Finance Act 2016 technical note
Please find a link to the Finance Act 2016 technical note which gives an overview of the changes the Act brings into force.
Countdown bulletin 20
Another countdown bulletin has been produced by National Insurance Services to the Pension Industry (NISPI), which covers a number of topics:
- Pension forum September 2016 – main topics discussed were closure scan, scheme reconciliation, financials (Her Majesty’s Revenue and Customs (HMRC) will identify outstanding debt and unused money held under the scheme) and Guaranteed Minimum Pension (GMP) checker issues
- General update – Scheme reconciliation queries, customer relationship manager team update, scheme cessation process, Pension Protection Fund (PPF) and Department for Work and Pensions (DWP) policy
- Future articles – If there is a particular topic you would like to see articles on, there is an email address to contact
- DWP update – State pension top up (six months to go until application for the top up are due to close)
- Distribution details – It is possible to have future editions of countdown bulletins mailed directly to you
- Useful links – Scheme reconciliation service and previous editions of countdown bulletins
- Feedback – HMRC would like feedback on countdown bulletins
- Pension forums survey results
Bankruptcy – Horton v Henry
The Court of Appeal has ruled that savers facing bankruptcy will not have to cash in their pension to pay off outstanding debts if there is an application from a trustee in bankruptcy. The court dismissed an appeal against the High Court decision in Horton v Henry which deemed that a bankrupt person aged 55 or older should not have to access pension savings to pay an Income Payment Order (IPO). An IPO requires a person to pay a proportion of their income to the bankruptcy trustee. The judgment conflicted with a case from 2012
(Raithatha v Williamson) where the judge ordered that a bankrupt person of pensionable age could be forced to withdraw their 25% tax free lump sum to pay an IPO.
Overpayments – Webber v Department for Education
Under section 5 of the Limitation Act 1980, a claim to repayment of money paid by mistake cannot be brought later than six years after the right to make that claim first arose (i.e. when the mistaken payment was made). However, under section 32 of that Act, that six-year limitation period will not start to run until the claimant discovers the mistake for the first time, or could have discovered it.
The recent High Court decision in Webber v Department for Education potentially creates significant obstacles for pension schemes seeking to recover overpayments of pension made in error.
If a court or the Pensions Ombudsman concludes that the trustees or managers of the scheme could have reasonably discovered the error at an earlier date than they in fact did, or if there is a drawn out attempt to resolve any dispute through the scheme’s Internal Dispute Resolution Procedure (IDRP), the member may be able to resist a claim for full recovery on the basis that the applicable limitation period has expired.
Where client schemes are involved in the recovery of overpayments made in error, they should seek guidance from their legal advisers on the implications of the Webber decision for their particular case.
Pension Scheme Bill
Because of the introduction of Automatic Enrolment (AE) in 2012 more and more Defined Contributions (DC) master trusts have started up. Because employers are now using these vehicles for AE purposes there has been concerns about the robustness of the regulatory/supervisory framework for DC master trusts. The government made the decision to address some of these concerns in the Pension Scheme Bill.
In a recent Parliamentary briefing it was confirmed that “The Pension Scheme Bill seeks to protect savers and maintain confidence in pension savings by increasing the regulation of master trusts and providing members of occupational pension schemes with a level of protection equivalent to that of members of personal protection schemes”.
There is also the possibility that as they debate the Bill it could have a knock-on effect to strengthen the regulatory regime for Defined Benefits (DB) schemes.
Charge cap guidance
The DWP has updated its guidance for trustee and managers of occupational pension schemes that are used for AE purposes. This guidance confirms which costs and charges are subject to the charge cap (0.75%).
New version of Technical Memorandum 1 published
On 21 October, the Financial Reporting Council published a revised version of Actuarial Standard Technical Memorandum 1 (TM1) which sets out the basis on which annual statutory money purchase illustrations (SMPIs) should be determined.
Version 4.2, which is effective for SMPIs issued on or after 6 April 2017, makes two changes to the mortality assumptions to reflect up-to-date experience, following new and proposed publications by the Institute and Faculty of Actuaries’ Continuous Mortality Investigation.
Government’s plans for a secondary annuity market cancelled
On 18 October, following an outbreak of common sense at HM Treasury, the government announced that it had decided not to go ahead with its plans for a secondary annuity market.
Although many providers had confirmed their willingness to have their annuities sold on the secondary annuity market, it had become clear that there would be insufficient potential purchasers to make that market competitive. Consumer protection was the government’s stated top priority and they were not willing to let a market develop that could produce poor outcomes for consumers, such as receiving poor value for their annuity income.
State Pension Age review
The Pensions Act 2014 requires the State Pension age to be reviewed during each Parliament. The reviews consider changes in life expectancy and wider changes in society. The first of these reviews is currently underway.
On 13 October 2016 the DWP published an interim report written by Sir John Cridland who has been appointed as the independent reviewer.
The report considers what a suitable State Pension Age should be, both now an in the future, and whether the current age rising in life expectancy is appropriate and if not, how access to the State pension could be better structured.
Some of the proposals under consideration allow some form of early access that could be based on the ability to work, or overall income level, or it could be entirely flexible, but with reduced payments.
A final recommendation will be made early next year. The government does not have to adopt anything proposed by the bill but has to give an official response by May 2017.
The timetable for change is protected until 2028 when the pension age will reach 67. So anyone born before 1961 will not be affected by these recommendations.
GMPs – timing of fixed-rate revaluation after 5 April 2016
Following the abolition of contracting-out from 6 April this year, legislation was introduced allowing schemes to provide for fixed rate revaluation to be triggered by a member ceasing to be in pensionable service (as opposed to ceasing to be in contracted-out employment as was the case before 6 April 2016.) To make use of this provision, most schemes will require a rule amendment.
Following concerns that schemes with restrictive amendment powers would not be able to amend their rules to allow for a change to the timing of fixed rate revaluation, a statutory modification power was introduced that could be exercised unilaterally by trustees. This modification power will no longer be able to be applied after 5 April 2017 and so schemes that wish to take advantage of it, but who have not yet done so, should speak to their legal advisers at their earliest opportunity.
Making Retirement Choices Clear
In April 2016 the Association of British Insurers (ABI) published a consultation seeking views on a draft guide to simplifying language on retirement choices – Making Retirement Choices Clear. The guide is designed to ensure that the retirement choices introduced on 6 April 2015 are explained and communicated to customers in clear consistent language avoiding technical terms where possible.
Following the consultation, a final guide has now been published and is a good reference tool to help explain the new flexible retirement options to our members.
Bridging Pensions
The Registered Pensions Schemes (Bridging Pensions) and Appointed Day Regulations 2016 has now been published which allows the payment of bridging pensions to continue. This ensures the existing circumstances in which a bridging pension can be reduced/can continue following the introduction of the single tier State Pension.
The regulations specify when a reduction applies for those who reach State Pension Age (SPA) on or before 5 April 2016, and those who reach SPA on or after 6 April 2016. The reduction in each case will be a multiple of the “relevant state pension rate.”
The regulations come into force on the 8 November 2016 but will be backdated to payments made on or after the 6 April 2016.
Removal of the transfer watch list
For a long time the transfer watch list has been used to see if a scheme we are transferring out to is suspected of being a pension scam. With the High Court judgement earlier in the year (Hughes v Royal London) it was established that suspicion cannot stop a member transferring out if they have a statutory right to transfer. Changes to the pension scamming process has been made and will be cascaded down to teams as there is a new process to follow. Because of this new process the transfer watch list will now be removed – going forward please do not refer to it.