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

• Draft Finance Bill 2016
• EIOPA publishes Financial Stability Report
• HMRC updates Pensions Tax Manual
• HMRC publishes Pension Schemes Newsletter 74
• HMRC publishes draft Income Tax (Pay As You Earn) (Amendment) Regulations 2016
• Legislative amendment on mandatory advice for secondary market in annuities tabled
• PLSA publishes Five Year Trend Data
• PLSA launches “Made Simple” guide on “at retirement services”
• TPR issues Integrated Risk Management guidance
• TPR calls on public service schemes to raise standards
• Work and Pensions Committee investigate automatic enrolment

Draft Finance Bill 2016

On 9 December 2015, the Government published draft clauses for the Finance Bill 2016 (“the Bill”) for consultation, with a view to introducing a number of provisions that were announced by the Chancellor in the Summer Budget 2015 and the Autumn Statement.  The draft clauses of the Bill cover:

• the reduction of the LTA with effect from 6 April 2016, from £1.25 million to £1 million, and the introduction of transitional protections for those with pension rights already at or around the £1 million mark
• simplification of the test that takes place when a dependant’s scheme pension is payable
• ensuring that a charge to inheritance tax will not arise when a pension scheme member designates funds for drawdown but does not draw all of the funds before death
• aligning the pensions tax rules on bridging pensions with DWP legislation

Please see our Alert for further details. The closing date for comments on the draft legislation is 3 February 2016.

EIOPA publishes Financial Stability Report

EIOPA published its second biannual report covering financial stability in the occupational pension fund sectors of the EEA on 9 December 2015.

The report identifies the persistent low interest rate environment as affecting the solvency position of pension funds and “challenging the sustainability of their commitments”, whilst noting that the search for yield – with pension funds investing beyond traditional asset classes and increasing the diversification of their holdings – could also increase the risk profile of investments.

HMRC updates Pensions Tax Manual

On 8 December 2015, HMRC published its long awaited update to the new PTM, which replaces the draft published in March 2015, and the preceding Registered Pension Schemes Manual.

Some changes to the content have been made since March 2015, including in relation to the new retirement flexibilities introduced in April 2015 by the Finance Act 2015.  It has not however yet been updated to cover matters enacted by the Finance (No. 2) Act 2015 (for example, the AA taper from April 2016 and transitional rules for PIPs); these changes will be included in a future update.

The formatting of the PTM has been improved, some minor corrections have been made to the content, and a search facility has been included.

HMRC publishes Pension Schemes Newsletter 74

On 11 December 2015, HMRC published Pension Schemes Newsletter 74. Among other things, it includes information on:

• the Autumn Statement
• relief at source – annual returns of individual information for 2014 to 2015
• the reduction in the LTA at 6 April 2016, and sample member communications in relation to this, plus the process in relation to transitional protections
• Double Taxation/Certificate of Residence requests
• how pension flexibility payments made to trustees in bankruptcy are taxed and reported
• the publication of the updated PTM (see above), including a list of all material changes made (see Appendix 2 of the Newsletter)
• draft AA reporting regulations (to be published in the new year)

HMRC publishes draft Income Tax (Pay As You Earn) (Amendment) Regulations 2016

On 9 December 2015, HMRC published draft regulations and a draft explanatory memorandum for consultation.

The draft regulations will make changes to the PAYE regulations, as a consequence of the introduction of the retirement flexibilities, and the changes in the taxation of lump sum death benefits following the changes made in Finance (No. 2) Act 2015.  The changes will require pension providers to indicate in their real time information returns to HMRC whether the payment they are making includes a payment of a certain type.

Providers will be required to report the following payments to HMRC:

• a flexible access payment under a DC arrangement including an UFPLS, a flexible lifetime annuity, a withdrawal from a member’s FADF, and a payment of scheme pension from a money purchase arrangement where there are fewer than 12 members. This will help HMRC know that the money purchase AA applies in the case of the individual
• lump sum death benefit payments made to an individual where the member died after the age of 75. Currently, these are usually subject to a 45% special lump sum death benefits charge, but from 6 April 2016 they will generally be taxed at the individual’s marginal rate. This information will enable HMRC to monitor the impact of the changes to the taxation of lump sum death benefits.

