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

• Key pension dates and deadlines – are you ready?
• Order provides for new definition of financial advice
• Department for Exiting the European Union publishes Great Repeal Bill White Paper
• DWP updates automatic enrolment guidance
• DWP updates form for valuing State Pensions on divorce
• HMRC – new postal address for Pension Scheme Services
• House of Commons Library Briefing Papers
• Investment Association consults on standardisation of disclosure for charges and transaction costs
• PLSA publishes best practice guide for LGPS employers
• PPF confirms levy rules for 2017/18
• PPI publishes briefing note on managing DB assets and investment strategy
• TPR publishes DB investment guidance
• TPR publishes innovation and regulation plan

Key pension dates and deadlines – are you ready?

As has become customary for the pensions industry, 6 April heralds a number of changes and 2017 is no exception. On the horizon this week are the following:

For details of these measures, please see our Alert.

Order provides for new definition of financial advice

Following a consultation by HMT, the Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) (No.2) Order 2017, which will bring into force proposed changes to the definition of financial advice for regulated firms from 3 January 2018, has been laid before Parliament.

The definition of financial advice is being changed so that regulated firms will be deemed to be giving advice only where they provide a personal recommendation. The wider definition of advice (in the Financial Services and Markets Act 2000 (Regulated Activities) Order) of “advising on investments” is being left in place for unregulated firms. This dual approach aims to give greater certainty to regulated firms, whilst mitigating the risk of consumers being scammed.

The Order has been made now to give the FCA time to consult on and publish new guidance. It will also align the change with the implementation of the Markets in Financial Instruments Directive II (“MiFID II”).

Department for Exiting the European Union publishes Great Repeal Bill White Paper

On 30 March 2017, the DEEU published the Government’s White Paper on the Great Repeal Bill.

As part of its plans to achieve a smooth transition of legislation when the UK exits the EU, the Government’s overall approach is to repeal the European Communities Act 1972 (in order to end the supremacy of EU law) and then to convert the body of existing EU law into domestic law through the Great Repeal Bill. After this, Parliament (and, where appropriate, the devolved legislatures, such as the Scottish Parliament) will be able to decide which elements of that law to keep, amend or repeal following Brexit.

This move is intended to ensure that, as a general rule, the same rules and laws will apply immediately after Brexit as they did before. This means that, for example, workers’ employment and pension rights in the UK that are derived from EU law will continue to apply in UK law after Brexit.

In relation to the CJEU and its case law, the Great Repeal Bill will provide no future role for the CJEU in the interpretation of UK legislation. This will mean that UK courts are no longer obliged to consider cases decided by the CJEU after Brexit. However, to maximise certainty, the Bill will provide that any question as to the meaning of UK law derived from EU law, will be determined in the UK courts by reference to the CJEU’s case law as it exists on the day before Brexit.

The Government hopes that, by adopting such an approach, businesses, workers, investors and consumers will have certainty, whilst at the same time the Government has sufficient flexibility to respond to all eventualities of the negotiation process.

The DEEU notes that “The Great Repeal Bill will not aim to make major changes to policy or establish new legal frameworks in the UK beyond those which are necessary to ensure the law continues to function properly from day one”. A number of further bills are expected to be introduced during the course of the Brexit negotiations, for example, a customs bill to establish a framework to implement a UK customs regime, with a view to ensuring that the Government is prepared for Brexit and that Parliament has “the fullest possible opportunity to scrutinise this legislation”.

DWP updates automatic enrolment guidance

The DWP has updated its guidance on certifying money purchase pension schemes.

The guidance sets out the issues that employers must consider in determining whether they can certify that their money purchase scheme, or the money purchase element of their hybrid scheme, satisfies the relevant or alternative quality requirements in respect of the relevant jobholders.

It has been updated to reflect changes made to the timing of planned increases in the minimum level of contributions required to be made to money purchase schemes, with the first scheduled rise being deferred from 1 October 2017 to 6 April 2018 and the second being deferred from 1 October 2018 to 6 April 2019.

DWP updates form for valuing State Pensions on divorce

If a person gets divorced or their civil partnership is dissolved, the court can consider whether their State Pension, or part of it, is a financial asset, which can be shared in a financial settlement through the making of a pension sharing order.

The DWP has updated its valuation forms, which need to be completed by both people involved in the divorce or dissolution to help the courts make a decision, to clarify the purpose of the forms.

HMRC – new postal address for Pension Scheme Services

On 30 March 2017, HMRC announced a new mailing address for Pension Scheme Services. The address for correspondence is now:

Pension Schemes Services
Fitzroy House
Castle Meadow Road
Nottingham
NG2 1DB

HMRC needs to be notified in writing at this address if the name of the scheme administrator needs to be changed after the scheme has been registered.

House of Commons Library Briefing Papers

Briefing paper on the tax treatment of foreign pensions in the Finance Bill 2017

The House of Commons Library has published a report on proposed new provisions on the tax treatment of foreign pensions which are contained in the Finance Bill 2017.

The report notes that two provisions in particular have attracted comment:

• The introduction of a 25% tax charge on transfers to qualifying registered overseas pension schemes (QROPS). In this case, the aim is to target those seeking to reduce tax payable by moving their pension savings to another jurisdiction. The Chartered Institute of Taxation has argued that more safeguards are needed for people genuinely moving overseas.
• The removal of the 10% deduction before income from a foreign pension is taxed. The Low Income Tax Reform Group has pointed out that the deduction was intended to reflect the extra costs that can be involved in having an overseas pension and has called for measures to mitigate the impact.

