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:

• Further details on the removal of the 55% tax charge on passing on pensions at death
• Employment review launched to improve clarity and status of British workforce
• DWP consults on draft laws to remove restrictions on NEST
• HMRC updates the RPSM
• NAPF and PMI agree to discuss possibility of a merger
• PPI publishes Briefing Note 70: Class 3A voluntary National Insurance (NI) contributions
• PPF Announces Levy Estimate for 2015/16 and consultation for new levy determination under the Pensions Act 2004
• PRA consults on changing policyholder protection rules
• New lead investment consultant joins TPR

Further details on the removal of the 55% tax charge on passing on pensions at death

On 29 September 2014, the Chancellor announced that, from April 2015, individuals will have the freedom to pass on their unused DC pension to any nominated beneficiary when they die, rather than paying the 55% tax charge which currently applies to pensions passed on at death (see 7days).

HM Treasury has now published a note which provides further details on this change.

HMT and HMRC plan to discuss the technical detail further with industry stakeholders prior to final legislation.

Employment review launched to improve clarity and status of British workforce

The Business Secretary, Vince Cable, launched a wide-ranging employment review on 6 October 2014.  The aim of the review is to help clarify and potentially strengthen the employment status of up to a million British workers.  This follows the recent review and upcoming legislation of zero hour contracts, which revealed that an increasing number of people in the UK could be on “worker” employment contracts which give rise to fewer basic rights (such as unfair dismissal or maternity pay) than “employee” contracts.

In many instances workers are not aware of their employment status and therefore what employment rights they are entitled to. Many employers are also unsure what rights their workforce is entitled to, running the risk of legal challenge if they get something wrong.  As a result, the government is also unable to collect meaningful data and get a complete picture of the overall workforce.

BIS intends to determine:

• how clear the current employment framework is
• what the options are to extend some employment rights to more people
• whether there is scope to streamline this very complex area of employment law to simplify and clarify rights for both employers and employees.

Interim findings are expected by the end of the year, with the hope that recommendations for next steps will be submitted to ministers by March 2015.

DWP consults on draft laws to remove restrictions on NEST

The government intends to remove the annual contribution limit and transfer restrictions on pension scheme held within NEST.

The move will help the staff of more than 8,900 employers which currently administer their pension schemes through NEST to save more for their retirement than the current £4,600 a year cap allows. Under the plans, these workers will also gain the same transfer rights as other schemes, helping them to consolidate their savings if they wish. The consultation, which runs until 29 October 2014, invites views on the draft legislation that will remove the restrictions.

NEST was set up by the government to support automatic enrolment by providing a quality, low cost pension scheme, primarily for smaller employers, in a market which at the time was deemed unprofitable by many private sector providers. The restrictions were originally imposed to ensure NEST focused on its target market.  They were cited by the European Commission as reinforcing how government sought to minimise any competitive advantage that could be gained by NEST through its state aid.

But, reflecting changes in the market since then and the disadvantage caused to NEST savers by these two constraints, last year the government announced its intention to lift them from 2017. In September 2014, the European Commission confirmed it would not oppose the move.

HMRC updates the RPSM

HMRC has published details of its recent amendments to the RPSM. These include changes made in response to the Finance Act 2014 (see our Alert), for example in relation to HMRC’s new powers to prevent the registration of pensions liberation schemes.

NAPF and PMI agree to discuss possibility of a merger

On 10 October 2014, the NAPF and the Pensions Management Institute (PMI) announced their formal intention to discuss a possible merger of the two organisations.

The two organisations consider that joining forces would create a stronger voice for pensions and retirement benefits in the workplace; bringing together the NAPF’s ability to influence and engage with Government and regulators with the PMI’s comprehensive and innovative qualifications network.

The NAPF and the PMI will now assess, in detail, the possibility and nature of a potential merger. Once this process has been completed both organisations will update their members and the wider pensions sector.  In the interim, both organisations will continue to pursue their respective strategic priorities and represent their members.

PPI publishes Briefing Note 70: Class 3A voluntary National Insurance (NI) contributions

The DWP has recently outlined plans to introduce Class 3A voluntary National Insurance contributions, which will be called the State Pension top-up. Under these proposals individuals who reach SPA by April 2016 (the date of implementation of the single-tier pension) will be able to make voluntary National Insurance contributions to purchase extra additional State Pension. This briefing note, published by the PPI on 9 October 2014, provides an overview of proposals around Class 3A National Insurance contributions and assesses the implications of these for individuals who have accrued small amounts of additional State Pension.

PPF Announces Levy Estimate for 2015/16 and consultation for new levy determination under the Pensions Act 2004

On 6 October 2014, the PPF announced that the levy estimate for 2015/16 would be set at £635m, nearly ten per cent lower than the 2014/15 estimate.

The levy estimate was published as the PPF announced the proposed levy rules for 2015/16 following its consultation that ran between May and July this year (see our Alert for details).

The recent consultation on the PPF’s plans for the levy, over the next three years, attracted the highest number of responses to a consultation since 2005/06. There was strong stakeholder support for the move to Experian (the PPF’s new insolvency risk provider) and the new PPF specific model for assessing insolvency risk, confirming the PPF approach.  In response to the feedback, the PPF has made changes which aim to further enhance the proposals.

The enhancements include:

• amended rules on how the model reflects mortgages – ensuring mortgages that are not relevant to insolvency risk are excluded
• a revised approach to asset backed contributions (ABCs) – the PPF will now recognise all asset types not just UK property, provided the ABC is valued in a way that reflects the value to the PPF in the event of insolvency.

The PPF also published the draft Levy Rules. As part of the consultation, the PPF is seeking specific feedback on the identification of secured charges which are immaterial and an extension to guidance in relation to ABCs.  The consultation on the levy rules runs to 13 November 2014.

In addition, the PPF urged trustees and employers to log on to the portal to check their data, even if they have done this previously, as the changes which have been made may affect some scores.  The PPF wants all employers and pension scheme trustees to understand their scores and be appropriately prepared before the scores are used from 31 October 2014.

We will be publishing an alert on the consultation response and the PPF’s latest proposals shortly.

PRA consults on changing policyholder protection rules

On 6 October 2014, the PRA issued a consultation paper on changing its rules on insurance policyholder protection (CP21/14).

The PRA’s proposals aim to align the existing insurance compensation rules more closely with the PRA’s statutory objectives, and will contribute to the future operational effectiveness of the FSCS in providing continuity of cover, payment of benefits falling due and compensation in the event of the failure of an insurance firm.

In summary, the proposals are:

• FSCS insurance limits: increased limits for compensation for certain insurance products to reflect the significance to policyholders of the risk insured and the consequences of cover being withdrawn.
• Successor firms: FSCS protection to be provided post-transfer for policyholders who have outstanding protected claims against an insurer whose claims were covered by the FSCS before their policies transferred to a successor firm.
• Assignment and subrogation: flexibility for the FSCS in the way it seeks recoveries from failed insurers and third parties after paying out compensation, through new powers of automatic and electronic assignment and automatic subrogation of policyholders’ rights.

The consultation will close on 6 January 2015.

New lead investment consultant joins TPR

On 7 October 2014, TPR announced the permanent appointment of Fred Berry as lead investment consultant.

Mr Berry joins TPR most recently from Mercer where he was a principal in the investments business. He has more than 20 years’ experience in the pensions and investment industry and will be supporting the regulator’s activities across DB and DC pension schemes.

Mr Berry took up the position on 1 September 2014. He is the first person to hold the post.