Any comments on the draft regulations should be made by 8 January 2016, with the draft regulations intended to come into force on 6 April 2016, in relation to payments made on or after that date.

Legislative amendment on mandatory advice for secondary market in annuities tabled

On 9 December 2015, HMT published a policy paper relating to mandatory advice for the secondary market in annuities.

The paper notes that the Government has tabled an amendment for mandatory advice for those with higher value annuities through the Bank of England and Financial Services Bill 2015-16, to form a new section of FSMA 2000.  The amendment intends to:

• compel the FCA to make rules requiring certain authorised firms to check that holders of a relevant annuity have received appropriate financial advice before they can sell their annuity
• provide HMT with delegated powers to determine what a “relevant annuity” is, including what the threshold should be, how it should be calculated, and whether it should take into account an individual’s circumstances
• give HMT delegated powers to specify what is meant by “appropriate financial advice”.

The approach is consistent with that taken to the advice requirement for individuals considering whether to transfer from DB to DC pensions, as set out in the Pension Schemes Act 2015.

A consultation on secondary legislation setting out details of how the advice requirements will operate will follow in due course.

The draft Finance Bill 2016 (see above) confirmed that measures to introduce the secondary market for annuities, removing the current pensions tax restrictions on individuals seeking to sell their right to future annuity income, will be contained in the Finance Bill 2017, and that further details will be included in the Government’s response to its consultation (issued alongside the March 2015 Budget), due to be published in December 2015.

PLSA publishes Five Year Trend Data

On 8 December 2015, the PLSA published five year trend analysis based on input from 63 of its fund members, representing £243bn in assets under management in 2015 and 2.8 million members, who responded to its Annual Survey every year between 2011 and 2015.

The data highlights the continued shift from DB to DC pension provision over the five years, with 60% of the sample’s active scheme membership in DC (40% in DB) compared with just 32% in 2011 (68% in DB) .  The PLSA notes that almost half (48%) of DB schemes are closed to both new employees and future accrual, compared with 31% in 2011.

PLSA launches “Made Simple” guide on “at retirement services”

The PLSA published the latest in its “Made Simple” series, with a guide to “at retirement services” launched on 8 December 2015.  The guide aims to help pension schemes understand the new choices facing savers following the introduction of the retirement flexibilities in April 2015, and identify where schemes can provide help and support.

TPR issues Integrated Risk Management guidance

Integrated Risk Management is the focus of TPR’s latest guidance.  Published on 8 December 2015, it sits alongside the code on funding defined benefits, which applies to schemes with effective valuation dates from 29 July 2014 onwards (Great Britain) or from 29 July 2015 (Northern Ireland).

The concepts outlined in the guidance are not new, but are designed to provide practical help to trustees on what a proportionate and integrated approach to risk management might look like, and to explain how they could go about putting one in place.

For further details, please see our Alert.

TPR calls on public service schemes to raise standards

TPR issued a press release on 10 December 2015 warning public service pension schemes to improve their standards of governance as new figures suggest that, despite progress being made, less than a third have a plan of action to ensure they are meeting their new legal duties.

The figures come from a survey published by TPR on the same date, which assessed what schemes are doing to meet the requirements, and also the standard to which they are being run.  The survey found that, for example, while nine in ten respondent schemes had made progress in establishing a pension board, only 28% had a plan in place and were addressing key issues to ensure they complied with the requirements introduced by the Public Service Pensions Act 2013.

Andrew Warwick-Thompson, Executive Director at TPR noted that while there had been “some encouraging progress”, TPR’s research revealed “a concerning picture of some public service schemes failing to engage fully with the requirements on governance and administration”.

Work and Pensions Committee investigate automatic enrolment

The Work and Pensions Committee announced on 14 December 2015 that it had launched an inquiry into automatic enrolment.  The Committee invites written submissions on the implementation of automatic enrolment and, in particular, the effects on small and micro employers.

The deadline for receipt of submissions is Wednesday 3 February 2016.