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

• ABI data on the first six months of “pension freedom”
• FRC publishes draft amendments to FRS 102
• Public sector exit charges – draft regulations published
• House of Commons Library publishes briefing paper
• NAO publishes auto-enrolment projections
• PASA announces new GMP consultation phase
• PensionsEurope publishes report on pension design principles
• New PPI publications

ABI data on the first six months of “pension freedom”

ABI data unveiled at their Biennial Conference on 3 November 2015 show that £4.7bn has been withdrawn under the new pension freedoms which came into force on 6 April 2015.

The figures reveal that:

• £2.5bn has been paid out in 166,700 cash lump sum payments, with an average payment of just under £15,000
• £2.2bn has been paid out as 606,000 income drawdown payments, with an average payment of £3,600.

According to the data, annuity sales have seen their first quarter on quarter increase for three years, with policies worth £1.17bn sold in the third quarter of 2015. The report also states that people are “shopping around to find the best deal”, with 60% changing provider when buying an income drawdown policy.

FRC publishes draft amendments to FRS 102

On 4 November 2015, the FRC published draft amendments to FRS 102, setting out proposed revisions to the disclosure requirements for financial institutions and retirement benefit plans.

The aim of the draft amendments, which relate to the disclosure of financial instruments in an analysis based on the fair value hierarchy, is to simplify compliance and increase consistency with disclosures required by the International Financial Reporting Standards.

Public sector exit charges – draft regulations published

Following a consultation during the summer, HMT plans to introduce a cap of £95,000 on the total value of payments made to an individual in relation to their exit from public sector employment. For this purpose, exit payments include employer pension contributions and early access to unreduced pensions (see 7 Days dated 21 September 2015 for more details).

On 3 November 2015, draft regulations were published that set out, amongst other things, which exit payments the cap will (and will not) apply to, and which public sector bodies are to be excluded from the effects of the cap. As expected, ill health pensions will not be caught within the cap, and bodies such as the Armed Forces, public broadcasters, and the Bank of England will be “potentially exempt”.

The regulations have been published for illustrative purposes during debate on the legislation. They will be made under the Small Business, Enterprise and Employment Act 2015, and inserted by the Enterprise Bill 2015-16.  A further version of the regulations is expected after the Enterprise Bill receives Royal Assent.

House of Commons Library publishes briefing paper

On 3 November 2015, the House of Commons Library updated a briefing paper which looks at the arrangements made for mineworkers’ pensions following the privatisation of British Coal in 1994. It reviews issues relating to the sharing of any surplus in the relevant schemes over the years, up to and including the current Government’s approach.

NAO publishes auto-enrolment projections

A report from the National Audit Office looks at how the DWP has implemented automatic enrolment, and how its delivery has been managed across the DWP, TPR and NEST. It also looks at future challenges for the roll-out of the programme as smaller employers begin to join.

The report notes an expected total increase of nine million in people “newly saving or saving more in qualifying workplace pensions” by 2018 as a result of automatic enrolment, and that the Government expects annual contributions to pensions to increase by around £15 billion by 2019-20.

PASA announces new GMP consultation phase

On 6 November 2015, PASA announced a second phase in its work to support administrators in understanding what is required to meet the deadline for the cessation of GMPs when contracting-out ends in 2016. Chair of PASA, Margaret Snowdon, commented: “We are acutely aware that the time left for administrators to act before the cessation is beginning to run short and there is increasing pressure on administrators to analyse what their particular schemes need to do, and to plan and deliver this work in time to meet the deadline”.

The strategic PASA Working Group will now hand over to a smaller, operationally focussed GMP Working Party which is tasked with producing guidance to administrators as soon as possible. This guidance is aimed at supporting administrators in completing GMP reconciliations effectively, and will be available to members of PASA through its website.

PensionsEurope publishes report on pension design principles

PensionsEurope launched a paper on 4 November 2015, on “Pension Design Principles applied to modern Defined Contribution solutions”. The paper pinpoints three elements that are said to be essential for the design of modern DC schemes: taking into account the employer’s and employees’ perspectives on retirement benefits, following the “pension design principles” and applying these principles in a straw man model.

New PPI publications

On 3 November 2015, the PPI, the University of East Anglia and the London School of Economics published a joint study into the future impacts of long-term care and state pension reforms, and their potential interactions. A key finding from the study is that gains in net income from the pension reforms are small at state pension age but increase during retirement.

On 6 November 2015, the PPI released a report entitled Retirement funding: analysis of retirement income patterns, commissioned by The Social Market Foundation. For the paper, the PPI undertook modelling of individuals, drawing on international examples of possible decumulation patterns in order to help identify possible risks.

The TUC commissioned the PPI to model a selection of Automatic Enrolment scenarios post 2017 that vary contribution levels and methods of increasing contributions, and to consider their impact upon aspects such as the size of the accumulated pension pot and the amount of income available in retirement for an individual. The research was released on 6 November 2015.

Finally, the DWP commissioned the PPI to develop a Collective Defined Contribution (CDC) model to look at a potential CDC scheme under different assumptions, to determine whether CDC produces better results compared to DC and in what circumstances. The report published on 5 November 2015 presents the results from the modelling.