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
- TPR response to future of trusteeship and governance consultation
- The Pension Protection Fund and Occupational Pension Schemes (Levy Ceiling and Compensation Cap) Order 2020
- Regulations on updated NIC amounts
- FCA Policy Statement on disclosing costs and charges to workplace pension scheme members
- FRC consultation on draft plan and budget
- HMRC announces change to the off-payroll working rules
- TPR blog on pension scams
- TPR spot checks on large employers
- TPR DC trust report shows “9 out of 10 save into the larger master trusts”
- TPR guidance on preparation for future EU relationship
TPR now intends to review and update its Trustee Knowledge and Understanding code of practice and the Trustee toolkit to make its expectations clearer and to drive up standards of trusteeship. Once the new standards are in place, TPR plans to run a regulatory initiative to test levels of TKU, and to consider appropriate action where they fall below expectations.
On diversity, TPR states that it will establish and lead an industry working group to find ways of supporting schemes to take steps to improve trustee board diversity.
The consultation asked if it should it be mandatory for pension scheme boards to engage a professional trustee and if governance standards for sole trustees should be strengthened. In both areas, TPR will not immediately push for new measures but will instead support the APPT’s standards and the upcoming industry accreditation framework for professional trustees (see 7 days). TPR are also supportive of APPT’s intention to develop an industry code for sole trusteeship.
On consolidation in the DC market, TPR states it will “continue to monitor DC consolidation activity” and work with both industry and the DWP to find solutions “to overcome barriers to consolidation”. It will not take a “blanket approach” to consolidation. If a scheme is well run and can demonstrate that it is offering value for members, TPR would not “push the trustees to consider consolidation”.
For further detail on the consultation response, please see our forthcoming Alert.
The Pension Protection Fund and Occupational Pension Schemes (Levy Ceiling and Compensation Cap) Order 2020
On 3 February 2020, the Pension Protection Fund and Occupational Pension Schemes (Levy Ceiling and Compensation Cap) Order 2020 was laid before Parliament.
The Order updates the compensation cap factors, specifying the earnings percentage used to calculate the levy ceiling, the amount of the levy ceiling, and the standard amount of the compensation cap for use in relation to the PPF in the financial year beginning on 1 April 2020. The Order specifies that the levy ceiling will be £1,099,445,505 (an increase of 3.9 per cent). The uprated standard amount of the cap will be £41,461.07 (an increase of 3.6 per cent). Therefore, 90 per cent of that uprated standard amount will provide, at age 65, a maximum level of compensation of £37,314.96.
The explanatory notes to the Order also reference the recent CJEU judgments in the Hampshire and Bauer cases, which impact the calculation of PPF benefits. The notes state that “the PPF’s proposals for implementing the CJEU’s decision in Hampshire … are currently being challenged in a judicial review before the High Court (Paul Hughes and Ors v the Board of the Pension Protection Fund) […] The PPF and [DWP] are carefully considering the implications of the Bauer judgment and will respond in due course. In the meantime, the PPF will continue to assess and make payments to those affected by the Hampshire ruling”.
The Social Security (Contributions) (Rates, Limits and Thresholds Amendments and National Insurance Funds Payments) Regulations 2020 have been laid before parliament, and will increase certain NIC rates, thresholds and limits, for the purpose of calculating NIC liabilities, with effect from 6 April 2020.
On 4 February 2020, the FCA published a Policy Statement setting out its final rules and guidance on requiring pension scheme governance bodies to report costs and charges information to members of workplace pension schemes and some amendments to its COBS rules. This follows a consultation in February 2019 (see 7 days).
Since 3 January 2018, the FCA’s rules have required asset managers to report costs and charges information to the operator, trustee or manager of workplace pension schemes. This policy statement sets out rules requiring scheme governance bodies to disclose this information to scheme members on an ongoing basis.
The amendments to the COBS rules address how asset managers must calculate transaction costs when reporting the costs and charges information. The changes are intended to address concerns raised by some industry stakeholders that the current methodology could lead to potentially misleading information.
