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:

• FCA and DWP publish call for evidence on transaction costs
• Consultation on changes to the law on investments in occupational pension schemes
• DWP announces that pension saving is at a record high
• FRC amends FRS 102 relating to pension obligations
• FCA publishes final rules for charges in workplace pension schemes
• FCA publishes rules on retirement risk warnings
• Equitable Life Payment Scheme: February 2015 progress report

FCA and DWP publish call for evidence on transaction costs

On 2 March 2015, the FCA and the DWP published a joint call for evidence on the disclosure of transaction cost information for workplace pension schemes.

From April 2015, Independent Governance Committees (IGCs) and pension scheme trustees will be required to report annually on the costs and charges involved in managing and investing the pension pots of scheme members.  Please see our Alerts, Final rules for independent governance committees and Better workplace pensions – response to consultation for further details.

The FCA and DWP are seeking views to feed into the next phase of this work, which will look at how information about transaction costs should be reported in a standardised, comparable format.

The joint call for evidence is asking for evidence on:

• what costs should be included in the transaction cost reporting
• how such costs should be captured and reported
• whether information about other factors that impact on investment return should also be provided
• how IGCs and trustees will receive costs information and whether additional disclosure requirements on other parties are necessary to enable this
• when, how and in what format members and/or other prescribed persons should receive transaction cost information.

The consultation closes on 4 May 2015.

Consultation on changes to the law on investments in occupational pension schemes

On 27 February 2015, the DWP published a consultation to seek views on recommendations made by the Law Commission on the law governing investments in occupational pension schemes.  These recommendations were made in the Law Commission’s report on Fiduciary Duties of Investment Intermediaries (see our Alert for details).

The recommendations cover two main themes:

• the difference between financial and non-financial factors when taking decisions about investments
• the role that a “stewardship” approach can play when taking decisions about investments.

The consultation closes on 24 April 2015.

DWP announces that pension saving is at a record high

According to new data published on 26 February 2015 by the Office for National Statistics, pension membership is rising across all age groups.

The annual survey of hours and earnings statistics, which reflect the picture in 2014, show that:

• 59% of all workers are active members of a pension scheme, up from 47% in 2012
• 49% of private sector employees are active members of a pension scheme, up from 32% in 2012
• pension membership has risen across all age groups, the largest increase being in the 22 to 29 age group, up to 53% from 36% in 2013
• pension membership has increased for every earnings band in the private sector for full-time employees.

FRC amends FRS 102 relating to pension obligations

On 27 February 2015, the FRC issued Amendments to FRS 102 – Pension obligations to clarify aspects of the accounting for DB pension plans by UK and Irish entities.

The amendments are intended to enable sponsoring employers reporting under UK and Irish GAAP to continue with current practice in accounting for DB pension schemes.

Specifically:

• no additional liability need be recognised for a “schedule of contributions” that has been agreed in order to address a plan deficit when the deficit itself has already been recognised, and
• the effect of not recognising an irrecoverable surplus in a DB plan is shown in other comprehensive income, rather than profit or loss.

The amendments have the same effective date as FRS 102, and are applicable to accounting periods beginning on or after 1 January 2015.

FCA publishes final rules for charges in workplace pension schemes

On 2 March 2015, the FCA confirmed final rules which will require firms providing workplace pension schemes used by employers for automatic enrolment to implement a 0.75% charge cap for default funds, with effect from 6 April 2015.

Under the new rules, firms will also be prevented from paying or receiving consultancy charges and paying commission for advice not expressly agreed by scheme members.  Firms will also be prevented from charging active and deferred members of schemes differently based on whether they are contributing to the scheme or not.

The FCA has been working closely with the DWP to ensure that all members benefit from the same good quality standards regardless of what type of workplace pension scheme they are a member of.  Similar regulations will be introduced with effect from 6 April 2015 by the DWP to ensure value for money in relevant occupational pension schemes.  (These regulations have been laid before Parliament, see our Alert for details).

FCA publishes rules on retirement risk warnings

New pension freedoms for consumers with DC pension savings will be introduced from 6 April 2015.  In January 2015, the FCA announced that it would require firms (for example, those providing retirement income products) to provide consumers with “risk warnings” based on individuals’ circumstances so that they can make an informed decision on their retirement income.

On 27 February 2015, the FCA published new rules on retirement risk warnings.  Firms are already required to provide risk warnings.  However, these changes will require them to personalise those warnings to the individual and the choice he/she is making by asking a series of questions and actively engaging with the customer.  The FCA’s rules are intended to achieve a fair balance between protecting consumers and addressing valid concerns from firms about their ability to comply from 6 April 2015.

The new personalised risk warnings must now be given to customers when they contact a firm to access their pension savings.  The risk warnings will support the guidance by the Government’s “Pension Wise” service.  One of the key purposes of the retirement risk warnings is to encourage people who have chosen not to seek regulated advice to consider their options carefully before making an irreversible decision.

Firms should consider a number of issues when designing appropriate risk warnings, for example:

• the state of a consumer’s health
• tax implications
• the impact on means-tested benefits, and
• investment scams.

Firms will need to keep records to show that consumers have received relevant warnings and whether they have taken regulated advice or guidance from Pension Wise.

The FCA is introducing the rules without consultation.  However, it has confirmed that it will undertake a review of “at retirement” rules in the summer of 2015 and will consult at that time on whether any changes need to be made to the risk warning rules.

TPR will be publishing complementary guidance for trustees following the laying of amendments to the Disclosure regulations before Parliament (see our Alert).  The guidance will provide clarity for trustees on the new requirements to signpost pensions guidance.  In addition, it will set out TPR’s expectations of trustees in relation to the provision of information to their members on the generic risks of the decumulation options.

Equitable Life Payment Scheme: February 2015 progress report

On 24 February 2015, HMT published a summary of payments made under the Equitable Life Payment Scheme and an update on the effort to trace policyholders.