rules governing proceedings in the High Court in England and Wales.

All appeals against determinations or directions of the PO and the PPF Ombudsman filed on or after 6 April 2014 require the permission of the High Court.  This requirement does not, at present, affect appeals in Northern Ireland or Scotland.

On 27 March 2014 the PPF published updated compensation cap factors.  These will apply from 1 April 2014.

The factors have been updated to reflect the statutory increase in the PPF compensation cap at age 65 to £36,401.19 as of 1 April 2014.  This equates to £32,761.07 after the 90% has been applied.

TPR has opened seven case investigations into scheme record-keeping following its thematic review in this area.  On 31 March 2014, TPR published areport detailing the main findings of the review, and actions that schemes can take to improve record-keeping standards.

TPR’s review sought to identify whether schemes had met their targets for common data (member details common to every scheme such as name, date of birth, National Insurance number) (please see our Alert for details), the actions schemes were taking to manage and mitigate errors and gaps in data, and how schemes were managing data as part of their internal controls frameworks.

TPR found good practice in the industry across a range of scheme types and sizes, but also found areas that caused concern and posed risks to schemes and the payment of members’ benefits.  In particular, schemes with lower levels of engagement with their advisers (which tended to be smaller schemes), were less able to demonstrate that they had effectively tackled record-keeping challenges.