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
- Automatic enrolment: earnings trigger review and 2019/20 qualifying earnings band published
- Draft Occupational and Personal Pension Schemes (Amendment etc) (EU Exit) Regulations 2018 published
- Over the Counter Derivatives, Central Counterparties and Trade Repositories (Amendment, etc, and Transitional Provision) (EU Exit) Regulations 2018
- DWP consults on DB consolidation vehicles
- FCA publishes key findings on pension transfer advice work
- Joint scams campaign leads to surge in queries
- HMRC publishes Relief at Source Pension Schemes Newsletter December 2018
- Indexation of public service pensions direction issued
- PLSA launches patient capital guide for trustees
- Thirteenth version of the Purple Book published
- British Telecommunications PLC v BT Pension Scheme Trustees Limited & Bruce-Watt (Court of Appeal, 4 December 2018)
On 4 December 2018, the DWP published its annual review of the automatic enrolment earnings trigger and qualifying earnings bands.
The earnings trigger sets the point when someone becomes eligible to be automatically enrolled into a qualifying workplace pension. The Secretary of State has concluded that the existing threshold of £10,000 “remains the correct level at this point in the establishment of automatic enrolment”; therefore, it will not change for 2019/20. This represents a “real terms decrease in the value of the earnings trigger when combined with assumed wage growth, and will bring in an additional 40,000 individuals into the target population” for automatic enrolment.
The qualifying earnings band sets out the portion of earnings on which the employee and their employer have to pay contributions into a workplace pension, when using the statutory default mechanism for contributing to a DC arrangement. For 2019/20, the Qualifying Earnings Band Lower Limit has been set at £6,136 and the Upper Limit at £50,000, in line with the National Insurance Contributions Upper and Lower Earnings Limits.
Draft Occupational and Personal Pension Schemes (Amendment etc) (EU Exit) Regulations 2018 published
A draft of the Occupational and Personal Pension Schemes (Amendment etc) (EU Exit) Regulations 2018 was published on 6 December 2018, replacing the version laid before Parliament and published in October 2018.
The regulations aim to make changes to legislation that would otherwise no longer operate effectively in the event the UK leaves the EU without a Withdrawal Agreement in place. They take effect from exit day.
Regulation 29 has been revised in the updated version, in relation to the definition of a “regulated market”. Following feedback, the regulation was redrafted to amend wording which could have led to the unintended consequence of occupational pension schemes having to disinvest from regulated markets outside of the UK. The redraft extends the definition of regulated market to include UK, EEA and other regulated markets. A corresponding change has been made to the Northern Ireland regulations.
Over the Counter Derivatives, Central Counterparties and Trade Repositories (Amendment, etc, and Transitional Provision) (EU Exit) Regulations 2018
The Over the Counter Derivatives, Central Counterparties and Trade Repositories (Amendment, etc, and Transitional Provision) (EU Exit) Regulations 2018 were published on 5 December 2018. They make minor amendments to the draft published in October 2018.
The regulations aim to amend UK legislation and retained EU legislation in relation to over the counter (“OTC”) derivatives, central counterparties and trade repositories, ensuring the legislation continues to operate effectively and addressing deficiencies in retained EU legislation arising from the UK’s withdrawal from the EU. They come into force on exit day.
In relation to pension schemes, the regulations replace references in EMIR to “institutions for occupational retirement provision” with references to an “occupational pension scheme within the meaning given in section 1(1) of the Pension Schemes Act 1993”, to ensure that schemes continue to be “financial counterparties” under EMIR following Brexit.
The regulations do not contain measures regarding pension scheme exemptions from clearing when they enter into OTC derivative contracts for hedging purposes. Guidance published by HMT in October 2018 alongside the initial draft regulations noted that a further extension is being negotiated as part of the proposed EMIR Refit Regulation, following the expiry of the current transitional provision in August 2018.
On 7 December 2018, the DWP published its latest consultation promised by this year’s White Paper (see our Alert), setting out its proposals for a new legislative framework for authorising and regulating DB “superfund” consolidation vehicles.
The proposed regulatory regime is intended to ensure that members of superfunds “benefit from equally effective protections” as members of other DB pension schemes, that the risks specific to superfunds are proactively regulated, and that TPR has the right tools and powers to intervene when necessary.
