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Pensions Industry Update - November 2016

Wed 07 Dec 2016

Pensions Industry Update - November 2016

Autumn Statement 2016

In his first (and last) Autumn Statement on 23 November, the new Chancellor announced a number of pensions-related items, some of which had already featured in the national press, as follows:

  • The money purchase annual allowance is to be reduced from £10,000 to £4,000 with effect from 6 April 2017.  HM Treasury has published a consultation paper setting out the details of this proposal (the consultation closes on the 15 February 2017.)
  • The Government is to publish a consultation before Christmas on options to tackle pension scams, including banning cold calling in relation to pensions, giving firms greater powers to block suspicious transfers and making it harder for scammers to abuse ‘small self-administered schemes’.
  • From April 2017, most salary sacrifice schemes will be subject to the same tax as cash income.  Some salary sacrifice schemes will be exempted from the change, i.e.  pensions, pensions advice, childcare, Cycle to Work and ultra-low emission cars.  In addition, all arrangements in place before April 2017 will be protected for up to a year, and arrangements in place before April 2017 for cars, accommodation and school fees will be protected for up to 4 years.
  • The tax treatment of foreign pensions is to be more closely aligned with the UK’s domestic pension tax regime by bringing foreign pensions and lump sums fully into tax for UK residents, to the same extent as domestic ones.

The Government will also:

o   close specialist pension schemes for those employed abroad (so-called “section 615” schemes) to new saving;

o   extend from 5 to 10 years the taxing rights over recently emigrated non-UK residents’ foreign lump sum payments from funds that have had UK tax relief;

o   align the tax treatment of funds transferred between registered pension schemes, and

o   update the eligibility criteria for foreign schemes to qualify as overseas pensions schemes for tax purposes.

  • The Chancellor also confirmed the government’s intention to maintain the triple lock (for the time being at least!).  The triple lockis the mechanism currently used by the government for increasing the State Pension. Under the triple lock, the State Pension is increased each April by the higher of the growth in average earnings, the Consumer Price Index (CPI), or 2.5%.

The Pensions Regulator issues public sector governance tool

The Pensions Regulator (TPR) has issued a tool that sets out the key processes, tools and actions expected from a well-run public service pension scheme.

TPR expects all public service pension schemes to carry out a thorough review against legal requirements and the guidance in its code of practice 14.  Recognising that this is a significant piece of work, TPR’s intention is that the 10-15 minutes that it should take to complete the questions asked by the tool is the start of the review process.  The tool produces a plan to address any issues identified and to help achieve best practice.

HMRC Newsletter 82

HMRC published the latest Newsletter on 4 November and covers the following topics:

  • Bridging pensions
  • New registered scheme statistics
  • Sales of lifetime annuities
  • Pension flexibility statistics
  • Relief at source – Annual returns
  • Overseas pension schemes content
  • Lifetime Allowance – Fixed and Individual protection 2016 effective date
  • Annual Allowance – Confirmation of calculator expected November

Occupational Pensions (Revaluation) Order 2016

The Occupational Pensions (Revaluation) Order SI 2016/1102 has now been published and will be coming into force from 1 January 2017. They specify the percentage by which deferred benefits (but excluding any GMP element) coming into payment under a final salary scheme must be revalued. Each Order is published towards the end of the year, and applies for members who reach Normal Pension Age (NPA) the following year. The revaluation percentage depends on how many complete years of deferment have elapsed since the member left pensionable service.

HMRC proposes changes to Provision of Information Regulations

HMRC is proposing changes to its 2006 Provision of Information Regulations in relation to the payment of lump sum death benefits.

These deal with the situation where the scheme administrator must still deduct tax at 45% before paying such a benefit, e.g. where it is paid to a non-individual such as a trust. The proposed amendments are intended to cover the situation where the scheme administrator pays the lump sum to a trust which then pays it on to an individual (rather than paying directly to an individual).

The intention is that the final recipient in these cases should be in the same position as they would have been had the lump sum been paid directly to them by the pension scheme, i.e. when they would have paid tax on it as income at their marginal rate.  The draft regulations require the scheme administrator to provide the receiving trust with certain information, and the trust to provide information to the eventual individual recipient, so that ultimately the individual recipient has enough information to ensure they pay their marginal rate of tax on the benefit.  For the vast majority of cases this will mean getting a tax refund from HMRC.

Regulatory & Pensions Support will monitor the progress of these changes and provide updates in future Pensions Spotlights.

TPO makes technical statement on High Court ruling

The Pensions Ombudsman (TPO) has issued a statement about the case of Butterworth v Police and Crime Commissioner for Greater Manchester after the High Court overturned a determination by TPO.  The Ombudsman sought clarity on this point because the legal position is uncertain and because it is a matter of potential relevance with regard to a significant number of complaints that he receives. The Ombudsman’s view is that the effect of the current uncertainty is that an inequality arises between public and private sector pension schemes. In private sector schemes, employers who make pension commitments to members would not ordinarily be able to rely on a lack of power to deny a liability to fulfill such commitments. By contrast, it seems that the legal principles applying to public sector employers can produce a different outcome for members.

Scheme Return

The Pension Regulator has published additional guidance to assist with the completion of the 2017 scheme return in respect of DB and hybrid occupational pension schemes.

They have produced two checklists in addition to the existing guidance and a set of questions and answers specifically for DB and hybrid schemes.

Some additional questions have also been added to the 2017 scheme return including:

  • asking for more recent details regarding membership, assets, contributions and scheme leavers
  • confirmation that, if applicable, the chairs statement has been prepared and signed and
  • confirmation of whether the scheme is an “Executive Pension Scheme”

From next year, some schemes will need to report their record keeping scores to TPR via the scheme return. TPR will use these scores to target schemes that are failing in their duties, so its now more important than ever for schemes to get their records in order.

Early Exit Charges

The Government issued its response to the DWPs consultation on capping early exit charges for members of occupational pension schemes that contain “flexible benefits” (DC Benefits).

With effect from October 2017, the Government will introduce a cap on any early exit charges imposed when a member leaves the scheme early in order to access their benefits flexibly. The cap will be 1% for existing members of occupational pension schemes and 0% for new members.  This will then be in alignment with the FCA’s approach in relation to contract-based schemes, having previously announced that the FCA intends to bring in its own capping rules with effect from 31 March 2017.

Consumer Price Inflation

The Office for National Statistics has published a statement, concluding that CPIH (the Consumer Price Index including owner occupiers’ housing cost) will be made their preferred measure of consumer price inflation with the intention that this will take place from March 2017.

It remains to be seen if the Government will follow suit and chose CPIH as its preferred measure of consumer price inflation, which could then have implications on statutory pension indexation.