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:

• Taxation of Pensions Bill
• Pension Schemes Bill 2014-15
• Better workplace pensions: Putting savers’ interests first
• Guidance delivery plans
• DWP recruiting new Pensions Ombudsman and Deputy PO
• DWP statistics show private sector pension saving is on the rise with young people
• Workplace pensions automatic enrolment: review of earnings threshold
• HMT introduces the guidance guarantee
• NAPF publishes first results from new research series
• NAPF unveils three new ‘made simple’ guides for pension funds
• EIOPA publishes Consultation Paper on further work on solvency of IORPs
• PPF publishes further valuation guidance to reflect amended definition of Money Purchase Benefits
• New chairman sets out priorities for TPR
• Chartered Insurance Institute publishes research on what consumers want from the guidance guarantee

Taxation of Pensions Bill

The Taxation of Pensions Bill was formally published on 14 October 2014 (see our Alert for details).  It is designed to implement the changes to the pensions tax rules first announced in the 2014 Budget (see our Alert), with a view to giving individuals greater flexibility to access their DC pension savings.

Key points include:

• The Bill will amend pensions tax legislation to give individuals greater flexibility to access their DC pension savings.
• Additions to the Bill since the August draft (see our Alert for details of the original draft) include new provisions on the tax treatment of pension funds at death, international pensions and reporting requirements.
• The Government remains on track to introduce the changes from 6 April 2015.

On the same day, HMRC issued an updated Tax Information and Impact Note regarding the new measures.

Pension Schemes Bill 2014-15

The DWP has published two documents relating to the Pension Schemes Bill 2014-15:

• a Keeling version of the Pension Schemes Bill 2014-15. A Keeling version shows the original legislation as well as the amendments, making it easier to assess the changes. Keeling versions are only produced for Bills which make substantial changes to earlier legislation
• an information note about the Bill for members of the Pension Schemes Bill Public Bill Committee and witnesses providing oral evidence the Committee stage, as well as members of the public. The DWP says that it will publish more information notes as the Bill progresses through Parliament.

Better workplace pensions: Putting savers’ interests first

In March 2014, the DWP published a Command Paper, “Better Workplace Pensions: Further measures for savers” (for details, please see our Alert).  The Command Paper set out a range of measures to meet that responsibility, including:

• a cap on charges in default fund arrangements
• a ban on inappropriate charges
• proposals to introduce minimum governance standards and improve transparency across workplace DC schemes. Subject to Parliamentary approval, the majority of this legislation will come into force from April 2015, alongside the FCA’s rules in relation to workplace pension schemes, where appropriate.

On 17 October 2014, the DWP issued the Government’s response to the consultation on minimum governance standards and on two questions on transparency. At the same time, it has launched a consultation on draft regulations on governance and charges in occupational pension schemes. The consultation will close on 14 November 2014.  We will be publishing an Alert with further details shortly.

TPR has issued a statement on the Command Paper.

Guidance delivery plans

Following the reforms outlined in this year’s Budget, the government has announced that pensions guidance will be provided by the Citizens Advice Bureau and TPAS from next April. Citizens Advice will give face-to-face guidance, while TPAS will provide advice over the telephone. The Government will also produce an online service.

DWP recruiting new Pensions Ombudsman and Deputy PO

The DWP will shortly commence recruitment for a new Pensions Ombudsman and a Deputy Pensions Ombudsman. Tony King, the current Ombudsman, will stand down from his post in late spring 2015. Jane Irvine’s second term as Deputy Ombudsman ends next autumn.

DWP statistics show private sector pension saving is on the rise with young people

On 15 October 2014, the DWP published statistics which show that there were 6.7 million eligible workers in the private sector saving in a pension in 2013 (46%), up from 5.9 million (42%) in 2012.

Young people working in the private sector showed the largest increase in the proportion saving into a pension, growing more than any other age group – 30% of those aged 22 to 29 saved in 2013 compared with 24% in 2012.

But growth in the number of pension savers was seen across all age groups, including those aged 50 to SPA.

Other findings include:

• £39.7 billion worth of pension saving in the private sector in 2013; £11.3 billion in employee contributions; £24.5 billion in employer contributions, and £3.9 billion in tax relief
• total annual amount saved in private and public sector pensions stood at £77.6 billion, up from £73.3 billion in 2012
• sectors with the highest private sector pension participation in 2013 were energy and water (74% – up from 64% in 2012), transport and communication (55%), and manufacturing (53%)
• private sector pension saving rose across all occupations. The biggest increases were in sales and customer service occupations from 27% to 42% (a 15 percentage point rise) and a 6 percentage point rise for elementary occupations from 20 to 26%
• there was a 4 percentage point rise for both men and women saving in private sector schemes with 47% of men and 44% of women saving in 2013
• automatic enrolment started with the biggest employers first and private sector firms with 5,000 or more staff have 64% saving, up from 49% in 2012
• pension saving in the public sector remained high at 5.0 million (90%).

Workplace pensions automatic enrolment: review of earnings threshold

Automatic enrolment means that employers must enrol all workers into a workplace pension if they meet certain conditions.

