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

• Automatic enrolment: consultation on further technical changes launched
• Banning member-borne commissions: response to consultation
• Draft legislation: the Registered Pension Scheme (provision of information) (amendment) Regulations 2016
• Guidance on pension benefits with a guarantee and the advice requirement
• EIOPA announce results of the first EU stress test for occupational pensions
• ECON Committee votes in favour of revised IORP II proposal
• HMRC publishes Pension Schemes Newsletter 75
• House of Commons Library briefing papers
• Code of Good Practice on Incentive Exercises – Version 2 published
• Auto-enrolment: Public Accounts Committee report published
• PLSA publishes report into pension freedoms
• PPF publishes updated “guarantor strength” briefing note
• TPR consults on its “Innovation Plan”
• TPR figures show DC market concentration
• Three new non-executive directors appointed to TPR
• New chair of TPAS announced

Automatic enrolment: consultation on further technical changes launched

On 26 January 2016, the DWP launched a new consultation on proposed technical changes intended to simplify the automatic enrolment process and reduce burdens on employers, and on draft regulations intended to achieve these changes.

This consultation seeks views on proposals to introduce simpler processes for the re-declaration of compliance and for employers to bring their staging date forward.

It also proposes further exceptions to the employer duty to automatically enrol employees. The Pensions Act 2014 introduced a number of exceptions to the employer duty so that in certain situations an employer is not required to take action.  The exceptions, which were made with effect from 1 April 2015, apply to individuals in particular circumstances, for example, those who have been given notice of termination of employment (for full details, please see our Alert).

The consultation puts forward new classes of individual for whom it suggests exceptions should now be permitted, including some company directors and ‘genuine partners’ in LLPs.

The consultation period runs until 16 February 2016, with the aim of having the regulations in force by 6 April 2016.

Banning member-borne commissions: response to consultation

In March 2014, the Government announced that it intended to prohibit member-borne commission payments to an adviser in occupational pension schemes that provide money purchase benefits and are being used by an employer as a qualifying scheme for automatic enrolment in relation to at least one jobholder.

On 26 January 2016, the DWP published its response to the October 2015 consultation, “Better workplace pensions: Banning member-borne commission in occupational pension schemes”, which sought views on the most effective way to implement such a ban. The response includes a further consultation (which closes on 9 February 2016) on the draft regulations that will put the ban in place.

Key points from the response are as follows:

• With effect from 6 April 2016, service providers will be prevented from levying a charge on members to recover the cost of any commission payments to advisers for certain advice or services in respect of any new commission arrangements, or variations or renewals of existing commission arrangements.
• The Government intends to consult later in 2016 on regulations in respect of existing commission arrangements (those in place before 6 April 2016).
• TPR will regulate compliance with the ban and “take enforcement action where it considers it appropriate on a proportionate and risk based approach”.

For full details, please see our Alert.

Draft legislation: the Registered Pension Scheme (provision of information) (amendment) Regulations 2016

On 26 January 2016, HMRC published draft regulations and a draft explanatory memorandum for a technical consultation. The draft regulations are designed to make changes to the information requirements for administrators (generally, the trustees) of a registered pension scheme in consequence of the introduction of the tapering of the AA for individuals with income of over £150,000 (subject to a lower threshold, excluding pension savings, of £110,000), from 6 April 2016. For further details in relation to the tapering, please see our Alert.

As schemes may not be able to tell which members have an income in excess of £110,000, the draft regulations introduce requirements on administrators to provide information to members whose pensionable earnings exceed £110,000 in the tax year, so the member has the information they need to determine whether or not they may be subject to a tapered AA. They also clarify what information administrators are required to provide to members.

The consultation closes on 17 February 2016.

Guidance on pension benefits with a guarantee and the advice requirement

On 27 January 2016, the DWP published guidance for pension scheme providers on which pension benefits with a guarantee are safeguarded for the purpose of the advice requirement.

The factsheet is intended to help providers determine:

• whether certain types of pension benefits which contain a promise, including those with a guaranteed annuity rate (GAR), are safeguarded benefits for the purposes of the new advice requirement
• when the exception to the requirement to take independent advice applies for those with safeguarded benefits worth £30,000 or less.

The DWP also mention in brief the response to their call for evidence on the valuation process for pensions with a GAR for the purposes of the advice requirement. The call for evidence was held in response to concerns that providers and scheme members were finding it difficult to understand when members were required to take advice before transferring such benefits or accessing them flexibly.

The DWP states that “the majority of consultation respondents were in favour of a change to the current valuation method”. The Government is now considering how to simplify the current valuation process for the purposes of the advice requirement and aims to consult on draft regulations later in 2016.

