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:

• Budget 2015
• The Pension Schemes Act 2015 (Transitional Provisions and Appropriate Independent Advice) Regulations 2015
• Financial Services and Markets Act 2000 (Regulated Activities) Orders
• The Financial Services and Markets Act 2000 (Regulated Activities) (Transitional Provisions) Order 2015
• The Overseas Pension Schemes (Miscellaneous Amendments) Regulations 2015
• Consultation outcome: Technical consultation on Local Government Pension Scheme rules
• Consultation on a technical change to the draft Charges and Governance Regulations
• Pensioner income projections
• FCA urges people to be “scam smart”
• HMRC to publish new draft pensions tax manual
• HMRC publishes Countdown bulletin number 7
• Pension scheme benefits: independent advice for employees
• NEST publishes six principles for meeting needs of new generation of savers
• PPF publishes changes to the 2015/16 Determination
• TPR launches new web guide to help small and micro employers plan for automatic enrolment

Budget 2015

On 18 March 2015, George Osborne, the Chancellor of the Exchequer, delivered the last Budget of this Parliament.

Key points for pensions included:

• further reduction of the LTA from £1.25 million to £1 million with effect from 6 April 2016
• annual indexation of the LTA by CPI from 6 April 2018
• the ability for widows, widowers and civil partners across the public sector workforces to retain survivor benefits if they remarry, cohabit or form a civil partnership in the new and reformed public service pension schemes being introduced on 1 April 2015
• the ability for people already receiving an income from an annuity to agree with their annuity provider to assign their annuity income to a third party in exchange for a lump sum or alternative retirement product from 6 April 2016
• additional funding of £19.5 million to support the new pension freedoms and the new pensions guidance service, Pension Wise.

Please see our Alert for details.

The Pension Schemes Act 2015 (Transitional Provisions and Appropriate Independent Advice) Regulations 2015

The Pension Schemes Act 2015 (see our Alert) will give pension scheme members greater flexibility to transfer pension rights and will create a new advice safeguard which aims to ensure that members are appropriately informed and protected before deciding to transfer their benefits.

The Pension Schemes Act 2015 (Transitional Provisions and Appropriate Independent Advice) Regulations 2015, which will come into force on 6 April 2015, set out how trustees will be required to check that members with “safeguarded” benefits (benefits which are not money purchase or cash balance) have taken appropriate independent advice before transferring or converting safeguarded rights to provide benefits that can be accessed flexibly.

The regulations also stipulate certain circumstances in which an employer must pay for the cost of such advice.

See our Alert for further details.

Financial Services and Markets Act 2000 (Regulated Activities) Orders

The Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) (No. 2) Order 2015, which comes into force on 6 April 2015, will create a new “regulated activity” for the purpose of the Financial Services and Markets Act 2000.  From that date, advice given on the conversion and transfer of “safeguarded” benefits into flexible benefits (DC) will be regulated by the FCA.

The Financial Services and Markets Act 2000 (Regulated Activities) (Transitional Provisions) Order 2015

The Financial Services and Markets Act 2000 (Regulated Activities) (Transitional Provisions) Order 2015, which also comes into force on 6 April 2015, makes transitional provisions in connection with the new FCA regulated activity (see above).

Firms that currently have permission from the FCA to advice on “pension transfers and opt-outs” will gain new permission, and will be automatically authorised to advise on the transfer or conversion of safeguarded benefits.

The Overseas Pension Schemes (Miscellaneous Amendments) Regulations 2015

The tax regime for pension savings provides that individuals leaving the UK can transfer their tax-relieved pension savings to a pension scheme established in another country.  The intention is to allow people permanently leaving the UK to simplify their affairs by taking their pension savings with them to their new country of residence.  Provided the overseas pension scheme meets certain conditions, transfers can be made free of UK tax, subject to a charge on any funds above the LTA, currently £1.25 million).

The Overseas Pension Schemes (Miscellaneous Amendments) Regulations 2015, which will come into force on 6 April 2015, are designed to align registered pension schemes more closely with overseas schemes.  In order to be able to accept transfers of UK tax-relieved pension savings free of UK tax, schemes will need to provide that pension benefits from the transferred funds are payable no earlier than they would be under the rules of a registered pension scheme.  This is intended to discourage people from transferring to overseas schemes so that they can access their UK tax-relieved pension savings before they would be able to under a registered pension scheme.

The regulations also mirror some of the information requirements that arise from pension flexibility for registered pension schemes.  This is so that members of registered schemes and of overseas schemes where UK tax relief has been provided will receive similar treatment for tax purposes.

Consultation outcome: Technical consultation on Local Government Pension Scheme rules

As part of the Government’s reforms of public sector pensions, the Local Government Pension Scheme 2013 Regulations and the Local Government Pension Scheme (Transitional Provisions, Savings and Amendment) Regulations 2014 came into force last year on 1 April 2014.

Since then, the Government has worked with scheme administrators to identify areas in the regulations requiring clarification.  On 5 December 2014, the DCLG published a consultation on amending regulations which reflect this work other policy developments, including the Marriage (Same Sex Couples) Act 2013.  The response to this consultation was published on 19 March 2015.

As well as providing clarity on and improvements to earlier regulations, the amending regulations aim to ensure that any unmet liabilities that remain outstanding with employers in the scheme can be called for where there are no active contributing members.  This is necessary as recent changes to the regime for exit payments did not cater for certain types of employer.  There is also some further flexibility for employers to make payments to the pension fund if they do not employ active members of the LGPS temporarily.

Consultation on a technical change to the draft Charges and Governance Regulations

On 18 March 2015, the DWP published a short consultation on a technical change to the draft Occupational Pension Schemes (Charges and Governance) Regulations 2015 which are due to come into force on 6 April 2015.