How much someone earns helps to decide:

• whether they will be enrolled into a workplace pension
• the minimum amount they must pay into the pension

The government reviews these earnings levels every year. On 15 October 2014, the DWP published a consultation to seek views on:

• what it should take into account when reviewing the earnings thresholds for April 2015 to March 2016
• the proposed earnings levels for April 2015 to March 2016.
• The consultation closes on 25 November 2014.

HMT introduces the guidance guarantee

On 16 October 2014, HMT published a short note to explain that the government is setting up a new guidance service to help people understand what they can do with their pension pots when they retire.

It states that that guidance guarantee will tell people about:

• the different pension types and how they work
• what you can do with your pension pot
• what’s tax-free and what’s not.

NAPF publishes first results from new research series

On 16 October 2014, the NAPF released the first results of its new research series ‘Understanding Retirement’.

The research revealed the twenty million people in the 50-70 year old age group have a much more varied experience of retirement than might have been expected. It shows that despite the Government’s ambition to support over-50s in the UK labour market, more than two million 50-70 year old retirees are looking for suitable work but cannot find it.

NAPF unveils three new ‘made simple’ guides for pension funds

On 16 October 2014 the NAPF launched three new Made Simple Guides covering Exchange Traded Funds, Smart Beta and Private Equity.  The guides are designed to explain some of the most complex and technical areas of investment and pensions management in accessible, jargon-free language for pension schemes.

EIOPA publishes Consultation Paper on further work on solvency of IORPs

In July 2013, EIOPA published the results of the quantitative impact study (QIS) on Institutions for Occupational Retirement Provisions (IORPs), conducted by EIOPA at the request of the European Commission.

The QIS outcomes showed the need for further work towards a European prudential regime that is market-consistent and risk-based, providing an objective and transparent view of the financial situation of IORPs and promoting proper risk management, including sound asset and liability management techniques. The results also made clear that a methodology like the holistic balance sheet is needed that allows for the specificities of occupational pension provision.

EIOPA also concluded in its final report that it is not yet in a position to fully assess the practicality of the holistic balance sheet. The QIS introduced and tested a number of new concepts and approaches and, as expected, considerable practical difficulties were encountered.  In many cases it was not possible to satisfactorily resolve issues that were identified before and during the QIS exercise.

The Commission noted that further technical information is needed before taking a decision on any European initiative on solvency of pension funds. EIOPA, on its own initiative, committed to undertake further work to resolve these matters.  This work is not related to the Commission’s proposal for a revision of the IORP Directive, adopted on 27 March 2014 (for further details please see our Alert).

On 13 October 2014, EIOPA published a consultation which sets out the initial results of this further work.  The five areas identified by EIOPA for initial attention and examined in the work presented in this document are:

• valuation of sponsor support
• valuation and recognition of benefit reduction mechanisms
• valuation of discretionary decision-making processes
• definition of contract boundaries
• specification of supervisory responses.

As a next step, EIOPA intends to produce draft technical specifications for such an assessment by early 2015. Following the impact assessment, it will develop, on its own initiative, technical advice to the European Commission on EU solvency rules for IORPs.

The consultation closes on 13 January 2015.

PPF publishes further valuation guidance to reflect amended definition of Money Purchase Benefits

Following its update of the section 179 guidance after the new definition of money purchase benefits came into effect, the PPF has updated its guidance on other types of valuation.

The updates now cover other types of valuation which include:

• Section 143 valuations – used to determine whether a scheme should enter the PPF following an insolvency event.
• Section 152 valuations – for schemes that are re-applying for entry to the PPF, having carried out a s143 valuation with a surplus and been unable to secure PPF compensation levels on the annuity market.
• Section 156 valuations – carried out periodically by schemes which carried out a s143 valuation with a surplus, were unable to secure annuities for members and operate as closed schemes outside of the PPF.

The PPF has also updated its booklet; ‘additional information for carrying out a Section 143 valuation’ to assist scheme actuaries and trustees.

On 24 July 2014 the new definition of money purchase benefits came into force following the Pensions Act 2011 (for details, please see our Alert).  This required certain benefits that were previously treated as money purchase and therefore not eligible for PPF protection to be included in PPF valuations.  The updated guidance on s143, s152 and s156 valuations will assist schemes that are currently in or have completed a PPF assessment period.

The valuation guidance update also reflects the correct treatment of demographic hedging arrangements, such as longevity swaps.

Finally, the PPF has released a new version of the s143 Data and Liability spreadsheet which will allow actuaries to submit valuations reflecting the new mortality assumptions as set out in version B6 of the s143 assumptions guidance.

New chairman sets out priorities for TPR

On 16 October 2014 Mark Boyle, TPR’s chairman, announced plans to publish a series of guides in the New Year to help support trustees of DC schemes once the details of proposed pension reforms are confirmed by Government.  The guides will cover areas such as minimum governance standards, charge controls and changes to decumulation.

Chartered Insurance Institute publishes research on what consumers want from the guidance guarantee

On 13 October 2014, the Chartered Insurance Institute published a report which summarises consumer views towards the government’s guaranteed guidance proposals for retirement. The research was targeted at people expected to use the service and reports on over 1000 consumer views.