EIOPA announce results of the first EU stress test for occupational pensions

On 26 January 2016, EIOPA announced the results of the EU-wide stress test for occupational pensions. The objectives of the stress test were:

• to produce a comprehensive picture of the European occupational pensions landscape;
• to test resilience of DB and hybrid pension schemes against adverse market scenarios and increased life expectancy;
• to identify potential vulnerabilities of DC schemes; and
• to reveal areas that require further supervisory focus.

Seventeen EU and EEA countries with a material occupational pensions sector (that is, over EUR 500 million in assets), participated in the test. In order to compare diversified stress test results, EIOPA developed a Common Methodology using market-consistent valuation for assets and liabilities.

The report notes that DB and hybrid schemes demonstrated relative resilience to a decrease in mortality rates, but sensitivity to drops in interest rates and asset prices, and increases in inflation rates.

Gabriel Bernardino, Chairman of EIOPA, said: “The occupational pensions’ stress test […] has deepened the supervisors’ understanding of the impact that different future stress scenarios can have on the pension plans resilience. ​

While pension plan liabilities have a very long-term nature, it is important that supervisory regimes are prepared to deal with these stresses in a transparent way, be it through appropriate recovery periods, the role of pension protection schemes, increased sponsor’s contributions and/or benefit adjustment mechanisms.

Further work needs to be done to analyse how prolonged adverse market conditions will affect the sponsors’ behaviour and the possible consequences for financial stability and the real economy.”

TPR also issued a press release responding to the stress test results, noting that it “strongly endorses the report’s conclusion that the flexibilities within the UK pensions sector mean there is only a limited link between pension schemes and financial stability.  Alongside these flexibilities, high quality risk management and strong employer covenants are key for the resilience of UK schemes.”

ECON Committee votes in favour of revised IORP II proposal

In March 2014, the EU Commission published a proposal for a new occupational pension funds directive (see our Alert). With the draft directive having been scrutinised by the EU Council last autumn and amended, it has been the EU Parliament’s turn to review the Commission’s draft.

On 25 January, 2016, the Economic and Monetary Affairs Committee (“ECON”) Committee in the European Parliament voted in favour of the revised report from rapporteur Brian Hayes on the new pensions Directive, by 47 votes to three.

Commenting on the vote, Chief Executive of the PLSA, Joanne Segars, said: “MEPs have made a solid job of improving this new Directive, which now looks simpler and more flexible than when it was first proposed… But we are not out of the woods yet – for two reasons.  First, there are still some points that need to be addressed, such as the persistent references to a future solvency regime and the very tight 18-month timescale for implementation.  Second, there is plenty more negotiation yet to come.”

The next stage is for the EU Parliament, Council and Commission to negotiate the draft Directive in trilogue, with the aim of finding a common position. Meeting will take place from the end of February.

HMRC publishes Pension Schemes Newsletter 75

On 28 January 2016, HMRC published Pension Schemes Newsletter 75. Among other things, it includes information on:

• the IHT treatment of pension scheme drawdown funds on death
• issues in relation to pension flexibilities, including reporting non-taxable payments, and certain lump sum death benefit payments, through Real Time Information (RTI)
• the Scottish rate of Income Tax
• relief at source – annual returns of individual information
• the reduction in the LTA, and the new transitional protections
• the tapered AA.

House of Commons Library briefing papers

The House of Commons Library has published two briefing papers on the Bank of England and Financial Services Bill 2015-16, following its third reading in the House of Lords on 20 January 2016:

• The Bank of England and Financial Services Bill [HL] (Lords stages), published 26 January 2016, summarises the debate in the House of Lords concerning the Bill, with details of the amendments made at each stage.
• The Bank of England and Financial Services Bill [HL] published 28 January 2016 provides background and commentary on the main parts of the Bill, and is intended to inform the Second Reading of the Bill in the House of Commons on 1 February 2016.

The House of Commons Library also published (on 29 January 2016) an updated briefing paper on the effect of the equalisation of the state pension age on women, ahead of the debate on the issue taking place on 1 February 2016.

Code of Good Practice on Incentive Exercises – Version 2 published

On 1 February 2016, the Incentive Exercises Monitoring Board published version 2 of the Code of Good Practice on Incentive Exercises (“Version 2”). The Code – written by an industry working group and first published in June 2012 – was originally introduced in response to industry and government concerns that incentive exercises could be conducted in a way that disadvantaged pension scheme members.

