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:

• Annual Allowance technical changes come into force
• Giving advice on the transfer of safeguarded pension benefits will be a FSMA regulated activity
• Government announces “second line of defence” for trust based pensions
• Government expands pension tracing service
• HMRC issues fifth Countdown Bulletin
• FCA outlines proposed additional consumer protection rules
• NAPF research shows 4.8 million people at risk of poor decisions after pensions reforms
• PPF Strengthens Risk Management with New Appointment
• TPR reaches £8.5m settlement in Carrington Wire case
• TPR fines employers for failure to comply with auto-enrolment obligations

Annual Allowance technical changes come into force

The Finance Act 2004 (Registered Pension Schemes and Annual Allowance Charge) (Amendment) Order 2015 came into force on 28 January 2015.  It includes provisions to:

• ensure that pension scheme administrators do not normally have to test deferred benefit rights against the AA
• address unintended outcomes for the ‘scheme pays’ facility and the treatment of certain transfers of pension pots
• ensure that the legislation applies fairly to individuals who may be subject to an AA charge.

Giving advice on the transfer of safeguarded pension benefits will be a FSMA regulated activity

On 29 January 2015, a draft of the Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) (No 2) Order 2015 was published.  The draft order will deliver the Government’s commitment to provide for advice on the conversion and transfer of “safeguarded” benefits (broadly DB benefits) into flexible benefits to be regulated by the FCA in accordance with the regulatory framework established by FSMA.

The commitment was made by the Government in its response to the consultation on “Freedom and choice in pensions” (see our Alert for details).  The government expects that the new DC flexibilities which will be available from April 2015 will lead to a greater demand for DB to DC transfers.  It therefore promised to introduce a requirement for all potential DB transferees to obtain professional advice before doing so.

The FCA will provide guidance to advisers about their obligations under this order as it relates to the provision of advice under the advice safeguard and will subsequently update their rules accordingly.

Government announces “second line of defence” for trust based pensions

On 27 January 2015, during the report stage of the Pension Schemes Bill in the House of Lords, it was announced that the DWP is working with TPR to consider how best to introduce a “second line of defence” for trust-based schemes (to give added protection to people making decisions about their pension pots and retirement income), on the same basis and timetable as that announced by the FCA (see above).

In addition, the government confirmed that it intends to exempt those with DB or “safeguarded” pensions wealth below £30,000 (the maximum amount that can be paid as a trivial commutation lump sum) from having to obtain advice on a transfer to a DC arrangement.

Government expands pension tracing service

On 1 February 2015, the DWP announced that the free government service that helps people find lost pension cash is undergoing a major expansion, ahead of April’s ground-breaking pension freedoms.

The Newcastle-based Pension Tracing Service (PTS) will triple its number of staff – taking the total headcount to 49 – ahead of an expected increase in the number of calls from people seeking help to find lost pension pots.

Independent research suggests that the most common reason for losing track of a pension is when an individual leaves an employer and does not keep them informed of any future changes of address.

Estimates suggest that there could be as many as 50 million dormant and lost pension pots by 2050.

HMRC issues fifth Countdown Bulletin

HMRC is issuing a series of bulletins in the run-up to the abolition of DB contracting-out on 6 April 2016.  On 28 January 2015, it published the fifth edition.

On 8 May 2014, the DWP issued a consultation asking for views on proposed legislative changes which follow on from the abolition of DB contracting-out, together with draft regulations (see our Alert for details).

One of the most significant implications of abolishing DB contracting-out is that both employers and employees will need to start paying the standard rate of NICs.

The Government recognises that this additional cost will be a blow for the sponsoring employers of the remaining open DB schemes.  It therefore decided to provide employers with a unilateral power to amend their schemes in relation to some or all of the members to take account of the increase in the employer’s NICs.  The power is set out in the Pensions Act 2014 (see our Alert), with the detail of how it may be applied in the draft underlying regulations.

Among other matters, in this latest edition of its countdown bulletin HMRC announces that it will be publishing the statutory override regulations in “early Spring”, as employers that might want to use the override will need to prepare their changes.  However, the Contracting-out Regulations (which will set out the rules which schemes that were contracted-out on a DB basis immediately before 6 April 2016 will need to comply with immediately afterwards) will not be published until after the General Election.