Until the new regime is in place, the DWP would expect employers considering a transfer of their DB scheme into a superfund to seek voluntary clearance from TPR.
In light of the recent Lloyds decision, the consultation also highlights the DWP’s ongoing work in relation to GMPs, including investigating possible changes to tax legislation with HMRC for those potentially negatively affected by GMP conversion and corresponding LTA and/or AA requirements. The DWP is “hoping to be able to provide schemes with some guidance on how they can equalise pensions for the effect of inequalities caused by GMPs”. Although there is no indication as to the likely timing of this guidance, the DWP is “confident of finalising [its work] in the near future”.
The consultation closes on 1 February 2019.
For further detail, please see our Alert.
On 6 December 2018, the FCA published key findings on its recent work on pension transfer advice. It had collected information from 45 firms during the year, and carried out assessment work and follow-up visits in relation to 18 firms which gave advice to 48,248 clients on DB transfers.
The FCA states that less than 50% of the advice it reviewed was found to be suitable, although it noted that this work was targeted and therefore not representative of the whole market. Stating that it is “unacceptable that pension transfer advice should persistently remain at such a low level”, the FCA has recently requested data from every firm with permission to advise on DB pension transfers which will provide it with a complete picture of the whole market from 2015 to date.
The FCA and TPR issued press releases on 4 December 2018 reporting a 462% increase in the number of people visiting the ScamSmart website since the launch of their joint awareness campaign this summer.
TPR states that victims of pension scams last year lost an average of £91,000 each to fraudsters, and research from the FCA estimates over 10 million UK adults received an unsolicited pension offer in just one year. Regulations to ban pension cold calling are yet to come into force but are expected to do so “early in 2019”, according to TPR.
HMRC published a Relief at Source Pension Schemes Newsletter on 5 December 2018. It contains articles on:
- notification of residency status report for 2019 to 2020
- annual return of information for 2018 to 2019
- the forthcoming Scottish Budget on 12 December 2018.
On 4 December 2018, HMT issued an updated direction under section 59A of the Social Security Pensions Act 1975. The direction continues existing indexation provisions and, as a consequence of HMT’s consultation on GMP indexation and equalisation in public sector schemes, extends the arrangements to some additional groups of pensioners.
On 6 December 2018, Robert Jenrick MP, Exchequer Secretary to the Treasury, launched the PLSA’s new guide, The Long-term view: patient capital and illiquid investment, at its Trustee Conference. This follows the announcements in the Autumn Budget 2018 in relation to patient capital investment. Robert Jenrick’s speech confirmed that further regulation can be expected “later in the year”.
The guide looks at a range of patient capital and other illiquid investments for trustees, pulling together case studies from pension schemes and asset managers who are already investing in these ways, and “showcases their experiences, successes and lessons learned”.
The PPF has published the thirteenth edition of the Purple Book, which gives a comprehensive picture of the risks faced by DB pension schemes in the UK, reviewing the 5,450 private DB schemes eligible for the PPF. The data is based on information that eligible schemes are obliged to provide to TPR, and covers the period from 1 April 2017 to 31 March 2018.
The latest edition reveals that the proportion of open schemes remained stable in the twelve months to March 2018, with 12% of DB pension schemes currently open to new members, as in 2017.
The aggregate funding level of DB pension schemes is the highest it has been since 2014, having increased to 95.7% (on an s179 PPF basis). However, Andy McKinnon, CFO of the PPF, said that whilst the improved aggregate funding level was welcome, schemes “should not lose sight of the challenge ahead. The current economic and political backdrop coupled with recent stock market volatility mean companies should continue to do all they can to de-risk their schemes.”
British Telecommunications PLC v BT Pension Scheme Trustees Limited & Bruce-Watt (Court of Appeal, 4 December 2018)
The Court of Appeal has rejected British Telecommunications PLC’s (“the Company”) appeal against the January 2018 decision of the High Court.
Lady Justice Asplin agreed with Zacaroli J that the Company and BT Pension Scheme Trustees Limited, the trustee of the BT Pension Scheme (“the Trustee” and “the Scheme” respectively), could not change the index by reference to which pensions in payment are increased from RPI to CPI.
For further detail, please see our case report.