7 days


7 Days is a weekly round up of developments in pensions, normally published on Monday afternoons. We collate this information from key industry sources, such as the DWP, HMRC and TPR.

In this 7 Days:

Taxation of Pensions Act 2014

The Taxation of Pensions Bill 2014 received Royal Assent on 17 December 2014.

This Act is designed to implement the changes to the pensions tax rules first announced in the 2014 Budget, with a view to giving individuals greater flexibility over how they access their DC pension savings (see our Budget 2014 Alert for details).

Although there were few changes from the Bill that was published in October 2014 (see our Alert:Taxation of Pensions Bill for more details), it now includes detailed provisions for nominees and successors’ benefits.  From 6 April 2015, the Act will relax the current requirement that pension death benefits for DC arrangements must be paid to a dependant – it will also be possible for a nominee or successor to receive pension death benefits.

Trustees should consider whether they want to offer their members the ability to take advantage of all or certain of the above changes with effect from 6 April 2015.  Please speak to your usual Sackers contact for more information.

Consultation on draft regulations

As the Taxation of Pensions Act has now received Royal Assent, HMRC has published three sets of draft regulations for consultation.

The Registered Pension Schemes (Provision of Information) (Amendment) Regulations 2015 are designed to impose new requirements on scheme administrators (the trustees of an occupational pension scheme) to provide appropriate information, to both an individual who has flexibly accessed their DC savings and other scheme administrators, so that they can ensure the correct tax treatment is applied to future DC savings.

The draft regulations also:

  • amend the reporting requirements on the payment of death benefits that are tested against the LTA to include any designations into drawdown which are subject to the new benefit crystallisation event (BCE 5C) being introduced by the Act;
  • introduce new reporting requirements on scheme administrators / trustees where a beneficiary receives payments from a drawdown fund that can be paid tax free and the drawdown fund is transferred to another provider.

The Registered Pension Schemes (Transfer of Sums and Assets) (Amendment) Regulations 2015 provide for changes to existing tax legislation to ensure that transfers of annuities in payment do not lead to unintended tax consequences.

The Overseas Pension Schemes (Miscellaneous Amendments) Regulations 2015 include amendments so that overseas schemes will no longer be required to designate 70% of the UK tax-relieved funds to provide an income for the individual. The draft regulations also strengthen the requirements for overseas schemes so that either the scheme (as now), or the provider of the scheme, must be regulated in its home country

Pension Schemes Bill 2014-15

The Pension Schemes Bill has received its second reading in the House of Lords.  The legislative framework for the “guidance guarantee” was a key focus of this debate, as it is anticipated that some 300,000 new retirees per year with DC benefits could call on this service.

The intention is that the FCA will be under a duty to ensure that the providers it regulates make people aware of their right to guidance and signpost them to this service.  Similarly, the DWP will be responsible for ensuring that the equivalent duty is placed on pension schemes regulated by TPR.

The next step is for the Bill to be considered in committee stage in the House of Lords on 7 January 2015.

BIS: Government action following holiday pay ruling

As we reported on 1 December 2014, the EAT concluded that payments for overtime which employees are required to work, but the employer is not obliged to offer (“non-guaranteed overtime”), should form part of an employee’s “normal remuneration” and therefore be included in the calculation of holiday pay.

Following the ruling in this case, the Government has taken action to reduce potential costs to employers and give certainty to workers on their rights.  Changes made to regulations under the Employment Rights Act 1996 will mean that claims to Employment Tribunals on this issue cannot stretch back further than 2 years.

Workers can still make claims under the existing arrangements for the next six months, which will act as a transition period before the new rules come into force.  The changes apply to claims made on or after 1 July 2015.

In the wake of the ruling, the Government set up a taskforce of representatives from Government and business to assess the financial exposure employers face and how to limit the impact on businesses.

This decision could have repercussions for the calculation of pension benefits.  Please click here for further details.

DWP confirms automatic enrolment thresholds

Whether an individual is eligible for automatic enrolment depends on whether they earn in excess of the “earnings trigger”.  Contributions payable in respect of an eligible jobholder also depend on their earnings within the “qualifying earnings band”.