The DWP is seeking views on whether a proposed change to the regulations meets its stated policy intention – that AVC arrangements will not generally be subject to the charges cap on default arrangements of auto-enrolment schemes.

The consultation closes on 24 March 2015. 

Pensioner income projections

On 23 March 2015, the DWP published a report which examines future trends in some components of pensioner incomes from 2014 to 2060 in Great Britain.

The results show projected impacts on pensioner incomes following:

• changes to the State Pension in 2016
• increases in DC pensions due to automatic enrolment
• continued decreases in the coverage of DB pensions.

The report considers these main sources of pensioner income, looking at aggregate incomes, and how these are made up from State Pension income and from DB and DC pensions.

FCA urges people to be “scam smart”

On 23 March 2015, the FCA launched the next wave of its “ScamSmart” campaign to highlight the potential warning signs of pension scams.

Pension scams have been gaining momentum in the wake of the financial crisis and, with the introduction of the new pension freedoms from 6 April 2015, we are likely to see even more pension scheme members targeted.  The FCA therefore wants would-be investors to:

• reject cold calls – the FCA notes that investment scammers will often cold call
• check the FCA’s Warning List
• get impartial advice.

This is the latest in a concerted effort to raise awareness of pension scams.  It follows the update by TPR of its Scorpion Guidance (see 7 Days on 16 March 2015) and the publication by the Pension Liberation Industry Group of its Code of Practice on Pension Scams (see our Alert).

HMRC to publish new draft pensions tax manual

On 20 March 2015, HMRC announced that it will be publishing its new pensions guidance manual in draft form in early Spring 2015.  This new manual will be called the Pensions Tax Manual (“PTM”) and will replace HMRC’s current guidance manual, the Registered Pension Schemes Manual (“RPSM”).

The RPSM currently incorporates four different levels of guidance on the same subject, divided into technical, member, employer and scheme administrator sections.  The focus of the PTM will be on providing technical guidance on the pensions tax rules, but it will also incorporate areas of guidance previously located in the scheme administrator pages.

The PTM will be made up of 16 chapters.  The PTM chapters will cover the essential principles of a subject in overview sections, where appropriate.  They will also incorporate guidance on the new pension flexibilities, to include reporting requirements and international issues.  Standalone guidance on both ABCs and IP14 will also be included in the PTM.

HMRC publishes Countdown bulletin number 7

HMRC is publishing a series of “Countdown bulletins” in the run up to the abolition of DB contracting-out on 6 April 2016.

On 20 March 2015, HMRC published the March 2015 edition.  Among other matters, this issue covers:

• requests for scheme contracting-out numbers
• maintaining member records
• scheme reconciliation.

Pension scheme benefits: independent advice for employees

On 18 March 2015, HMRC issued a Tax Information and Impact Note about a new income tax exemption in connection with the requirement to obtain appropriate independent advice in respect of the conversion or transfer of pension scheme benefits (see above).

The new income tax exemption will be introduced for payments made when employers are required to provide employees or former employees with appropriate independent advice as part of any employer-led transfer exercise from DB to DC pension schemes.  Where the employer provides or pays for advice to an employee in order to meet their obligation, that provision or payment will be covered by the new exemption.

The exemption will take effect on and from 6 April 2015.

NEST publishes six principles for meeting needs of new generation of savers

On 17 March 2015, NEST published six principles for the design of retirement income products to meet the needs of the new mass market of DC savers:

• living longer than expected and running out of money is the key risk in retirement and a critical input into retirement income solutions
• savers should expect to spend most or all of their pension pots during their retirement
• income should be stable and sustainable
• managing investment risk is crucial as volatility can be especially harmful in income drawdown-type arrangements
• providers should look to offer flexibility and portability wherever possible
• inflation risk should be managed but not necessarily hedged

These guiding principles represent an interim response to NEST’s consultation on future retirement options following the introduction of new pension freedoms and are based on evidence and responses from around the world.

Evidence from the consultation suggests that consumers are responding positively to the flexibility being offered by the new pension freedoms.  There is also an emerging consensus that a significant majority will need to be offered high quality default strategies with a view to achieving good outcomes in retirement.  NEST will be publishing a full consultation response later in the year.

PPF publishes changes to the 2015/16 Determination

The PPF has made minor changes to the Determination (Levy Rules) published on 18 December 2014, to remove any ambiguity and make clear the unchanged policy position.  These amendments include a change in relation to Last Man Standing Schemes and submission of Appropriate Legal Advice.

The PPF has corrected a typographical error in Levy Rule E6.2 (2) (c) to make it clear that the confirmation of Appropriate Legal Advice with respect to a scheme’s rules and its Last Man Standing status should be sent to the PPF (not TPR). This confirmation will be requested by email from TPR (which will contain details about how to give the confirmation) and should be sent to the PPF by 29 May 2015.

The PPF has confirmed that Experian have been calculating monthly scores as intended, so in all cases these amendments will have no impact on scores and no action is needed.

The PPF has published a marked up copy of the original Determination, which shows each change.  Other related documents (the Appendices and Guidance) are not affected.

TPR launches new web guide to help small and micro employers plan for automatic enrolment

On 23 March 2015, TPR published a step-by-step guide to help small businesses get ready for their automatic enrolment duties.

The online guide has been written specifically for employers who have between 1-50 staff, many of whom will have limited pensions experience.  The guide explains how to complete key tasks such as: knowing when to be ready; providing a point of contact for TPR; checking who needs to be enrolled; and creating a plan of action.

The 11-step guide, which takes employers through their legal requirements, is part of a number of measures taken by TPR to ensure that small and micro employers have easy access to the information they will need to meet their automatic enrolment duties.  The online guide also contains essential information tailored for the needs of employers of carers and also director-only companies.