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

• Bank of England and Financial Services Act 2016 (Commencement No 2) Regulations 2016 published
• New Pension Tracing Service launched
• Mis-selling: Public Accounts Committee report published
• Work and Pensions Select Committee publish report on automatic enrolment
• TPR publishes annual DB funding statement
• Pollock v Reed (High Court) – 18 December 2015

Bank of England and Financial Services Act 2016 (Commencement No 2) Regulations 2016 published

The Bank of England and Financial Services Act 2016 (Commencement No 2) Regulations 2016 (SI 2016/579) were made on 12 May 2016, bringing section 32 of the Act into force on the following day.

Section 32 of the Bank of England and Financial Services Act amends FSMA to extend the scope of the Pension Wise service, so that pensioners who are able to sell their annuity income on the secondary market (which is due to come into effect from April 2017) can access free, impartial guidance.

New Pension Tracing Service launched

On 9 May 2016, the Pension Tracing Service launched a new DWP website with the aim of helping people find their lost pension savings more quickly and easily.

It is thought that currently there is around £400 million in unclaimed pension savings. The free website enables people to search a database of more than 320,000 pension scheme contact details.

Mis-selling: Public Accounts Committee report published

On 13 May 2016, the Public Accounts Committee published a report on “financial services mis-selling: regulation and redress”.

Although wide in scope, the report mentions “pension freedoms reforms” as “a potential trigger for future mass mis-selling”. It notes that financial services are not easy to understand, even for the most knowledgeable consumers, and therefore product innovation while “welcome” can make mis-selling more likely.

The Committee therefore makes a number of recommendations, including that the FCA should set out what more it will do to ensure firms check consumer understanding of the products they purchase. The FCA is asked report back to the Committee on its work in a year’s time.

Work and Pensions Select Committee publish report on automatic enrolment

In a report released on 15 May 2016, the Work and Pensions Select Committee says that automatic enrolment has been a “success story”, but that there are concerns over where those funds are being invested (in particular, in relation to “potentially unstable master trusts”).

The report also expresses concerns that the new Lifetime ISA (“LISA”), announced in the Budget 2016, will distract from the aims of automatic enrolment, with employees potentially opting out of their workplace scheme to put savings into a LISA. The report asks that the Government conduct urgent research on any effect of the LISA on automatic enrolment and report on this before the 2016 Autumn Statement.

The report notes that employers need more clarity as to their liability if their chosen pension fund for automatic enrolment were to perform badly, or fail. It calls upon the Government to give further support to the small and micro-employers now moving to auto-enrol, including in expanding “Basic PAYE Tools” to support small businesses in meeting their obligations without additional cost.

We await the Queen’s Speech on 18 May 2016 for announcements in relation to pensions. Work and Pensions Committee Chairman Frank Field has written to Chancellor George Osborne calling for the inclusion of a new Pensions Bill to meet “gaps in the regulatory framework”. And, appearing before the Select Committee, Work and Pensions Secretary Stephen Crabb implied that an announcement on master trust legislation could be expected, stating that he “would perhaps encourage members to follow what Her Majesty says.”

TPR publishes annual DB funding statement

On 13 May 2016, TPR published three documents of relevance to trustees and sponsors of DB pension schemes:

• the latest annual DB funding statement
• a summary presentation to highlight the key messages, and
• a forward looking analysis of “tranche 11” valuations (valuations between September 2015 and September 2016), which provides evidence to support the messages in the 2016 statement.

The annual funding statement is primarily aimed at schemes undertaking tranche 11 valuations, but is relevant to all trustees and sponsoring employers of DB schemes.

The statement notes that deficits for many schemes will be larger than expected and that most schemes will need to make changes to their recovery plan. TPR’s supporting analysis indicates that the majority of sponsors should be able to increase contributions to maintain the existing recovery plan end date, with its modelling suggesting that the median increase in deficit reduction contributions (DRCs) required to achieve this (as a proportion of current DRCs) would be in the region of 75% to 100%. TPR notes that “for the majority of sponsors, the revised DRCs compared to their profits appear to be relatively low and/or no higher than at their scheme’s last valuation”, meaning that the “increase may be affordable for the majority of sponsors without materially affecting their plans for sustainable growth”.

TPR also highlights the “extensive guidance” that it already provides to support trustees and employers in reaching sensible funding agreements, in particular the code of practice on DB funding, its covenant guidance and guidance on integrated risk management.

TPR notes that it is planning to publish a review of the first tranche of schemes carrying out valuations under the revised DB funding code of practice, and that it will consider whether a further statement is necessary following the results of the EU referendum.

Pollock v Reed (High Court) – 18 December 2015

A company in severe financial difficulty sought to restructure its pension liabilities to preserve its business and to avoid its pension scheme entering the PPF. The proposed restructure depended on the legal meaning of the legislation governing the bulk transfer of members without consent. Sackers acted for the trustees of the pension scheme.  Ultimately, the High Court was unable to approve the bulk transfer, on the basis that it would not meet the requirements of the Preservation legislation.

For further details, please see our case report.