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 Pension Protection Fund and Occupational Pension Schemes (Levy Ceiling) Order 2015
• The Pensions Act 2014 (Commencement No.4) Order 2015
• Response to consultation and final regulations on the PPF Administration levy
• Government extends personalised State pension statement service
• DWP has announced its preferred candidate for new Pensions Ombudsman
• Government publishes response to consultation on “Better workplace pensions: Putting savers interests first” together with final regulations
• Pension funds should benefit from a further two year exemption from central clearing requirements
• FCA confirms final rules for independent governance committees
• HMRC publishes pensions liberation update
• HMRC issues latest Countdown bulletin

The Pension Protection Fund and Occupational Pension Schemes (Levy Ceiling) Order 2015

The Board of the PPF charges a levy to DB occupational pension schemes (and the DB element of hybrid schemes) to fund the compensation it will pay to schemes’ members if their employer becomes insolvent and the scheme is underfunded below a certain level.

The Secretary of State is required to set a levy ceiling preventing the Board from raising the levy above a set maximum.  The current ceiling of £941,958, 542 came into effect on 31 March 2014.

The levy ceiling must be uprated annually in line with the general level of earnings in Great Britain.  As a result, this Order specifies that, with effect from 1 April 2015, the levy ceiling will increase to £947,610,293.

The current Order also increased the level of the PPF’s compensation cap.  Following a review by the Secretary of State, the compensation cap will not be increased for 2015/16.

The Pensions Act 2014 (Commencement No.4) Order 2015

The Pensions Act 2014 (Commencement No.4) Order 2015:

• brings into force provisions relating to the new state pension, with effect from 5 February 2015
• brings into force the power for employers to amend their occupational pension schemes to adjust members’ future pension accruals or pension contributions to take into account the loss of the contracting-out rebate, with effect from 23 February 2015 (for further details of the power, see our Alert)
• restricts short service refunds in DC schemes, with effect from 1 October 2015.  Individuals who first become active members of a scheme, or who re-join a scheme having already taken a refund or transfer, on or after that date will only be entitled to a short service refund if they leave the scheme within 30 days of joining.

Response to consultation and final regulations on the PPF Administration levy

The PPF administration levy meets some of the running costs of the PPF.  The rates used to calculate the amount payable by eligible pension schemes have remained unchanged since 2012/13 (when they were reduced by approximately 26%).

On the basis of the PPF’s current and planned administration costs recoverable under the levy, it is estimated that a levy deficit of £5.1 million will exist at the end of 2014/15, and that this deficit would increase by approximately £5 million in each subsequent year if remedial action is not taken.

Between 14 November 2014 and 9 January 2015, the Government consulted on proposals for addressing the deficit (see 7 days).

On 4 February 2015, the DWP published the response to the consultation, together with final regulations which implement the changes.  The Government has decided to increase levy rates each year in 2015/16, 2016/17 and 2017/18 with the aim of eliminating the deficit in 2021/22 (movements in the PPF’s administration costs over the next seven years may alter this estimate).  This approach is intended to limit the immediate impact of the increase in the rates for 2015/16 and provide eligible schemes with time to plan for further increases in 2016/17 and 2017/18.

Government extends personalised State pension statement service

On 7 February 2015, the DWP announced that a free government service which is intended to help millions of people better understand their State Pension is being expanded.

Anyone over the age of 55 is now able to request a personalised State Pension statement, giving them an estimate of what they are likely to receive based on their current National Insurance record.  Until this week the scheme was only open to people over the age of 60.

DWP has announced its preferred candidate for new Pensions Ombudsman

On 5 February 2015, the DWP announced today that Anthony Arter is the preferred candidate for the role of Pensions Ombudsman / PPF Ombudsman.

His appointment is subject to a pre-appointment hearing by the Work and Pensions Select Committee.  This will take place on Wednesday 11 February 2015.

