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:

• Automatic enrolment takes off
• Accounting standards: proposed changes to guidance for DB schemes
• Countdown to the single tier state pension
• Individual Protection 2014 applications
• Pension Schemes Newsletter 64
• Freedom and Choice in Pensions: the guidance guarantee
• Scottish Independence: refuting the myths
• Update on the Armed Forces Pension Scheme 2015

Automatic enrolment takes off

The DWP and TPR have reported that four million people have now been automatically enrolled in workplace pensions.  This represents an increase of over one million people this year, or over 6,000 a day on average.  In addition,TPR’s monthly declaration of compliance report for August 2014 shows that more than 21,000 employers have now completed their declaration of compliance informing TPR how they have met their duties.

Automatic enrolment, which began in October 2012, requires employers to enrol their “eligible jobholders” into a qualifying pension scheme and pay contributions.   The duty first applied to larger employers (those with 120,000 or more people in their PAYE scheme) and is being phased in gradually for smaller employers, so that by February 2018 it will apply to all employers.

The auto-enrolment duty was introduced as the Government considered that millions of people in Britain were not saving enough for retirement – the DWP’s most recent analysis shows that 11.9 million people in the UK are undersaving for retirement.

For more on auto-enrolment, see our automatic enrolment briefing.

Accounting standards: proposed changes to guidance for DB schemes

The Interpretations Committee of the International Financial Reporting Standards assists the IASB in annual improvements, by reviewing proposed improvements to accounting standards and making recommendations to the IASB.

At its most recent meeting, the committee discussed a request to clarify the accounting treatment in accordance with IAS 19 (Employee Benefits) for issues relating to the re-measurement of the net DB liability (DBL) (asset) – ie the deficit or surplus in a DB scheme, which is adjusted for any effect of limiting a net DB asset to the asset ceiling.

The measurement of a DB asset is currently limited under IAS19 to “the present value of any economic benefits available in the form of refunds from the plan or reductions in future contributions to the plan”.  Should the committee’s proposals – which seek to ensure the provision of more relevant information and enhance comparability – result in a change to the interpretation of DBL under IAS 19, there is a risk that any surplus on DB pension assets would no longer be recognised.

Such a change is unlikely to take effect before January 2017 at the earliest.  We continue to monitor developments and will provide an update in due course.

Countdown to the single tier state pension

The DWP issued a press release on 15 August 2014 to mark 600 days until the start of the new state pension and the abolition of DB contracting-out.

According to DWP estimates, women will be among the main winners from the new state pension system, with some 650,000 set to receive an average of £8 a week more (amounting to around £400 a year) in the first ten year, from the way their NI contributions are valued under the transition to the new system.

Pensions Minister, Steve Webb, said: “The new State Pension will will be a much fairer system and is designed to help groups which have traditionally been disadvantaged – including women and the low-paid – to build a strong financial foundation for their retirement.  In the future, all years spent contributing to society whether through paid work or caring responsibilities will be of equal value.  We are also helping more women to save for later life. Workers are now being automatically enrolled into workplace pensions – and millions of women will be saving for the first time as a result.  The new State Pension will be a clear improvement on the current system, removing layers of complexities. It’s part of our work to abolish outdated inequalities and create a fairer society.”

For more on the abolition of DB contracting-out and the impact for occupational pension schemes, see our latest Alert.

Individual Protection 2014 applications

Members can now apply for individual protection up to an overall maximum of £1.5 million. Applications for individual protection 2014 can be made online only.

Applications will be taken from today, 18 August 2014, until 5 April 2017.

Pension Schemes Newsletter 64

HMRC has published Pension schemes newsletter 64, which includes information on pensions flexibility, individual protection 2014, pension scams and certificates of residence for registered pension schemes.

Freedom and Choice in Pensions: the guidance guarantee

In response to a written question, it has been confirmed in Parliament that the Treasury is intending to publish a progress update on implementation of the guidance guarantee “in the autumn”.  £10 million has been earmarked from the Contingencies Fund for work on design and implementation.

Scottish Independence: refuting the myths

The Scotland Office and HM Treasury have refuted a number of assertions on Scottish independence, made during the recent debate between Scotland’s First Minister, Alex Salmond, and leader of the Better Together campaign, Alistair Darling.

The departments note that, contrary to claims that pensions are more affordable and sustainable in an independent Scotland, the reality is that spending on each pensioner is higher in Scotland than the UK average.  Such spending is said to be more affordable and sustainable while Scotland is part of the UK because the costs are shared by 31 million tax payers.  Scotland’s pensioner population is predicted to grow more rapidly than the rest of the UK.  The Government’s “reality check” notes that if Scotland remains part of the UK, the UK will be able to help spread the risk and provide a crucial safety net against an ageing population in Scotland.

Update on the Armed Forces Pension Scheme 2015

The Ministry of Defence has updated its “FAQs” on the Armed Forces Pension Scheme 2015, which is to be introduced on 1 April 2015.  Among other things, the document covers:

• those members of the Armed Forces who will be affected by the new scheme
• protections for benefits already built up in the existing armed forces pension schemes (“accrued rights”).