The Bill is due to have its second reading in the House of Commons on 18 April 2017.

Briefing paper on State Pension Age review updated

Following the publication of John Cridland’s final report on his independent review of arrangements for the SPA after 2028, and a report by the Government actuary on how the SPA timetable might need to change beyond this date based on projections of life expectancy in future years, the House of Commons library has updated its briefing paper on the review.

The Government is set to consider both reports before presenting its own review to Parliament, which is due on 7 May 2017.

Report on State Pension payday published

A new report has been published which looks at the day on which, and frequency with which, the State Pension is paid.

The report covers the different scenarios for people who reached SPA before and on/after 6 April 2010, as well as arrangements for paying the new State Pension, from 6 April 2016.

Investment Association consults on standardisation of disclosure for charges and transaction costs

The IA has launched a public consultation on the standardisation of disclosure for charges and transaction costs. The consultation includes a draft industry code, which is designed to provide a blueprint for the reporting of charges and transaction costs using a consistent approach across the market and in line with regulatory requirements.

The consultation forms part of an ongoing industry-wide initiative on enhanced transparency. As well as facilitating provision of data under MiFID II and PRIIPs, it is intended to be fully compliant with final rules for the UK DC market following the FCA’s October 2016 consultation on transaction cost disclosure in workplace pensions (the response to which is awaited).

PLSA publishes best practice guide for LGPS employers

The PLSA published “A guide for employers participating in the LGPS: Best Practice” on 28 March 2017. This is the second in a series of guides for LGPS employers.

As membership of the LGPS is continuing to increase (membership was up by 11% between 2014 and 2015), the PLSA is keen to help new employers navigate the scheme. Therefore, among other things, the guide aims to give an overview of the financial commitments, administrative responsibilities and regulatory requirements that employers face once they have joined.

PPF confirms levy rules for 2017/18

On 30 March 2017, the PPF confirmed its final levy determination for 2017/18. The final levy rules have not been changed substantively from those published in December, except to include the levy rule for schemes which cease to have a substantive sponsor following a restructuring.

The PPF consulted in February 2017 on this new rule for 2017/18 and has said that it will consult again on the subject for 2018/19. In advance of that, the PPF is keen for stakeholders to provide further comment and views. The PPF’s 2017/18 policy statement provides additional information and explanations to assist with this.

The policy statement also lists a small number of minor clarifications and typographical changes made to the levy rules published in December, to ensure the drafting best conveys the policy intent.

Pension scheme trustees and employers can log on to view and check their data and scores at: https://www.ppfscore.co.uk/.

PPI publishes briefing note on managing DB assets and investment strategy

The PPI’s latest Briefing Note (no. 94) on “Defined Benefits: managing assets and investment strategy” was published on 29 March 2017.

This is the fourth and final Briefing Note in a series on the subject of private sector DB schemes. The first explored the history of DB and the issues that DB schemes face. The second discussed the issue of governance and the growing complexity of the trustees’ role. The third dealt with issues associated with valuing and managing liabilities.

The present note discusses the challenges and opportunities trustees face when managing scheme assets and investment strategy. Among other things, it considers:

• the scale and growth of DB scheme assets
• how asset allocation has changed in recent years
• the factors which are influencing DB scheme investment strategy
• the different investment strategies at play in today’s market
• how trends may evolve in coming years.

TPR publishes DB investment guidance

The Pensions Regulator published new DB investment guidance on 30 March 2017.

The guidance is aimed at the trustees of occupational DB pension schemes, with a view to helping them understand, manage and monitor key aspects of a scheme’s investment arrangements, objectives and strategy. The guidance provides practical information for trustees, and includes examples of approaches that can be taken, and factors to consider, when investing scheme assets to fund DB schemes.

Among other things, the guidance focuses on:

• Governance: TPR expects trustees to have suitably documented investment governance arrangements that are appropriate for a scheme’s circumstances, including their level of complexity. They should enable effective and timely decision-making, focused on those decisions most likely to make a difference.
• Understanding risks: trustees should understand, and mitigate where appropriate, the principal risks associated with implementing their scheme’s investment arrangements. This will include operational risks, security of scheme assets, asset transitions, and liquidity and collateral management. Trustees should consider seeking appropriate protections to mitigate operational and security risks in their legal contracts with managers (including fiduciary managers) and custodians.
• Environmental, Social or Governance (ESG): most investments in pension schemes are exposed to long-term financial risks. Trustees are expected to assess the financial materiality of factors such as climate change, responsible business practices and corporate governance, and to allow for them accordingly in the development and implementation of a scheme’s investment strategy. Governance of investments also includes stewardship activities. Where trustees have not developed and implemented their own policies, they should be familiar with their managers’ policies and, where appropriate, seek to influence them.

For more details, please see our Alert.

TPR publishes innovation and regulation plan

On 27 March 2017, TPR published an “innovation and regulation plan” in response to a commitment in the Government’s “productivity plan” for departments and their associated regulators to demonstrate how their approach to regulation supports innovation.

The plan sets out:

• an assessment of how new technology is likely to shape the sectors being regulated
• how legislation and enforcement frameworks could adapt to new technologies and “disruptive business models” to encourage growth
• actions for better utilisation of new technologies to generate efficiency savings and reduce burdens on business.

In this regard, TPR highlights its increasing use of social media as part of its communications armory, and flags its plans to develop and enhance its website as a facility for carrying out online transactions and as a vehicle for interactive communication with stakeholders.