Government publishes response to consultation on “Better workplace pensions: Putting savers interests first” together with final regulations

On 4 February 2015, the Government published the response to its October 2014 Command Paper regarding governance and charges in occupational pension schemes providing DC benefits (see our Alert).  The final regulations were laid before Parliament on the same day.

Key points include:

• Subject to certain exceptions, the new minimum governance and charges requirements will apply to all DC occupational pension schemes and to the DC elements of non-DC schemes from 6 April 2015.
• From April 2016, member-borne adviser commissions and consultancy charges, as well as active member discounts, will be banned from schemes used to satisfy an employer’s AE duties (“qualifying schemes”).
• Now that final details of the new requirements are known, trustees and providers should take steps to ensure their schemes will comply.

For further details, please see our Alert.

DWP Press release

TPR announced that to help alert trustees and scheme managers to the new requirements, it will be publishing an essential guide later in February which will provide an overview of the new requirements.  It plans to follow this up with more detailed guidance once the regulations have been made law in April.

Pension funds should benefit from a further two year exemption from central clearing requirements

The EMIR Regulation, which entered into force on 16 August 2012, is designed to improve the stability of the over-the-counter (OTC) derivative markets throughout the EU.  The Regulation requires standard derivative contracts to be cleared through central counterparties (CCPs) and establishes stringent organisational, business conduct and prudential requirements for these CCPs.  It has also introduced an obligation to report derivative contracts to trade repositories.  The Regulation, directly applicable and enforceable throughout the EU, will considerably increase financial stability and safety by preventing the situation where a collapse of one financial firm can cause the collapse of other financial firms.

A specific exemption in the Regulation states that “pension scheme arrangements” (PSAs) are exempt from the clearing obligation of certain derivatives until August 2015.

On 3 February 2015, the European Commission published a report that recommends granting pension funds a further two-year exemption from central clearing requirements for their over-the-counter (OTC) derivative transactions.  The report, which is based on an extensive study requested by the European Commission, concludes that CCPs need this time to find solutions for pension funds.  At the same time, the report encourages CCPs to continue working on finding technical solutions in this important matter. Ultimately, the objective is that PSAs should use central clearing for their derivatives transactions, as is the case for other financial institutions.  This is also imperative for financial stability.

Under current arrangements, PSAs – which encompass all categories of pension funds – would have to source cash for central clearing.  Given that PSAs hold neither significant amounts of cash nor highly liquid assets, imposing such a requirement on them would require very far-reaching and costly changes to their business model which could ultimately affect pensioners’ income.

FCA confirms final rules for independent governance committees

On 4 February 2015, the FCA confirmed the final rules requiring firms to set up and maintain independent governance committees (IGCs).  The rules outline the minimum standard for the terms of reference for IGCs, the scope of the IGC and which type of firms will need to set one up.

The role of IGCs will be to represent the interests of scheme members in assessing the value for money of pension schemes, challenging providers to make changes where necessary.  These rules, initially announced by the FCA in August (see our Alert), confirm for providers of workplace personal pensions the necessary detail to ensure IGCs are set up by April 2015.

The establishment of IGCs was recommended after an OFT market study found problems with the workplace pension market including potential conflicts of interest between employers and schemes.

The FCA has been working closely with the DWP to ensure that all members benefit from the same good quality standards regardless of type of workplace scheme (see above for the new governance standards for occupational pension schemes).

The FCA has confirmed that a review of the overall effectiveness of the new governance bodies will be conducted in 2017.

We will be publishing an Alert with further details on the new IGC requirements shortly.

HMRC publishes pensions liberation update

On 5 February 2015 HMRC published an update on its work against pensions liberation and pension scammers.

HMRC issues latest Countdown bulletin

On 6 February 2015, HMRC issued its latest countdown bulletin.   This series provides information in relation to the abolition of DB contracting out.

This issue gives details of forthcoming conferences which will provide further information on:

• HMRC’s scheme reconciliation service
• The proposed GMP self-serve facility.