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

• EIOPA reports on consultation regarding development of Pan-European Personal Pension product
• European Commission publishes status report on Capital Markets Union
• FCA survey of firms providing financial advice
• FCA extends modification by consent of COBS in relation to UFPLS sales
• FCA issues Compensation policy statement
• FSCS announces 2016/17 final levy
• GAD evidence on early drawing of state pension: women affected by state pension changes
• HMRC and HMT report on pension freedoms
• Pensions Ombudsman moves complaint process online
• TPR to publish list of GPPs open to all employers
• TPR warns employers not to ignore penalty notices

EIOPA reports on consultation regarding development of Pan-European Personal Pension product

​On 27 April 2016, EIOPA published the final report on its public consultation on the possible creation of a standardised pan-European Personal Pension Product (“PEPP”). The consultation was conducted between July – October 2015, with the related survey run in November 2015.

The final report contains a summary of comments received from stakeholders, including those from EIOPA’s Occupational Pensions Stakeholder and Insurance and Reinsurance Stakeholder Groups. Respondents commented on investments, switching, applicable solvency rules, distribution channels and advice, authorisation and the product passport.

The conclusions drawn by EIOPA after the 2015 consultation and survey were integrated into its final advice to the EU Commission on the creation of a standardised PEPP (published on 1 February 2016). Further consultation on this advice was carried out between February – April 2016. EIOPA’s final advice on the development of the Single Market for PEPPs is awaited.

European Commission publishes status report on Capital Markets Union

On 25 April 2016, the European Commission published its First Status Report on progress towards establishing a Capital Markets Union (“CMU”).

The report sets out the actions taken since the publication of the CMU Action Plan in September 2015, and the initiatives scheduled for 2016 – 2018. It covers assessment of the case for a policy framework to establish an EU single market for personal pension products, and study into removing tax obstacles to cross-border investment by pension funds and life insurers.

On the same date, the Commission has published a speech by Lord Hill, Commissioner for Financial Stability, Financial Services and Capital Markets Union, which referred to these aims.

FCA survey of firms providing financial advice

On 28 April 2016, the FCA published a report summarising the results of a survey of 233 firms active in providing financial advice on retail investment products.

The survey was carried out in November 2015, and its results informed FAMR and the proposals recommended. The FCA wished to gain a better understanding about the profile of the customers of advice firms, barriers that firms face in expanding the provision of advice to the mass market, the use of technology in the advice process, and views on the future of the advice market. In addition, the results of the survey – in particular, insights into how firms providing advice have responded to the pension freedoms – will be used by the FCA to inform their ongoing supervisory work in this area.

Alongside questions about the firms and the advice market more generally, the data request focused on three advice areas in retail investments: retirement income, pension accumulation and investments.

According to the report, since the introduction of the retirement freedoms in April 2015, the total number of requests from existing customers for DB to DC transfers had more than doubled (an increase of 123%), whilst the figure for new customers had more than tripled (an increase of 246%).

FCA extends modification by consent of COBS in relation to UFPLS sales

The FCA is in the process of updating the relevant rules in its Conduct of Business sourcebook (“COBS”) (including rules in chapters 13 (Preparing product information) and 14 (Providing product information to clients)) to reflect the existence of the “UFPLS” – lump sums payable from funds which are uncrystallised (ie those not yet used to pay a scheme pension, annuitised or designated to a flexi-access drawdown fund or a drawdown fund). This follows a consultation run by the FCA in October 2015 – CP15/30.

In advance of this, to ensure consumer protection and help firms prepare product information relating to UFPLS facilities, the FCA published a “modification by consent”, which effectively provided firms with an extension of the drawdown rules to UFPLS payments. As around half of all pension providers opted in to this modification voluntarily, it is now being incorporated into the FCA’s handbook rules, therefore making it a requirement on all firms.

Implementation of the new rules has been delayed until 5 April 2017. The current modification by consent, which had been due to expire in October 2016, has therefore now been extended until April 2017. Firms wishing to apply to make use of the modification by consent, or to extend the duration of their existing modification by consent, should contact the FCA’s central waivers team.

In relation to this, the FCA has updated its webpage which gives pension providers information as to the provision of product information in UFPLS sales.

FCA issues Compensation policy statement

On 29 April 2016, the FCA issued a Policy Statement reporting on the main issues arising from Consultation Paper 15/40:  Financial Services Compensation Scheme – changes to the Compensation sourcebook (“COMP”), and publishing the final rules.

The FCA consulted in November 2015 on amendments to the COMP which governs the operation of the FSCS. The consultation proposed changes to the eligibility of trustees of occupational pension schemes to claim on the FSCS.

Amongst other things, the Policy Statement confirms that the FCA will amend its rules so that:

• trustees of occupational pension schemes sponsored by large employers will be eligible to claim on the FSCS where the benefits are money purchase benefits
• trustees of SSASs providing defined benefits are treated in the same way as the trustees of other DB occupational pension schemes in relation to eligibility to claim on the FSCS. This means that the trustees would no longer be eligible to claim where the employer is large.