This policy statement will apply to those involved in FCA-regulated relevant schemes in the DC workplace pensions market. Firms will need to comply with the new rules from April 2020.
The FRC published a consultation on 5 February 2020 on its draft plan and budget for 2020/21. The FRC describes this as “a major shakeup of its oversight and supervisory functions to speed up the pace of Enforcement investigations”, and says it is “broadening its stated purpose to serve the public interest by setting high standards of corporate governance, reporting and audit and by holding to account those responsible for delivering them”. The document records the changes the FRC proposes taking in response to the Kingman report and recommendations (these will then be replaced in 2021 with a longer-term strategy “once the Government’s final positions on several key public policy issues” are finalised).
The FRC currently requests pension and insurance levy payments on a voluntary basis. The pension levy applies to all DB and DC schemes with 5,000 members or more. The consultation proposes to raise £1m from the pension levy in 2020/21, and explains that the FRC will confirm the levy rate to be applied after receiving data on scheme membership provided by TPR.
On 7 February 2020, HMRC announced a change to the new off-payroll working rules “to give business more time to prepare”.
Off-payroll working rules, known as IR35, were introduced in 2000 with the aim of ensuring that someone working like an employee, but through a company, pays similar taxes to other employees. Reforms were announced in the 2018 Budget, designed to tackle non-compliance with off-payroll working rules by making medium and large organisations in the private and third sectors responsible for determining the tax status of contractors.
The announcement states that the new rules “will now apply only to payments made for services provided on or after 6 April 2020. Previously, the rules would have applied to any payments made on or after 6 April 2020, regardless of when the services were carried out. It means organisations will only need to determine whether the rules apply for contracts they plan to continue beyond 6 April 2020, supporting businesses as they prepare”.
The formal publication of a review into the implementation of changes to the off-payroll working rules is due to conclude in February (see 7 days).
TPR issued a blog on 6 February 2020 entitled “PSIG needs you to help beat pension scams”. The blog outlines a research study being undertaken by the Pension Scams Industry Group (“PSIG”) and the Police Foundation, to “help [them] to further understand pension scams”. The study “looks at the action industry is taking to protect pension scheme members and will also provide valuable views on where resources should be focused in future” and TPR is encouraging all schemes to participate. The survey will be open until 14 February.
The blog also discusses PSIG’s initiative on sharing intelligence. Their aim is to “build a system where PSIG members can see intelligence from other members without having to reinvent the same wheel time and again”.
On 5 February 2020, TPR announced that it is carrying out spot checks on “a number of large employers who were among the first required to comply with automatic enrolment when the roll-out started in 2012. The short notice inspections, which started in January this year, will continue in the coming months”. The announcement says that TPR will use information gathered from the inspections “to identify any common themes and lessons to be learned”.
TPR’s annual DC trust report, published on 6 February 2020, shows that “more than 16 million people have saved £38.5 billion into master trusts – with nine out of 10 people saving into the largest master trusts”. It also shows that the number of DC pension schemes “has fallen by 12% since last year”.
TPR states that the other report highlights include:
- the significant increase in the number of people saving due to automatic enrolment had led to a decline in average savings per member every year since 2013. This trend appears to be stabilising
- since the beginning of 2010 the number of schemes (including hybrids) which identified themselves as having 12 or more DC members has declined by 62%
- the majority of DC schemes are “micro” (95%), and a majority of these have identified themselves as a Relevant Small Scheme (“RSS”). RSSs account for fewer than 1% of all DC memberships and are subject to lighter requirements than other DC schemes.
TPR has provided updated guidance for DB schemes and DC schemes on how to prepare for the end of the transition period, which came into effect on the withdrawal of the UK from the EU and is due to end on 31 December 2020 (see 7 days). The guidance states that TPR expects trustees to focus on the following areas (and provides an explanation of what it expects trustees to consider for each area), as well as any other scheme-specific issues:
- employer covenant (DB schemes only)
- operations and administration and
- member communications.