Following a consultation in the autumn, the DWP has confirmed the automatic enrolment thresholds for the tax year 2015/16:

  • the earnings trigger will remain at £10,000
  • the qualifying earnings band will increase to £5,824 – £42,385 (from £5,772 – 41,865).

A draft Revision Order specifying these rates will be laid before Parliament in the New Year. It is intended that the new rates will come into force on 6 April 2015.

Abolition of NEST contribution and transfer restrictions from 1 April 2017

The DWP has published the Government’s response to consultation on two sets of draft regulations – the National Employment Savings Trust (Amendment) Order 2015 and the Transfer Values (Disapplication) (Revocation) Regulations 2015.

Subject to Parliamentary approval, the regulations will lift the current annual limit on contributions to NEST and the existing restriction on transfers out of NEST from 6 April 2017.

Accounting standards: FRC consults on amendments to FRS 101

The FRC has issued proposals aimed at streamlining the financial reporting process.  Among other things, the changes to Financial Reporting Standard 101 (FRS 101) seek to introduce a small number of modest additional disclosure exemptions to FRS 101 which have arisen in the last year.

The consultation is in line with the FRC’s commitment to update FRS 101 annually to ensure that the reduced disclosure framework remains consistent with International Financial Reporting Standards (IFRS).

The consultation closes on 20 March 2015.

FRC updates pensions communications standard

The FRC has published a revised version of Actuarial Standard Technical Memorandum 1 (AS TM1), which sets out the basis on which annual SMPIs should be determined.  The changes to AS TM1 take account of automatic enrolment, the new legislation on benefits for same sex spouses and the impact of guaranteed annuity terms.

The revised standard will be effective from 6 April 2015.

HMRC Pension Schemes Newsletter 66

The latest Pension Schemes Services Newsletter sets out guidance on, among other things:

  • the Taxation of Pensions Bill (now the Taxation of Pensions Act)
  • annual allowance pension statements
  • pension flexibility from 6 April 2015.

Independent Project Board: Audit of charges and benefits in legacy schemes

The Independent Project Broad (IPB) has published its final report on charges and benefits in legacy DC schemes.

The IPB, which consists of representatives from the DWP, regulators, industry bodies and consumer representatives and which has an independent Chair, was asked to look at legacy schemes at risk of being exposed to charges over an equivalent 1% annual management charge.  It was also asked to recommend what actions should be taken by trustees and the new independent governance committees.

The IPB will now write to the providers of schemes whose savers are potentially exposed to high charges and will recommend that they should:

  • review their data in the light of any actions already taken to reduce charges and any factors which might justify higher charges
  • identify what actions could be taken to improve outcomes for savers and what can be done to stop new savers joining poor value schemes
  • provide data, further analysis and proposed actions to the relevant governance body by the end of June 2015.

The report also sets out guidance for governing bodies and recommends that they should agree actions and an implementation plan with the providers concerned by the end of December 2015 at the latest.

The IPB also recommends that the DWP and FCA should review progress on work to improve poor value schemes and publish a report on its findings by the end of 2016.

PPF levy determination for 2015/16

The PPF has published its levy determination for 2015/16. Following a consultation on draft levy rules in October 2014, the PPF has made small amendments to the PPF specific model, including:

  • changes to the entry conditions for large and complex scorecards, so that businesses which file abbreviated accounts or whose only subsidiaries are dormant are not captured
  • the ability to capture full-time equivalent employee numbers where these are reported by businesses in their accounts, and
  • the exclusion of immaterial mortgages (where these have been appropriately certified) in assessing the age of the most recent mortgage or secured charge.

The determination also confirms the levy scaling factor at 0.65 and scheme based levy multiplier of 0.000021. These factors support the levy estimate of £635 million – down from £695 million in 2014/15.

Pensions Ombudsman: First pension liberation decision

The Pensions Ombudsman has published its first determination in a case relating to “pension liberation” or “pension scams”.

The case concerns an individual who was persuaded to transfer out of his employer’s pension scheme and who may have lost his money.

In the week beginning 6 January 2015, the Ombudsman is expected to publish a group of cases about people who wanted to transfer out, but whose transfers have been “blocked” by their pension schemes.

You can read our full summary of the Pension Ombudsman’s decision here.