For this purpose, where the employer is a company, it will be large if it meets two of the following criteria:

• turnover of more than £6.5 million (rising to £10.2 million for financial years beginning on or after 1 January 2016)
• balance sheet total of more than £3.26 million (rising to £5.1 million)
• more than 50 employees.

Where the employer is a partnership or unincorporated association, it will be considered large if it has net assets of more than £1.4 million.

FSCS announces 2016/17 final levy

On 26 April 2016, the FSCS announced that its levy for 2016/17 has been set at £337 million. This is £26m less than it forecast in its Plan and Budget for 2016/17, which was published in January 2016.

As a result, most industry sectors will contribute less in 2016/17 than the FSCS had originally suggested. However, the life and pensions intermediaries sector will pay a levy of £90m in 2016/17 (up from a forecast of £80m), to reflect a higher average cost of claims arising from advice about investments in SIPPs.

GAD evidence on early drawing of state pension: women affected by state pension changes

On 28 April 2016, GAD published the evidence it has given to the Work and Pensions Committee inquiry which is exploring the option of permitting a defined group of women who have been affected by state pension age changes to take early retirement, from a specified age, on an “actuarially neutral basis”. The idea is that affected women could be permitted to choose to take a state pension sooner than scheduled in return for lower weekly payments for the duration of their retirements.

GAD estimates that this scheme would mean a potential increase in annual Government expenditure of up to £2.3 billion a year over the first 9 years, with a compensating reduction in annual expenditure in all subsequent years. The evidence notes the “significant challenges” in introducing such a system beyond the fiscal impact, including the cost and complexity of its administration.

HMRC and HMT report on pension freedoms

Government figures published on 27 April 2016 show that over 230,000 people have used the new retirement freedoms introduced a year ago.

The data, covering the period April 2015 to March 2016, includes the number of flexible payments made from pensions, the number of individuals who have received a flexible payment and the total value of all flexible payments reported to HMRC. In this context, “flexible” is used as referring to partial or full withdrawal of the pension pot, taking money from a flexible drawdown account, or buying a flexible annuity.

The figures show that £4.35bn was paid out in 516,000 cash lump sum payments, with 74,000 individuals taking flexible payments in the first quarter of 2016. Pension Wise, the Government’s pension’s guidance service, is also recorded as having over 2.2 million visits to its website, and nearly 55,000 appointments to date.

The data was taken from information voluntarily reported to HMRC by pension scheme administrators over the period; mandatory reporting of pension flexibility payments only came into force from April 2016.

Pensions Ombudsman moves complaint process online

The Pensions Ombudsman Service announced on 27 April 2016 that it is moving its application process online, with individuals wishing to bring a complaint now able to submit their complaints using a form on the PO’s website.

Fiona Nicol, Casework Director at the Pensions Ombudsman Service said, “Our new online form means it’s now much quicker and easier for our customers to complete an application. The online form is the first phase of a project that will ultimately deliver a secure area for the website so future applicants can share supporting documentation more easily and create a profile allowing them to login to see how their application is progressing.”

TPR to publish list of GPPs open to all employers

On 26 April 2016, TPR announced that it is to publish a list of GPPs that are open to any employers seeking to comply with their automatic enrolment duties. GPP providers that meet set criteria can apply to appear on the new list.

The new list will sit alongside the list of independently reviewed master trusts which are also open to all employers, which is already available on the employers’ section of TPR’s website.

Executive Director for Regulatory Policy, Andrew Warwick-Thompson, said: “We have always been clear that for the hundreds and thousands of small and micro employers preparing to comply with automatic enrolment, a well-run master trust or a group personal pension is the best choice. The criteria for GPPs to appear on the new list are intended to mirror, as far as possible, the criteria for master trusts.”

TPR will provide a checklist setting out the criteria for GPPs to appear on the list, to include:

• the provider being regulated by the FCA (and PRA where applicable) for GPP provision
• all charges imposed on members in a default fund being within the charge cap
• the GPP being open to all employers who wish to use it to comply with their automatic enrolment duties regardless of projected membership numbers or contribution amounts
• confirming that their IGC or governance advisory arrangement (“GAA”) has assessed the GPP (or relevant GPP product series) under offer
• member communications including a clear description of how tax relief is delivered.

TPR warns employers not to ignore penalty notices

TPR issued a press release on 28 April 2016, to accompany their quarterly automatic enrolment compliance and enforcement bulletin, noting that employers who fail to heed 28-day warning notices risk a fine which increases each day.

While compliance rates remain high, TPR’s latest bulletin shows that the number of escalating penalty notices it issues is on the rise. Headline figures showed that:

• 806 fixed penalty notices were issued in first three months of 2016, bringing the total number issued since 2012 to 2,234
• 96 escalating penalty notices were issued this quarter, bringing the total issued to 127.

Charles Counsell, Executive Director for automatic enrolment, said: “It’s simply not fair for staff not to receive the pension contributions they are legally due. But failing to act also means an employer risks clocking up a significant penalty until they put things right. Our message remains that if things aren’t going well, then talk to us; don’t ignore us.”