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:

• New DC retirement options and other key measures come into force
• ABI publishes advice on making the right pension choices
• BIS launches campaign on shared parental leave
• DWP publishes updated guidance on the charge cap for trustees and managers of occupational schemes
• HMRC issues Newsletter 68
• NAPF publishes research on retirement plans
• PPF: confirmation of legal advice on “Last Man Standing” status
• PRA rules on implementing Solvency II
• TPR publishes guidance on DB to DC transfers and conversions

New DC retirement options and other key measures come into force

The new flexibilities for DC pension savings, first announced in the 2014 Budget, came into force on 6 April 2015 alongside a host of other new legislation for pension schemes.

Other key measures which came into force on 6 April 2015 include:

• minimum governance standards for schemes which offer DC benefits
• the charge cap of 0.75% on default funds in DC schemes used for automatic enrolment
• new statutory transfer rights for members of occupational pension schemes
• new disclosure requirements for DB and DC schemes in respect of transfers and the new DC flexibilities
• new FCA rules on IGCs and charges.
• TPR publishes guidance on DB to DC transfers and conversions

Please see our Alerts for further details, or speak to your usual Sackers contact.

ABI publishes advice on making the right pension choices

On 31 March 2015, the ABI published a press release to remind customers of six things they “need to know” in connection with the new pension flexibilities:

• April 6 is not a deadline – there is no rush for individuals to make big decisions about their retirement income
• an individual’s pension pot may have important features affecting a person’s choices.  For example, if a person has a Guaranteed Annuity Rate, the Government wants to make sure that they take financial advice before accessing their fund, to avoid potentially ending up worse off.
  Individuals are encouraged to access the free Pension Wise guidance service to learn more about finding a financial adviser
• beware of pension scams – criminals are looking to tempt people with offers that look too good to be true.  These could result in a person losing some or all of their pension fund and facing a tax bill
• think about any tax implications.  Taking the entire pot or large parts of it as cash may mean a higher than expected tax bill
• there is help available to assist individuals with their pension choices.  Pension Wise offers free and impartial guidance on the available options
• in addition, the ABI’s “Your Retirement, Your Choice” information is to design to help people understand their choices.

BIS launches campaign on shared parental leave

BIS has launched a campaign on the shared parental leave (SPL) provisions which apply to couples with babies due, or children matched or placed for adoption, on or after 5 April 2015.

New regulations regarding SPL came into force on 1 December 2014 with a view to giving parents greater flexibility in how they share the care of their child in the first year after birth.  These regulations allow parents to choose whether, and if so how, they want to share the mother’s maternity leave.

There are expected to be as many as 285,000 working couples that will be eligible to share leave from this month.  The Government hopes that the changes in the use of maternity leave will kick start a culture of change in workplaces, so that fathers feel more confident in taking time off for childcare.

The position on pensions is the same as for other periods of family leave.  While an employee is being paid:

• their employer will pay pension contributions as if the employee were earning their usual salary
• he or she will pay pension contributions on the basis of the salary they actually receive.

Schemes may need to update their rules to accommodate this change.  Please speak to your usual Sackers contact for assistance and further details.

DWP publishes updated guidance on the charge cap for trustees and managers of occupational schemes

On 2 April 2015, the DWP issued updated guidance for trustees and managers of occupational pension schemes which are used for automatic enrolment.  It explains how the charge cap works, with particular emphasis on identifying the default arrangement and how to assess charges.

For further information on the charge cap, please see our Alert.

HMRC issues Newsletter 68

On 2 April 2015, HMRC published Newsletter 68.  Among other matters, it includes information on:

• pension liberation, including that, from April 2015, scheme administrators are now required to provide HMRC with additional information and declarations online and that they may be required to produce further information
• pension flexibility and tax on payments made to pension scheme members.

NAPF publishes research on retirement plans

On 1 April 2015, the NAPF published research findings on what pension savers (aged 55-70) plan to do with their retirement income in light of the newly available pension flexibilities.  These findings indicate that while overall (82%) people are positive about the new pension flexibilities, many are worried about potential risks, including the risks that people will:

• run out of money before they die – 63%
• be mis-sold unsuitable retirement products – 47%
• make bad financial decisions and lose their money – 44%
• lose their money in scams – 36%

PPF – confirmation of legal advice on “Last Man Standing” status

The PPF recently corrected a typographical error in Levy Rule E6.2 (2) (c) to make it clear that the confirmation of Appropriate Legal Advice with respect to a scheme’s rules and its Last Man Standing status should be sent to the PPF by 29 May 2015.

In order to receive the appropriate credit in their PPF levy, schemes which are reporting as LMS must fill in the relevant PPF form (which we understand will be available from the PPF website shortly), before the 29 May deadline.

PRA rules on implementing Solvency II

The PRA has published its final rules setting out how it will implement the Solvency II Directive (Solvency II) in the UK.

Solvency II puts in place a solvency framework for insurers across Europe, with the aim of providing greater protection for policyholders by reducing the likelihood of an insurance firm failure.  The framework seeks to align capital requirements to firms’ asset and liability profiles and enhance the quality of capital.  It also provides incentives to strengthen risk management, reporting and disclosure across the industry.

The PRA’s policy statement sets out how it will implement the “long-term guarantees package”.  Insurers can reduce the level of risk on some types of long-term liabilities, such as annuities, if they hold closely-matched, long-term assets to back them.  The long-term guarantees package allows a firm to reduce its capital and reserve requirements, where the firm is closely matched and invested for the long term.

The PRA has also issued “Solvency II: the treatment of pension scheme risk – SS5/15”.  This supervisory statement sets out the PRA’s expectations of insurance firms in relation to DB pension schemes and provides further clarity to firms which sponsor DB schemes, or that are part of a group that contains a company which sponsors a DB scheme.  It is of interest to all UK insurance firms within the scope of Solvency II and to the Society of Lloyd’s, and should be read alongside all relevant European legislation and relevant parts of the PRA Rulebook.

In addition, the IFoA has published a policy briefing which explains the rationale for Solvency II and how it has developed.  It describes the key features of the three pillars that form the structure for the detailed Solvency II requirements around technical provisions and capital, governance issues and reporting.  It also explains how the UK Government and UK regulators have sought to transcribe the Solvency II requirements into UK law and regulation.  In addition, the paper outlines the IFoA’s responses to consultations on the development of Solvency II.

TPR publishes guidance on DB to DC transfers and conversions

On 2 April 2015, TPR published guidance on DB to DC transfers and conversions.

This guidance is aimed primarily at addressing statutory transfers of DB benefits.  However, it also applies to transfers made under a scheme’s rules (and partial transfers where the scheme rules permit this), as well as to conversions of benefits within the same scheme.  Among other things, the guidance covers:

• an overview of the new requirements regarding transfers out of DB schemes
• the role and obligations of trustees
• the requirement to take appropriate independent advice
• setting transfer value assumptions
• the impact of transfer values on scheme funding
• checks regarding the receiving scheme
• communications
• applying to TPR for more time to complete a transfer

Publication of the final guidance followed a short consultation on TPR’s draft, which ran between 12 February and 17 March 2015.  For more information, please see our Alert and response to the consultation.