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The OFT’s report on the DC workplace pensions market published in September 2013 identified, amongst other things, around £30 billion of savings in old (pre 2001) and other high charging contract and bundled-trust pension schemes that may not be achieving value for money by the standards of modern defined contribution workplace pension schemes.

As a remedy, and as an alternative to a Market Investigation Reference to the Competition Commission, the ABI and its members agreed to undertake an audit of these schemes that will be overseen by, and report into, an Independent Project Board (“IPB”).

On 1 August 2014, the IPB responsible for overseeing the audit of charges and benefits in legacy DC workplace pension schemes issued a progress update.  The report outlines the approach and methodology being used to undertake the review.  A final report will be published in December 2014. It will set out the charging structures of in-scope workplace pension schemes as well as showing the impact of these charging structures on different types of scheme members.  The final report will also include any IPB recommendations for industry-level actions that may be needed to address  in-scope schemes assessed as having high charges taking into account any relevant benefits.

On 31 July 2014, GAD published its annual report for 2013/14.

HM Revenue and Customs has published a draft Statutory Instrument for external technical consultation together with draft guidance and a draft Explanatory Memorandum.

The changes to be introduced by the regulations aim to ensure that the AA legislation which was introduced by the Finance Act 2011 works as intended.  They include provisions to:

‘Underfunded transfers’

Where the pension rights of a DB or cash balance scheme member are moved from one scheme to another, specific rules make adjustments to the rights under the “transferring” and “receiving” schemes, with the aim of making the effect of the transfer broadly neutral across the two schemes.

With no adjustment, the closing values for “transferring” and “receiving” schemes would generally be under and overstated respectively.  Current legislation therefore requires an adjustment to add back to the closing value of the “transferring” scheme, the reduction in the value of the pension sum because of the transfer.  An opposite adjustment also deducts from the closing value of the “receiving scheme” the increase in the value of the pension because of the transfer.

The adjustments are made to the extent that these reductions / increases are supported by reason of money or assets transferred from the old to new scheme.  This means that any augmentation to the value of a member’s rights in the receiving scheme would correctly be tested for AA purposes.

However, some pension schemes may be ‘underfunded’ at a particular point in time (this means they do not have 100% of the funds needed to cover current and future pensions).  In some cases, the amount transferred to the receiving scheme may not be sufficient to support a member’s promised benefits.  As a consequence, unintended AA input amounts may arise, even though the value of a member’s rights may be the same before and after the transfer.  For large scale ‘underfunded’ transfers it is also administratively difficult for schemes to determine the input amount, given that the amount of any such underfunding may not be easily attributable to individuals.

The provisions in the draft regulations are intended to:

Comments on the drafts should be sent by email to Pensions Policy by 27 August 2014.

On 31 July 2014, HMRC issued an update on its Scheme Reconciliation Service for pension scheme administrators and trustees.

HMRC launched the Scheme Reconciliation Service in April 2014 to help pension scheme administrators and trustees reconcile their records for all non-active members against HMRC records in advance of the ending of contracting-out in April 2016.  Although it’s not compulsory for scheme administrators / trustees to use this service it is their responsibility to make sure records are accurate.

HMRC are now beginning to deal with the queries generated from the records they have already shared with pension schemes.

To allow it to plan future resources, HMRC asks scheme administrators who are interested in using this service to register as soon as possible.  Schemes which have already registered for the service and received the requested data from HMRC will be contacted to confirm when this data will be worked and the anticipated time it will take to raise any queries.

From 4 August 2014 the process for applying for a certificate of residence for a registered pension scheme changes.

If you are the owner of the pension scheme assets, or an authorised third party, and want to request a certificate of residence for a registered pension scheme, use form APSS146E. If HMRC already holds a completed form APSS 146 that details who owns the scheme assets you don’t need to send in another one.

TPR’s DB code of practice, which is intended to help trustees and sponsoring employers to agree balanced funding plans for their pension schemes, came into force on 29 July 2014.  Please see our Alert for further details.

The code gives practical guidance on how trustees can comply with the legal requirements of pensions regulation and emphasises the importance of trustees and employers working together to reach a mutually satisfactory funding solution.  It also fully embeds TPR’s new statutory objective to minimise any adverse impact on the sustainable growth of an employer.

To mark the code coming into effect, TPR has updated the DB materials on its website.  Later in the autumn, the DB team will be conducting a series of roadshows with trustees, employers and advisers to help them embed the principles of balance and collaboration into their funding discussions.

TPR is urging trustees to bring themselves up to speed with key policy and legal developments by completing new modules in its Trustee toolkit which has been overhauled to reflect changes to the new DC and DB codes of practice.

The free online learning system features four completely new modules focused on trustee governance and investment and also significant updates to existing content.

Sue Griffin, director of communications at TPR, said:

“Trustees are required by law to have the appropriate skills, knowledge and competency to carry out the increasingly complex and technical duties required to run a scheme and protect the interests of scheme members.  The Trustee toolkit provides an ideal way to help meet these requirements.

“We would encourage all existing users to revisit the toolkit to review and explore the updated modules. Whether a trustee has been in post ten days or ten years, they will discover useful and up-to-date information that helps them fulfil their responsibilities relating to TKU, in a manner that suits their learning style and meets their continuing development needs.”

The improvements include:

On 1 August 2014, TPR published compliance and enforcement details showing how many times it has needed to make use of its formal powers to ensure employers comply with their automatic enrolment duties.

The first of these new quarterly bulletins shows TPR had used its powers on twenty three occasions up until the end of June this year.  The powers listed include the ability to carry out inspections and to issue statutory notices including fixed penalty and escalating fines.

As the numbers of employers staging and due to complete their declarations of compliance rises significantly over coming months, TPR expects to see a corresponding increase in the number of occasions that it uses its statutory powers and issues fines.  These figures will be reported in subsequent quarterly bulletins.

TPR’s compliance and enforcement strategy aims to deter and prevent non-compliance by sharing learning and by ensuring employers understand the challenges they may face complying with their duties.  As well as detailing its use of its statutory powers, the bulletin also highlights key compliance learning from the first quarter of 2014/15.

This bulletin contains details of a case where an employer was required to backdate pension contributions after failing to meet its duty to automatically enrol.  The case highlights the importance of an employer checking their staging date, which is set in law.  TPR also highlights the recent Supreme Court ruling on partners of Limited Liability Partnerships (LLPs) and recommends LLPs assess their partners to ascertain whether they are a worker to determine whether they have any automatic enrolment obligations in respect of such partners.

Please speak to your usual Sackers’ contact if you would like us to help with such an assessment.

The High Court has found that a rule of the 1987 Police Pension Scheme which prevents illegitimate children, born after their father dies, being awarded a pension constitutes unlawful discrimination.

Please click here for a full summary of the case.

The issues raised in this case related to the extent, if any, to which CPI can be adopted in place of RPI for the purposes of calculating increases to pensions in payment and, in the case of one of the schemes in question, revaluation of deferred pensions.

Please click here for a full summary of the case.