Pensions Industry Update - June 2016
DWP updates guidance for top up to State Pension
The guidance confirms that this top up is only for individuals who reached State Pension Age before the introduction of the new State Pension on 6 April 2016. The scheme will only be open until 5 April 2017 and could possibly boost individual’s pensions by up to £25 a week.
TPR Code of Practice no: 13 – small DC schemes and DB schemes with DC AVC’s
In our recent response to the Pensions Regulator’s consultation on the “how to” guides intended to support their revised Code of Practice 13 (Governance and administration of occupational trust-based schemes providing money purchase benefits), we raised our concern that all of the guides need more examples of the proportionate measures that can be adopted in response to the code by both small schemes and money purchase AVC arrangements within defined benefit schemes. In relation to AVCs, all of the “how to” guides advise trustees that:
“… where legal obligations apply you should consider the risks to members in the context of the significance of the value of AVCs relative to members’ overall benefits in the scheme, and apply a proportion approach to meeting the relevant standards in our DC code.”
As regards other smaller DC schemes, there is very little in the way of specific guidance as to the options available to them when complying with the code.
In our view, this is inadequate as it is left to these smaller DC schemes and AVCs arrangements to determine what a proportionate approach is (which may require them seeking legal advice) and we would welcome the views of our clients on this matter.
HMRC Newsletter 79
HMRC latest publication covers key issues like:
- Pension flexibility and how PAYE should be applied and the correct data items to be using for this type of payment.
- Annual Allowance and Scheme Pays self-assessment tax return completion, event reporting number 22 and specifics in relation to the completion of the event.
- Lifetime allowance protection and the online service starting from the end of July.
- Rather than a registered status check being sent by post which could take days to get to HMRC, it is possible to send a scanned copy of the letter (on headed paper) to the email address as confirmed in Newsletter 60.
Other information included in the newsletter relate to changing scheme details, pension scheme contact phone number, the Finance Bill 2016 expected date and relief at source information notices.
Countdown bulletin 18
Bulletin 18 highlights again when notification to National Insurance Services to Pensions Industry (NISPI) in relation to contracting out should be sent and it refers to bulletins 10 and 16 for some of the specifics. There is a list of feedback questions and answers in relation to the GMP checker which may answer some questions for individuals that have already used the service so far. Later in the bulletin there is comment on the Scheme Reconciliation Service (SRS), Scheme Cessation process, Department for Work and Pensions (DWP) update on new materials produced, distribution details on where to direct individuals relating to specific queries, useful links and ending with contact details to telephone for general queries on contracting out.
The Pensions Ombudsman has announced a new approach to its published determinations. These will now include determinations that are made by the Ombudsman after a complainant has appealed against an initial opinion given by the adjudicator. Also adjudicators opinions that are “considered to be of interest” will also be published even if they do not lead to an Ombudsman determination.
The Ombudsman has also announced that it will anonymise all new published decisions unless the Ombudsman considers it is essential in understanding the decision or if the decision is of wider public interest or sets a precedent.
Capping Early Exit Pension Charges
The Financial Conduct Authority (FCA) has issued a consultation on an early exit charge cap of 1% for those wishing to access their pensions early and to take advantage of the new pension freedoms.
Early exit charges are charges borne by the members of personal and stakeholders pensions when they take or transfer their benefits on or after age 55 but before their expected retirement age.
The cap of 1% of the value of the member’s pot will apply to existing contract-based personal pensions including workplace pensions. For any new contracts that are entered into after the proposed new rules come into force firms will not be able to apply any exit charges.
At the same time the DWP issued a consultation on capping early exit charges for members of occupational pension schemes to ensure a fair and consistent approach across all defined contribution pensions.
Their proposals mirror that of the FCA for personal and stakeholder pensions and will only apply to scheme members with new and existing pensions who are eligible to access the pension freedoms.
The new rules for both consultations are due to come into force on 31 March 2017.
Creating a Pensions Dashboard – Pension Finder Whitepaper launch
On 26 May 2016, the ABI and the Money Advice Service on behalf of the Open Identity Exchange (OIX) published a white paper reporting on progress so far, including results from its consumer research and plans on the overall architecture and governance.
The idea is that the dashboard will use a website to bring together a person’s pension savings information stored electronically by the State and pension providers. Individuals will be able to access such information after verifying their identity and may be able to carry out some tasks.
There is likely to be a phased implementation period – the State Pension, some Public Sector pensions and auto-enrolment DC pensions available initially with more “complex” types of pensions, such as Self-Invested Personal Pensions, to be phased in later. The intention is that ultimately an individual’s DB pensions will also be viewable on the dashboard, although it is widely acknowledged that DB pension schemes may face challenges in making some of their historic member data accessible electronically.
Following consumer research, the recommended approach is to initially build a single-destination dashboard operated by one organisation. Access to this may also then be made available through a variety of approved industry websites such as those operated by pension providers.
Armed forces pensions divorce guidance has now been updated
This guidance is split into four documents, the guidance, a booklet, divorce factors for calculations and a divorce charging regime. The guidance focuses on the main features and the steps to be undertaken on a divorce for the Armed Forces Pension Scheme and Reserve Forces Pension Schemes.
Updated member’s guide for Police Pension Scheme produced
The Home Office has published three documents, an English and Welsh member guide and a Policy Equality Statement for the Police Pension Scheme 2015. The guides are intended to explain the main details of the schemes in simpler language than the regulations.
Government consults on implementing the Fair Deal for LGPS
The Government is now consulting on extending the Fair Deal to the Local Government Pension Scheme (LGPS). The changes would mean that TUPE-transferred LGPS employees would remain in the LGPS and the new employer would be obliged to become a so-called “admission body” participating in that scheme. The option of providing a broadly comparable scheme – even if the new employer has a suitable pension scheme already – would no longer be an option.
Brexit - Impact on UK Pensions
Following the vote to leave the European Union, there will be no immediate impact on UK pension legislation. Any impact will be subject to the exit terms agreed, which may require legislation to be changed going forward.
However many of the EU requirements that have been incorporated in UK law are designed to protect the rights of workers and so large scale reform appears unlikely. Most of the legislation that has arisen from EU law has already been passed into UK law so would still apply following the exit.
The immediate impact will be more in relation to the volatile markets and the effect these may have both the value of member’s DC funds and the funding of DB pension schemes. For example, the deficits in defined benefit schemes could well increase and be more volatile. Pension scheme trustees are, no doubt, already in conversation with their investment advisers as to the strategies that will minimise their exposure (and many of them would have started these conversations well before the outcome of the referendum was known.)
Annuity rates, which determine how much annual income savers will receive in exchange for their pension pot, are likely to remain at very low levels and may fall even further with the current volatility. In the long term, the EU rules regarding the amount of capital that insurers have to hold to support their annuity business may be slightly relaxed which would be good news for annuity rates.
The leave vote could also mean that more pensions tax reform could be back on the agenda as the Treasury could well be looking for ways to receive more tax income. Capping tax relief on pension contributions is something that was discussed prior to the last budget and areas such as the continued reduction of the Lifetime and Annual Allowance could also be looked at.
Brexit could also trigger more people to move their pensions out of the UK which could see increased demands for overseas pension transfers from expats and those who are considering retiring outside of the UK.
An area that could be of good news to the pensions industry is in relation to the implementation of the EU requirement for the equalisation of GMPs. This could now be abandoned thus avoiding potential complications in scheme administration and the associated costs.