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:

• The National Employment Savings Trust (Amendment) Order 2015
• Banking reform: draft pensions regulations
• Pension flexibilities: amendments to occupational pension schemes regulations
• European Commission publishes Green Paper on Building a Capital Markets Union
• FCA publishes “Dear CEO letter” on the establishment of IGCs for Workplace Pension Schemes
• FRC consults on amendments to UK and Irish GAAP
• HMRC issues newsletter 67
• HMRC publishes draft legislation on changes to the taxation of annuities
• PensionsEurope publishes Position Paper on EIOPA plans for further work on solvency of IORPs

The National Employment Savings Trust (Amendment) Order 2015

NEST was established by the Pensions Act 2008 to support automatic enrolment and address a market failure for low to moderate earners and smaller employers.  To focus NEST on its target market and to provide stability during the roll out of automatic enrolment, a number of constraints are currently in place, including:

• an annual contribution limit
• restrictions on transfers into and out of the scheme.

These constraints were cited as important measures by the European Commission in their approval of State aid for NEST.  The DWP has sought and obtained confirmation from the Commission that removing them, from 1 April 2017, remains consistent with State aid rules and is compatible with the State aid provided to NEST.

With effect from 1 April 2017, the National Employment Savings Trust (Amendment) Order 2015 will remove the annual contribution limit and the transfer restrictions imposed on NEST.

Banking reform: draft pensions regulations

The Financial Services (Banking Reform) Act 2013, which received Royal Asset in December 2013, implements the key Independent Commission on Banking (ICB) recommendation of “ring-fencing” the deposits of individuals and small businesses, separating important everyday banking activities from investment banking.

In line with ICB recommendations, the Financial Services (Banking Reform) Act 2013 includes provisions allowing the Treasury to require by regulation that ring-fenced banks ensure that they cannot become liable for the pension schemes of the rest of the group, or anyone else.

On 24 July 2014, BIS issued a consultation to seek views on regulations which would implement this requirement on ring-fenced banks to ensure that they are not, and cannot become, liable for the pension liabilities of other entities (except other ring-fenced banks in their group, or wholly owned subsidiaries of ring-fenced banks).

On 17 February 2015, BIS published the response to the consultation.  Final regulations have been laid in Parliament for debate.  The aim is to bring the regulations into force as soon as possible to allow banks and trustees to start planning and using the mechanisms they provide.  To allow banks and trustees enough time to work out the optimal solution for separation their pension schemes, the deadline for pension separation will remain 2026.

Pension flexibilities: amendments to occupational pension schemes regulations

On 19 February 2015, the Government published draft amendment regulations which aim to ensure, broadly that the flexibilities operate as intended from 6 April 2015 and, in particular that:

• the transfer process continues to operate smoothly
• trustees and managers give scheme members information about their retirement options and the new pensions guidance service from April 2015.

The regulations have been published in draft to allow the pensions industry time to plan for these changes,  They are still subject to final legal checks and Parliamentary approval in early March 2015, so should not be treated as final.

We will publish an Alert with further details shortly.

European Commission publishes Green Paper on Building a Capital Markets Union

On 18 February 2015, the European Commission launched a consultation on creating a single Capital Markets Union.

The purpose of the Green Paper on the Capital Markets Union is to kick-start a debate across the EU over the possible measures needed to create a true single market for capital.

The Commission is seeking feedback from the European Parliament and the Council, other EU institutions, national parliaments, businesses, the financial sector and all those interested.  All stakeholders and interested parties are invited to submit their contributions by 13 May 2015.

Following the public consultation, the Commission will adopt an Action Plan this summer setting out its roadmap and timeline for putting in place the building blocks of a Capital Markets Union by 2019.

On the basis of the outcome of this consultation, the Commission will identify the actions that are necessary to achieve the following objectives:

• improve access to finance for all businesses and infrastructure projects across Europe
• help SMEs raise finance as easily as large companies
• create a single market for capital by removing barrier to cross-border investments
• diversify the funding of the economy and reduce the cost of raising capital.

FCA publishes “Dear CEO letter” on the establishment of IGCs for Workplace Pension Schemes

The FCA has issued a “Dear CEO letter” to firms which operate group personal pension schemes or group stakeholder pension schemes, advising them of the requirement to set up an IGC (or equivalent) by 6 April 2015.

For further details of this requirement, please see our Alert.

FRC consults on amendments to UK and Irish GAAP

Following publication of the Government’s decision on the UK implementation of the EU Accounting Directive the FRC has issued its proposals to amend UK and Irish accounting standards.

The proposals will benefit 1.5 million of the smallest companies (“micro-entities”) in the UK by simplifying their reporting requirements.  There will also be changes for the 1.5 million other companies that fall within the “small” company size threshold, including improving accounting for financial instruments and supporting the implementation of legislative changes. Listed groups will benefit from greater flexibility and greater efficiency in reporting formats.

The proposals are intended to be effective for accounting periods beginning on or after 1 January 2016, with early application permitted for accounting periods beginning on or after 1 January 2015.  The proposals are open for comment until 30 April 2015 and the final standards and amendments are expected to be issued in July 2015.

HMRC issues newsletter 67

On 19 February 2015, HMRC issued newsletter 67.  It includes information on:

• Pension flexibility – in particular, how PAYE will operate on payments made under the pension flexibility rules
• Draft Finance Bill legislation – see further below.

HMRC publishes draft legislation on changes to the taxation of annuities

On 18 February 2015, HMRC published, for consultation, draft legislation on changes to the taxation of annuities paid to beneficiaries, as announced by the Chancellor in Autumn Statement 2014 (see our Alert).

The changes are intended to:

• allow anyone, including non-dependants, to receive payments from an annuity on the death of a member
• provide that payments of annuities to beneficiaries can be made tax-free on the death of an individual before age 75.

The consultation closes on 4 March 2015.

PensionsEurope publishes Position Paper on EIOPA plans for further work on solvency of IORPs

On 17 February 2015, PensionsEurope reaffirmed its opposition to EIOPA’s Holistic Balance Sheet (HBS) project and called on EIOPA to divert its energies to tackling more pressing pension challenges.

PensionsEurope’s statement came in a position paper summarising its response to EIOPA’s 111-question consultation paper on the HBS.  The consultation was published on 13 October 2014 at EIOPA’s own initiative.

Although PensionsEurope recognises that EIOPA has addressed some of the issues raised during previous rounds of consultations, the HBS still contains many shortcomings and is not suitable as a regulatory instrument at EU level.  PensionsEurope warns that the HBS would place unacceptable burdens on IORPs and their sponsoring undertakings and would have detrimental effects for millions of EU citizens.