Key points in relation to the revised Code are as follows:

• as anecdotal evidence indicates employers and trustees are complying with the Code, Version 2 is not substantially different to the original
• a new proportionality threshold has been introduced so that financial advice / guidance is not required where the offer relates to certain lower value benefits
• the Code now explicitly covers “Full Commutation” exercises
• Version 2 applies to offers made on or after 1 February 2016. Where an offer has been made in writing to a member on or before that date it will remain subject to the original version of the Code.

For full details, please see our Alert.

Auto-enrolment: Public Accounts Committee report published

The House of Commons Public Accounts Committee published its report into “automatic enrolment to workplace pensions” on 27 January 2016, summarising the findings of its inquiry.

The report finds that the DWP has successfully implemented auto-enrolment for larger employers, but believes that “the real test is still to come”, as smaller employers enrol staff between 2016 and 2018. The report calls on the DWP to write to the Committee in 12 months, updating it on progress both in implementing auto-enrolment and against the Committee’s recommendations (which include simplifying online tools, and closely monitoring the experience of smaller employers).

PLSA publishes report into pension freedoms

PLSA launched the latest in their “Understanding Retirement” research series – “Pension Freedoms: no more normal” – on 28 January 2016.

The research, which included a nationally representative survey of 55-70 year olds with a pension not yet in payment, explored the new retirement landscape for the first cohort of savers with access to retirement freedoms.

The report examined the experiences and support needs of three key groups:

• “actioners”: those who started to take their pension in the first six months of the freedoms
• “investigators”: those who actively investigated options for taking their pensions
• the inactive: those who are yet to take action in relation to their pension.

Joanne Segars, Chief Executive of the PLSA, said: “The message that comes through loud and clear from our research is that there’s no more normal when it comes to deciding what to do with savings at retirement […] Our earlier research identified the deadlock that’s been created by uncertain consumer demand and an unstable regulatory environment that raises questions about future liability – these have combined to freeze any development in services to help savers make use of the pension freedoms confidently or fully. Someone has to map the new pension freedom territory to allow savers to cross it confidently.”

PPF publishes updated “guarantor strength” briefing note

The PPF has reissued its briefing note “Contingent Assets: Guarantor Strength” in an updated format. The note is “substantially unchanged” from the January 2015 version. The requirement for trustees to certify a guarantor’s strength in relation to a Type A contingent asset (parent / group company guarantee) was introduced in the levy year 2012/13, with the aim of ensuring that a levy reduction was only given where it was justified by a commensurate reduction in risk to the PPF.

The note states that it highlights particular issues for trustees to be aware of, but does not replace the PPF’s Levy Rules and Guidance for 2016/17.

TPR consults on its “Innovation Plan”

On 29 January 2016, TPR released its draft “Innovation Plan” for consultation. In it, TPR sets out its proposed approach to innovative ideas and new technology with the aim of helping to deliver better outcomes for retirement savers.  In particular it hopes to obtain “a clearer picture of how innovation and technology are improving all aspects of pension provision” and whether there is anything more that TPR can do to support this.

Andrew Warwick-Thompson, Executive Director for Regulatory Policy, said: “Our Innovation Plan opens a debate with industry on how we can do more to integrate technology into the way we educate and enable the regulated community and explore new ideas such as a pensions dashboard for savers.”

The plan sets out how applications will also be developed to share published data with other Government departments and agencies and members of the regulated community. There will also be more use of cloud hosted IT services to improve the efficiency of operations and the ability to respond to change.

The consultation closes on 12 February 2016.

TPR figures show DC market concentration

TPR released figures on 28 January 2016 showing further evidence of market concentration in the largest DC schemes.  TPR’s seventh annual statistics report on DC occupational pension schemes is based on data covering around 35,000 private pension schemes, as of 31 December 2015.

The statistics show that the number of large DC schemes (with 5,000 or more members) has increased by 50% since December 2013. At the same time, the data shows that the majority of DC schemes with twelve or more members are no longer open to new members, as the market consolidates.

The figures also show that scheme return completion rates have fallen for the second year running, down 18% from January 2014 to January 2016.

Three new non-executive directors appointed to TPR

On 26 January 2016, TPR announced the appointment of three new non-executive directors to its Board by the Secretary of State for Work and Pensions.  Tilly Ross and Sarah Smart join the Board on 1 February, followed by Margaret Snowdon OBE on 9 May.  The appointments are for four years.

New chair of TPAS announced

On 28 January 2016, the DWP announced that Museji Ahmed Takolia CBE had been appointed Chair of TPAS. Mr Takolia was previously Chair of the Members Panel at NEST.  He takes up his post with effect from 1 February 2016 for a four-year term, replacing Geoff Shanks, acting Chair, who stood down on 31 January 2016.