Occupational and Personal Pension Schemes and the Pension Protection Fund (Miscellaneous Amendments) Regulations 2016

Background

The DWP’s consultation on the draft Occupational and Personal Pension Schemes and the Pension Protection Fund (Miscellaneous Amendments) Regulations 2016 was published on 23 November 2015. It seeks views on a number of “minor and technical” regulatory changes to four areas of legislation, with the aim of ensuring that the new flexibilities operate as intended.

In this response

• General comments
• Pension Sharing and Attachment Orders on Divorce etc
• Pension Protection Fund Entry Rules
• Retirement risk warnings for members of occupational pension schemes

General comments

Given the importance of ensuring that the new pension flexibilities work as intended, we welcome the opportunity to comment on the present consultation.

Broadly, we agree with the approach set out in the consultation. Where we have specific comments on the proposed amendments, these are set out below. We have not sought to comment on every provision.

Pension Sharing and Attachment Orders on Divorce etc

Pension Sharing

We agree with the proposal that the advice requirement should apply to pension credit members if they wish to transfer safeguarded pension credit rights valued above £30,000. We do not see any reason for this to be inconsistent with the general requirement for a member to seek advice where they propose to transfer or convert safeguarded benefits valued above £30,000.

Attachment (earmarking) orders

It is also proposed that former spouses are informed when a scheme receives notification that a member with an attachment order against their benefits gives notice of their intention to flexibly access their benefits. As attachment orders predate the pension flexibilities, there is a real risk that in selecting one or more of the newly available retirement options, there will be a detrimental impact on the benefit which had been earmarked for the former spouse.

We therefore agree that a former spouse should be notified of any request or notification application by a member to draw their benefits flexibly, as this would give them an opportunity to take advice and, if appropriate, apply to court to vary the original attachment order.

As drafted, whilst the regulations would require such a notice to be made in these circumstances, and set a time limit for issuing that notice (within 10 days of receiving the request / notification), they do not currently stipulate any time for the former spouse to take action. Sufficient time should therefore be factored in, to permit the former spouse to take legal advice and/or apply to court to vary the original order, before the member’s request is actioned.

In relation to the 10 day notification requirement, it should be noted that this is inconsistent with the existing requirements for notifying former spouses about the transfer of benefits subject to an attachment order (21 days, under The Divorce etc (Pensions) Regulations 2000 (SI 2000/1123)). These provisions should be consistent to ensure that they can operate in tandem.

In terms of practical difficulties for schemes, tracking down former spouses who have not kept the scheme in touch with any changes of address is likely to be the most common.

Conversion of safeguarded benefits to flexible benefits

In our experience, whilst this is not currently commonplace, we are seeing more interest in this option.

Exclusions

We agree that only pension rights giving rise to a preserved pension should be shareable and that the value of a cash transfer sum should be excluded.

We also agree with the proposed exclusion of pension death benefits in payment.

Pension Protection Fund (PPF) Entry Rules

As the consultation explains, some schemes which are eligible for the PPF have sponsoring employers who are unable to have a qualifying insolvency event in order trigger access to the PPF. Regulation 7 of the PPF Entry Rules Regulations (SI 2005/590) provides a mechanism for many such employers but, despite recent changes following the Olympic Airlines case, does not cover all PPF eligible schemes.

We therefore welcome the move to ensure that all PPF eligible schemes have a mechanism by which they can enter the PPF. However, we have some questions / comments on the proposal:

• The 28 day time limit for trustees to use the “alternative route” of applying to the PPF under section 29 of the Pensions Act 2004 is very tight, potentially causing difficulties in practice. Could this be extended, allowing trustees to notify “as soon as reasonably practicable”?
• Has thought been given to the possibility of using the primary insolvency proceedings as the trigger for PPF entry, without the need for a separate UK insolvency event?
• Certain unincorporated associations may still be excluded on the basis that, although they qualify as employers for the purpose of PPF eligibility, they fall outside the list of bodies in regulation 7 of the PPF Entry Rules which may use the alternative route (this is referred to in an FAQ on the PPF’s website).

Retirement risk warnings for members of occupational pension schemes

It is proposed that trustees should provide members with additional information after the “wake up” pack has been issued but before they actually take or transfer their benefits. This should include risk warnings that cover “those attributes, characteristics, external factors or other variables that increase the risk associated with how the member could access their pension savings”, to tie in with examples already provided by TPR in their essential guide.

It is intended that the requirements will not be prescriptive, giving trustees the freedom to use generic risk warnings or tailor the warnings if appropriate. We support this approach.

However, we have some concerns with the current and proposed process which, in our view, is overly complicated, increasing both the administration burden and costs for schemes. At the same time, scheme members may be overloaded with information which could have the impact of hindering, rather than helping, their decision.

A simpler and more cost effective approach would be to incorporate the requirement to issue the risk warnings alongside the information provided under Regulations 18A, 18B and 19 of the Disclosure Regulations (SI 2013/2734).

Regulations 18A and 18B of the Disclosure Regulations set out the information to be sent out by schemes when contacted by a member prior to retirement. We agree with the concerns outlined in the consultation, that these provisions are somewhat ambiguous.

The stated policy intention is that regulation 18A applies “where a member is being proactive and specifically asks their scheme for information […]”, whereas regulation 18B “is intended as a more general requirement that where the member or the scheme contacts the other on a retirement related point, the scheme only has to provide the member with limited information to prompt them to use Pension Wise”.

In our view, this should be addressed by clarifying the regulations themselves, rather than in supporting guidance. One option, which would help simplify the procedure, would be to combine the two provisions and include the same information requirement in both scenarios.