Pensions Industry Update – August 2016

Wed 31 Aug 2016

Pensions Spotlight – August 2016

Countdown bulletin 19

HMRC has published issue 19 of its end of contracting-out countdown bulletins. This issue, amongst other things provides information on the GMP Checker service survey results, explains that HMRC will not accept any further requests for the Scheme Reconciliation Service and highlights some of the business as usual items they have been incorrectly receiving and how queries/requests should be handled going forward.

HMRC consultation on salary sacrifice for the provision of benefits in kind

In its March budget, the government announced that it was considering limiting the range of benefits that attract income tax and NICs advantages when provided through a salary sacrifice scheme.  The government’s expressed intention at the time was that pensions savings, childcare and health-related schemes, e.g. Cycle to Work, that are provided through salary sacrifice schemes would continue to enjoy these advantages.

HMRC published its consultation on salary sacrifice for the provision of benefits in kind on 10 August 2016.  This confirms that employer pension contributions are to be excluded from the proposed changes to the salary sacrifice rules (as is employer-provided pension advice based on the recommendation of the Financial Advice Market Review).

Redress Methodology for Pensions Transfers

The Financial Conduct Authority (FCA) have announced its intention to review the current methodology used to calculate the levels of redress due in cases of unsuitable advice on transfers from Defined Benefit (DB) occupational schemes to personal pensions.  The FCA is carrying out the review as it believes the methodology that dates back to the 1990s may no longer be suitable for disputes today.

While the review is carried out the FCA has said it would not expect it “fair” for firms to settle complaints until the outcome of the consultation is known.

The FCA states that it would expect firms to communicate the reasons for any delays to the customer and to consider offering provisional redress and then provide a final response and any further redress, if appropriate, once the outcome of the consultation is known.

The FCA expects to consult on this in the autumn and reach its conclusions by spring 2017.  It is intended any changes to the redress methodology will apply to future redress payments only.

Scheme Pays obligations

Confirmation has now been received from HMRC regarding scheme pays obligations.

In respect of tax year 2015/16 if the sum of a members Pension Input Amount (PIA) in the scheme for their "pre and post alignment mini tax years" exceeds £40,000 then the member has the right to demand scheme pays from the scheme.

For the 2016/17 tax year the member has the right to demand scheme pays if the PIA exceeds £40,000 and not that in excess of the member’s personal Tapered Annual Allowance on which the actual charge will be based.

As before the option to have the scheme pay will only be available if the Annual Allowance charge across all schemes is at least £2,000.

ABI publishes full year of pension freedom data

On 15 August 2016, the ABI published statistics for the first complete year since the DC flexibility reforms were introduced in April 2015.

The data indicates that the majority of savers are taking a sensible approach with just over 57% of those making partial withdrawals from their DC pot in the first quarter of 2016 withdrawing less than 1%.  There are some signs, however, that some may be withdrawing their funds too quickly with the risk that they will run out in a decade or less.  The ABI do, however, point out that they cannot tell from the data collected if these people have multiple DC pots or other sources of retirement income.

In the most recent quarter, sales of annuity products have fallen (£950 million invested, compared to £1.1 billion last quarter), while sales of drawdown products have remained consistent (£1.48 billion compared to £1.49 billion last quarter).

Review of the DB Pensions Landscape

The Work and Pensions Select Committee (WPSC) has launched an enquiry into the adequacy of pension scheme legislation and the regulation governing DB pension funds. This follows the recent publication of its report on the demise of BHS.

The WPSC has invited written submissions covering the following issues:

  • DB regulation by the Pensions Regulator - including the adequacy and application of regulatory powers.
  • The Pension Protection Fund (PPF) - including sustainability and fairness of the PPF levy.
  • The roles and powers of pension scheme trustees
  • Relationships between the Pensions Regulator, the PPF, trustees and sponsoring employers
  • The balance between meeting pension obligations and ensuring the ongoing viability of sponsoring employers – including whether the current framework is generating inter-generationally fair outcomes.

The WPSC is in particular looking at recommendations on potential improvements in these areas, with the deadline for responses being 23 September 2016.