FCA outlines proposed additional consumer protection rules

On 26 January 2015, the FCA wrote to the Chief Executive Officers (CEOs) of pension providers to outline plans to introduce additional protection for those accessing their DC pension pot from April.

Under the new additional protection rules firms will be required to ask consumers about key aspects of the circumstances that relate to the decision they are making about their pension pot.  These include issues such as health and lifestyle choices or marital status.  This will come into force from April.

Providers will be required to give relevant risk warnings, such as warning of the tax implications of their decisions, in response to answers from consumers.  Firms must also further highlight the availability of the Government’s new Pension Wise scheme or regulated advice.

Christopher Woolard, director of strategy and competition at the FCA said:

“The decisions consumers make about what to do with their pension pot are important and in some instances these choices are irreversible.  We want to make sure that people have the help they need to make those choices.”

Firms will be required to deliver these messages in a direct and simple language which will be set out when the new rules are published.

NAPF research shows 4.8 million people at risk of poor decisions after pensions reforms

On 27 January 2015, the NAPF released new research commissioned to understand the practical experience and concerns of people aged 50 – 70 both still working and already in retirement.  The report, ‘The Unpredictability of Retirement’, identified three clear groups within this demographic: ‘Satisfied Sarah & Simon’; ‘Maggie & Malcolm in the middle’; and, ‘Pinched Penny & Paul’.  The research report looks at their attitudes to retirement and considers how they may be affected by the Government’s new pension reforms, ‘Freedom & Choice’, which start in April this year.

PPF Strengthens Risk Management with New Appointment

On 2 February 2015, the PPF announced the appointment of Hans den Boer as its Chief Risk Officer.

Hans has previously worked at Royal Bank of Scotland and ABN Amro in a number of senior risk management roles in the Netherlands, Australia, US and the UK.  In his new role, Hans will oversee all of the PPF’s risk functions and becomes a member of the Executive Committee.

The risks that the PPF faces are complex and varied.  It now has over £20 billion of assets under management and is directly responsible for paying compensation to 220,000 transferred members. Managing risk effectively is therefore key to the success of the PPF.

TPR reaches £8.5m settlement in Carrington Wire case

On 28 January 2015, TPR announced that an £8.5 million settlement had been reached with two Russian companies following an investigation into the Carrington Wire Defined Benefit Pension Scheme.

In November 2012, TPR issued a warning notice to three potential “targets”, indicating its intention to issue contribution notices in connection with the scheme.

This included two businesses domiciled in Russia – PAO Severstal and OAO Severstal-Metiz.

Following representations made by the various directly affected parties, including the Russian companies, the matter was passed to TPR’s Determinations Panel in June 2014.  An oral hearing was scheduled to take place in January this year.

Shortly before the hearing was due to take place, an offer was made by the Russian companies to pay the sum of £8.5 million to the scheme.  TPR agreed that if that sum was paid, it would withdraw its case against the Russian companies.

The funds have subsequently been paid to the scheme and, accordingly, TPR is no longer seeking contribution notices in relation to the Russian companies and this brought an end to the proceedings against them.

A hearing in relation to the third target is expected to take place later this year.

The settlement sum and the funds sought from the third target will not be sufficient to allow the scheme to avoid entry into the PPF.  TPR expects the scheme to complete its assessment period and enter the PPF once the case is concluded.

TPR fines employers for failure to comply with auto-enrolment obligations

The total number of employers fined for failing to comply with their workplace pensions duties reached 169 by the end of 2014, according to figures released by TPR on 28 January.

The latest automatic enrolment compliance and enforcement bulletin includes details of how many times it has used its statutory powers.

Key points from the bulletin include:

• Approximately 30,000 medium sized employers, (those with approx 62 – 149 workers), who staged in April-July had reached their deadline to complete their declaration of compliance by the start of December 2014.
• A total of 166 Fixed Penalty Notices (£400 fines) were issued in the last three months of the year.
• The number of compliance notices issued also rose with 1,139 notices issued. These notices instruct an employer to remedy a contravention of one or more of their employer duties or risk a fine or further action from TPR.
• A significant number of the notices issued in this period were to employers who had missed their deadline to submit their declaration.