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

• Regulations made to remove exemption from VAT for supplies of fund management services to pension funds established in the EU
• FCA consults on changes to policy on raising regulated fees and levies from 2021/22
• Executive remuneration: IA Principles of Remuneration for 2021
• IFoA publishes paper on pension scheme cyber risks
• PASA release their Pensions Dashboard Working Group update
• TPR publishes public service governance and administration survey
• TPR reminds employers of auto enrolment duties as penalties rise
• Lloyds: High Court rules that DB schemes must equalise past GMP transfers

Regulations made to remove exemption from VAT for supplies of fund management services to pension funds established in the EU

On 18 November 2020, the Value Added Tax (Miscellaneous Amendments to Acts of Parliament) (EU Exit) Regulations 2020 were made to, among other things, ensure that the VAT exemption for supplies of fund management services to pension funds will only apply to funds established in the UK (and that funds established in the EU are to be treated in the same way as those based elsewhere in the rest of the world). A  tax information and impact note was published on 19 November 2020.

The regulations remove the reference to EU member states from the definition of “qualifying pension fund” in the Value Added Tax Act 1994 (“VATA 1994”) with the result that only fund management services supplied to UK pension funds are VAT exempt. That VAT exemption had only been introduced into the VATA 1994 with effect from 1 April 2020, to reflect directly effective EU law (see 7 Days).

The regulations will take effect from a day appointed by HMT, which is expected to be the end of the post-Brexit transition period (that is, 11 pm on 31 December 2020).

FCA consults on changes to policy on raising regulated fees and levies from 2021/22

On 19 November 2020, the FCA published a consultation paper on proposed changes to the way it will raise regulated fees and levy rates for 2021/22.

The FCA proposes to, amongst other things, simplify FCA authorisation application fees and introduce some new transaction fees.

The deadline for comments is 22 January 2021. The FCA plans to publish its response and the final rates and rules in a Handbook Notice in March 2021.

Executive remuneration: IA Principles of Remuneration for 2021

On 16 November 2020, the IA published a revised version of its Principles of Remuneration revealing that investors will be “clamping down further on executive pension perks in a move to promote fairness and good employee relations”.

It has been common for pensions contributions for executives to be considerably higher than for the wider workforce. Although significant progress has been made on bringing executive pensions in line with the majority of their workforce, investors will now be expected to take a stronger stance against those companies which have not taken sufficient action.

Where the pension contributions for incumbent directors are above the majority of the workforce rate, remuneration committees must set out “a credible action plan” to align the two by the end of 2022. In a letter sent to the Chairs of Remuneration Committees of FTSE 350 companies, the IA noted that its highest level of warning will be given to those that fail to do so. New executive directors are expected to automatically join with a pension contribution aligned to the workforce rate.

The IA has also updated its guidance on investor expectations on COVID-19 and executive pay.

IFoA publishes paper on pension scheme cyber risks

On 17 November 2020, the IFoA published a paper on the variety of cyber risks that pension schemes are vulnerable to, such as ransomware attacks, data breaches, theft of assets and disruption to service. The paper examines these risks in detail, including the types of losses that scheme sponsors may be exposed to, and outlines who is responsible for managing cyber risk. The paper reminds schemes that whilst they typically outsource their day-to-day running to third parties, the trustees or employer ultimately remain responsible. The paper also addresses how trustees and schemes can manage their risk though cyber hygiene, third party assessment, cyber insurance and incident management.

The paper focuses on deliberate acts, rather than the accidental loss of data and other inadvertent breaches of data protection legislation.

PASA release their Pensions Dashboard Working Group update

PASA’s Pensions Dashboard Working Group (“PDWG”) have released a short update on the Pensions Dashboard Programme (“PDP”) confirming that the PDP will publish the initial data requirements for pensions dashboards in December 2020. Following this, PASA will publish detailed guidance for schemes and providers on how to start getting ready.

The update paper aims to remind those responsible for pensions of the timetable, and to review the “three major data areas” which trustees, schemes and providers need to think about: accessibility, accuracy and availability.

This update follows the PDP’s second Progress Update Report published in October 2020 (see 7 Days).

TPR publishes public service governance and administration survey

TPR has published the results of its public service pensions annual governance and administration survey. Scheme complexity and the volume of changes required to comply with legislation were seen as the top barriers to improving scheme governance and administration in the next 12 months.

TPR reminds employers of auto enrolment duties as penalties rise

TPR is reminding all employers of their automatic enrolment responsibilities as figures in its latest quarterly compliance and enforcement bulletin show an increase in penalties issued. TPR’s bulletin shows a 191.4% increase in unpaid contribution notices (from 352 to 1,026), and a 17% increase in compliance notices (from 13,185 to 15,420) compared with the previous quarter.

The bulletin also provides information about the number of times its other “frontline” powers have been exercised over the period. Of particular note, TPR has secured its first confiscation order under the Proceeds of Crime Act 2002 (“POCA”) in September 2020.

Lloyds: High Court rules that DB schemes must equalise past GMP transfers

On 20 November 2020, the High Court handed down its judgment in the latest instalment of the Lloyds saga, addressing the issue of past transfers out. The judge concluded that trustees who did not equalise a member’s GMP benefits at the time of calculating the CETV have committed a breach of duty and are on the hook to pay a top-up to the receiving scheme, together with interest (see our Alert).