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:

• Reclassifying DC benefits
• DWP announces that pensioner incomes have beaten inflation
• Public service pensions regulations 2014: record keeping and miscellaneous amendments: Government response
• GAD publishes announcement re: staff transfers
• HMRC issues Newsletter number 63
• Equitable Life Payment Scheme: financial products included in the scheme
• Law Commission report: Fiduciary Duties of Investment Intermediaries
• NAPF releases research report on the investment expectations of pension scheme members
• New NEST research exposes gulf between traditional approaches to defined contribution pensions and consumer expectations
• PPI publishes report for Age UK: “The financial resilience of the recently retired”

Reclassifying DC benefits

The changes to the definition of money purchase benefits will come into force on 24 July 2014.

The changes stem from the Supreme Court’s decision in Bridge Trustees which concluded that it was possible for certain benefits to be within the definition of “money purchase benefits” despite there being a potential mismatch between assets and liabilities.  The DWP immediately announced that it would legislate to reverse the effect of this decision, with retrospective effect, by introducing a new definition of “money purchase benefits”. See our Alert for details.

The changes are being made in two main parts:

• The Pensions Act 2011 (Commencement No. 5) Order 2014 brings into force section 29 of the Pensions Act 2011 with effect from 24 July 2014.  Section 29 introduces a revised definition of “money purchase benefits” into the PSA93 and other relevant legislation.  Subject to transitional provisions, the revised definition will have retrospective effect from 1 January 1997.

• The Pension Act 2011 (Transitional, Consequential and Supplementary Provisions) Regulations 2014, together with the Pensions Act 2011 (Consequential and Supplementary Provisions) Regulations 2014 set out transitional, consequential and supplementary arrangements, including actions which must be taken by trustees and managers of occupational pension schemes, once the clarified definition of “money purchase benefits” in section 29 of the Pensions Act 2011 takes effect.  It makes a range of provisions for benefits that were treated as money purchase, but that do not meet the clarified definition, to allow those schemes to comply with existing pension protection measures.  In most cases schemes will not need to revisit past decisions but the regulations aim to ensure that in the future members’ benefits are protected.

DWP announces that pensioner incomes have beaten inflation

On 2 July 2014, the DWP released figures which show that British pensioners have seen their income grow for the first time in real terms in three years, due to the triple lock protection of the State Pension and an increase in the number of older people choosing to stay in work.

Minister for Pensions, Steve Webb said: “the triple lock has marked a profound shift in how the state supports pensioners and it means that 12.7 million people will be over £400 a year better off by the end of this Parliament”.

Public service pensions regulations 2014: record keeping and miscellaneous amendments: Government response

On 3 July 2014, the DWP published the Government’s response to its consultation on the draft Public Service Pensions (Record Keeping and Miscellaneous Amendments) Regulations 2014.  These regulations:

• set out the records that public service pension schemes covered by the Public Service Pensions Act 2013 are required to keep from April 2015
• amend regulation 16A of the Occupational Pension Schemes (Scheme Administration) Regulations 1996 to remove an exemption to the late payment reporting requirements for public service schemes.

The document gives a summary of the responses received to the consultation.  It outlines any changes that we propose making to the draft regulations and explains why the Government has not accepted some suggested amendments.

The Government plans to lay the regulations in Parliament in autumn 2014, to come into force on 1 April 2015.

GAD publishes announcement re: staff transfers

On 1 July 2014, GAD published the actuarial assumptions for broad comparability assessments under the Government’s Fair Deal policy, together with changes to the passport certificate system.

HMRC issues Newsletter number 63

HMRC has issued the July 2014 edition of its newsletter.  It includes information on:

• Pension Schemes Services forms converting to iForms (“intelligent, electronic forms which can be filled in online”).
• IP14 – Members of registered pension schemes can choose to protect any pension savings built up before 6 April 2014 from the LTA charge (subject to an overall maximum of £1.5 million) by applying for IP14 (see our Alertfor details).  Applications can be made online from 18 August 2014.
• An update on FP14 – HMRC has now processed all applications received before the 5 April 2014 deadline.  Individuals who applied should have received their certificate.
• QROPS – Form APSS262 should now be completed on paper using the new print and post iForm.

Equitable Life Payment Scheme: financial products included in the scheme

On 1 July 2014, HM Treasury published a list of financial products that are eligible for the Equitable Life Payment Scheme.

Law Commission report: Fiduciary Duties of Investment Intermediaries

On 1 July 2014, the Law Commission published its report on the Fiduciary Duties of Investment Intermediaries.

The report was commissioned in response to concerns, raised in the 2012 Kay Review, that uncertainty about their legal duties leads investors to focus on short-term movements in share price rather than making long-term investment decisions based on the fundamental value of a company.

For further details, please see our Alert.

NAPF releases research report on the investment expectations of pension scheme members

On 3 July 2014, the NAPF released research which shows many people in workplace pension schemes are unsure about how their savings are invested.

Despite the existing lack of awareness about their pension investments the majority of respondents (63%) were interested in knowing where their savings are invested; including the countries, sectors and specific companies.  This level of interest jumps significantly among people who work in the private sector (74%) compared to those working in the public sector (50%), and interest peaks among those with an annual income of more than £50,000 per annum.

A majority (65%) of pension scheme members identify the level of costs and charges as one of the most important factors for their employer to consider when choosing a pension provider.  But cost is not the only thing that matters and 60% would be interested in their pension provider undertaking activities that support the long-term sustainable performance of the companies in which they invest.  Indeed, a majority (53%) would prefer their employer to choose a provider demonstrating strong stewardship activity, even if it is 10% more expensive.

New NEST research exposes gulf between traditional approaches to defined contribution pensions and consumer expectations

On 7 July 2014, NEST published a research report, “Improving consumer confidence in saving for retirement”.  Key findings include:

• Consumers feel ‘disconnected’ from pension schemes.
• Historic disengagement shouldn’t be interpreted as indifference.  Consumers care deeply about building a retirement income.
• The pensions market is undifferentiated for most consumers and they have difficulty in identifying different product features or the rationale for them.
• Pension savers want to be reassured that the people responsible for growing their retirement savings are doing so responsibly and with an understanding of their concerns.
• There is very low appetite for volatility in pensions and consumers don’t understand the reasoning or need for taking risk with their retirement savings.
• Consumers associate poor investment performance with incompetence and wrong-doing, with market downturns blamed on bad fund management.
• Inertia, while a powerful method for getting people to save, does not always keep them saving during poor market performance.
• In consumers’ minds pensions are already guaranteed and discovering this is not the case is ‘shocking’ to many. However, those who are prepared to pay higher charges for greater certainty of outcome are very much the minority and they are not happy about having to do so.
• Consumers are looking for a level of certainty in response to the question ‘what will I get at the end’, that it is not possible for providers to give.

PPI publishes report for Age UK: “The financial resilience of the recently retired”

On 4 July 2014, the PPI published a briefing paper for Age UK’s Financial Services Commission on the topic of the ‘recently retired’ and their financial resilience.  The report was initially presented at a summit event that took place on 6 February 2014, before the 2014 Budget announcement regarding the removal of restrictions on accessing DC savings.  For this reason the report does not take account of these proposed changes.