Pensions Industry Update - December 2016

Tue 10 Jan 2017

Pensions Industry Update - December 2016

HMRC Newsletter 83

Pension Scheme Newsletter 83 includes a number of interesting topics like:

  • Autumn Statement 2016 – foreign pensions, pension scams and reduction to the Money Purchase Annual Allowance
  • Lifetime allowance – amending protection and losing protection
  • Unauthorised borrowing – scheme guidance and process
  • Serious ill health lump sums – Real Time Information (RTI) reporting
  • Relief at source - annual returns of individual information for 2015 to 2016
  • Overseas pension schemes – submitting information, Qualifying Recognised Overseas Pension Schemes (QROPS) online and QROPS statistics
  • Scottish Rate of Income Tax (SRIT) and relief at source

LISA 25% early exit charge for 2017/2018 scrapped

The government has announced that the 25% withdrawal charge for the Lifetime ISA (LISA) will not apply for the first year (2017/2018). The charge reflects the long-term nature of the product and ensures that individuals save into it for the intended purposes, protecting the government funds and the taxpayers’ money. Speaking in the House of Commons, Financial Secretary to the Treasury, Jane Ellison, said that if people want to withdraw from their LISA in 2017/2018, they must close their account. There will be no government charge to do so, however no bonuses will be paid on the account as during the 2017/2018 year the bonus will be paid at the end of the year. After the first year, as the government bonus will be paid monthly the withdrawal charge will return.

Bulk transfers of define contribution (DC) pensions without member consent

The DWP has published a call for evidence seeking views on how the existing provisions for the bulk transfer of DC pensions without member consent can be improved.  This type of transfer can take place where, for example, an employer wants to consolidate two or more of its pension arrangements.

The existing provisions were originally designed for defined benefit pension arrangements and the DWP wants to ensure that they can work effectively for DC arrangements.  In particular, they want to reduce unnecessary burdens on scheme administrators (whilst ensuring that members are adequately protected), and allow providers of stakeholder schemes to transfer members to more modern arrangements.  The DWP also sees this as an opportunity to develop scale in the DC arena by enabling smaller schemes (which often have weaker governance and higher charges) to either consolidate into larger entities or exit the market.

The call for evidence closes on 21 February 2017.

Public and private sector contracting-out consultations

On 28 November 2016, the DWP issued a consultation paper setting out details of draft changes to the contracting out regulations and considering two areas of contracting out where it has previously committed to review legislation.  It also seeks feedback on a proposed new methodology for equalising guaranteed minimum pensions (GMP’s) and potential changes to the existing conversion legislation.  Also covered is a new fixed rate GMP revaluation percentage of 4% in respect of early leavers from 6 April 2017.  This follows a recent review by DWP of the revaluation rate (having taken advice from the Government Actuary’s Department.)

The consultation closes on 15 January 2017.  

On the same day, HM Treasury also published a consultation paper looking at the indexation and equalisation of GMPS in public sector schemes.  Prior to 6 April 2016, integration between occupational pension schemes and the State was possible due to the Additional state pension (AP).  The introduction of the new State Pension (nSP) from 6 April 2016 removed this mechanism.

The government has introduced interim measures for public sector schemes so that, for individuals reaching State Pension Age between 6 April 2016 and 5 December 2018, full indexation on the GMP is given.  It is possible that GMP treatment in public sector schemes for members reaching State Pension Age after 5 December 2018 may produce an inequality as between men and women as there will no longer be a mechanism in place to provide fully indexed pension payments. The consultation examines (amongst other things) possible options to prevent this inequality.  The consultation closes on 20 February 2017.  

Scottish Income Tax

In Scotland’s draft budget the Scottish Government proposed to freeze the basic rate of income tax at 20% which is in line with the current UK rate.

However they have proposed that the 40% higher rate threshold will increase by inflation to £43,430 in 2017/18.  This will be lower than the current UK higher rate threshold which for 2017/18 is set at £45,000.

The additional rate of 45% is proposed for earnings over £150,000, which is also in line with the UK rate.

The budget plans will go to parliament by the end of January.  The final vote to agree the budget is planned for the end of February.

HMRC Countdown bulletin 21

The latest bulletin highlights the closure scan which was due to run in December. This will close open periods of contracting out employment using the Scheme Contracted-Out Number (SCON) provided by the employers on their Full Payment Submissions (FPS). All the active members identified by the scan will be shared to enable reconciliation.  To obtain the closure scan HMRC process is to complete a closure scan request form as soon as possible. Between January and March 2017 the closure scan will be accessible in Scheme Reconciliation Service (SRS) current e-room.

Pension Scamming

The Department for Work and Pensions and HM Treasury have launched a consultation seeking views on measures to tackle pension scams, including a ban on cold calling in relation to pensions.

The consultation sets out measures aimed at tackling three different areas of pension scams:

  • A cold calling ban aiming to cut off the key source of pension scams whilst also sending a clear message to consumers that they should hang up if cold called about their pension.
  • Clarifying the law so that transfers can be blocked based on clear criteria, such as not being able to show a genuine employment link to the receiving scheme, together with evidence of regular earnings from that employment and confirmation that the employer concerned has agreed to participate in the receiving scheme.
  • Making it harder for scammers to open fraudulent schemes by having a requirement that only active companies can register a pension scheme with HMRC.

It is also asking for views on action that can be taken to prevent small self-administered schemes being used as scamming vehicles.

The consultation closes on 13 February 2017.

Setback for same sex partners’ pension rights

The Irish case of Parris vs. Trinity College Dublin may have implications for same sex partners’ pension rights in the UK.

Under the rules of the Trinity College scheme, entitlement to a full survivor’s pension is dependent on a civil partnership or marriage being legally entered into before the member’s 60th birthday.  Dr Parris who entered a civil partnership in the UK in April 2009 on his 63rd birthday is suing on the grounds that he and his husband are being discriminated against on the grounds of sexual orientation, age or both because it was legally impossible for him to enter into a civil partnership in Ireland before his 60th birthday as Irish Law did not recognise such unions at that time.

The Court of Justice for the European Union however has found that the scheme rules did not constitute discrimination on the grounds of either age or sexual orientation.

There is a UK case, Walker vs. Innospec, which is due to be heard before the Supreme Court in March 2017.  This also concerns retrospective entitlement to survivors’ pensions for same sex partners for periods before same sex unions were legally possible under national law.  After the Parris judgement, it appears less likely that the Walker case will succeed.

Form CA1597

The CA1597 form is used to provide notice when an increment to a scheme members’ GMP is to be paid because payment was postponed beyond State Pension Age. 

HMRC have recently updated the form to provide clarity on when the form should be completed.