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
- The National Health Service Pension Scheme and Additional Voluntary Contributions (Amendment) Regulations 2017
- The Pensions Act 2014 (Pension Protection Fund: Increased Compensation Cap for Long Service) (Pension Compensation Sharing on Divorce) (Transitional Provision) Order 2017
- Spring Budget 2017
- Government responds to automatic enrolment technical changes consultation
- DWP publishes consultation response on PPF amendments
- EIOPA publishes Market Development Report on Occupational Pensions and Cross-border IORPs
- FCA publishes policy statement on Handbook changes following introduction of LISAs
- FCA publishes update to pension redress methodology
- PLSA releases DB Taskforce’s second report
- PLSA publishes new “Made Simple” guides
The National Health Service Pension Scheme and Additional Voluntary Contributions (Amendment) Regulations 2017
The National Health Service Pension Scheme and Additional Voluntary Contributions (Amendment) Regulations 2017 were laid before Parliament on 8 March 2017, and come into force on 1 April 2017.
A consultation on the changes to be made to the NHS Pension Scheme rules, to support the development of NHS England’s new models of care as described in the 5 Year Forward View, ran until 26 January 2017.
The Pensions Act 2014 (Pension Protection Fund: Increased Compensation Cap for Long Service) (Pension Compensation Sharing on Divorce) (Transitional Provision) Order 2017
The Pensions Act 2014 (Pension Protection Fund: Increased Compensation Cap for Long Service) (Pension Compensation Sharing on Divorce) (Transitional Provision) Order 2017 was made on 8 March 2017, and comes into force on 6 April 2017.
The Order will introduce a transitional provision relating to the coming into force of the PPF long service cap (see above) in relation to pension sharing on divorce, to deal with, amongst other things, the recalculation of pension compensation going forwards and the effect on old payments.
In the Spring Budget on 8 March 2017, Chancellor of the Exchequer Philip Hammond announced several measures in relation to pension schemes.
Money purchase annual allowance
The Budget confirmed that the reduction announced in the Autumn Statement 2016 to the money purchase annual allowance (from £10,000 to £4,000) will go ahead, taking effect on and after 6 April 2017.
Master trust tax registration
The Government stated that it will amend the tax registration process for master trust pension schemes to align with TPR’s new authorisation and supervision regime (under the Pension Schemes Bill currently progressing through Parliament). This is intended to help to “boost consumer protection and improve compliance”.
Finally, with effect from 9 March 2017, the Government introduced a 25% charge on certain transfers to QROPS that were previously tax free. The aim is to align the tax treatment of overseas and UK pension schemes. In addition, payments out of funds transferred to a QROPS on or after 6 April 2017 will be subject to UK tax rules for five years after the date of the transfer, regardless of where the individual is resident.
Transfers with a legitimate purpose (for example, for individuals retiring overseas) and which fulfil set conditions, plus those transfers formally requested before 9 March 2017, will still be permitted free of tax.
As a result of these changes, an overseas scheme will no longer be a QROPS unless the scheme manager gives an undertaking to HMRC that it will operate the new overseas transfer charge and pay this to HMRC when due. HMRC will deem existing QROPS to continue to meet the qualifying requirements until 13 April 2017. If HMRC has not received the new undertaking by that date, the overseas scheme will automatically cease to be a QROPS.
HMRC’s ROPS list (the list of recognised overseas pension schemes that have notified HMRC that they meet the requirements to be a ROPS) will be suspended from 14 April 2017 to allow consolidation of the necessary amendments, and will be republished on 18 April 2017.
Because of the changes announced, HMRC has updated its forms and will reject old versions of the forms used for transfers made from 9 March 2017 onwards.
These changes are in addition to the previously announced changes to QROPS that are due to take effect from 6 April 2017.
On 10 March 2017, the DWP published the Government’s response to the consultation on proposed technical changes intended to simplify the automatic enrolment process and reduce the burden on employers.
The following changes affect new employers due to become subject to automatic enrolment duties during 2017:
- a change to the automatic enrolment duties trigger for these new employers (known as post-staging employers) to provide certainty about when their automatic enrolment duties will apply
- extending an existing easement to these employers, so as to give them the option to defer automatic enrolment by up to three months for new workers.
The response document confirms that respondents broadly welcomed the proposed changes to the trigger, and gave “considerable support” for the deferral measures.
The Government therefore confirms that it will now bring the regulations into force on 1 April 2017.
The Government intends to increase the PPF compensation cap for those with long service on and from 6 April 2017. The Pensions Act 2014 (Commencement No 10) Order 2017, made on 7 March 2017, brings into force measures to provide for the compensation cap to increase by three per cent for each full year of pensionable service above 20 years (ie 21 years or more), up to a maximum of twice the standard compensation cap. Where an individual does not have actual pensionable service in relation to all or part of their scheme rights (for example, where they transferred their rights from a previous scheme and the new scheme offered a specific amount of pension in return), or the PPF is unable to identify a length of service for an individual, it will be able to deem a length of service for the purposes of applying the long service cap.
In addition, regulations laid before Parliament on 13 April 2017 will make changes to secondary legislation aimed at ensuring that the new cap works as intended in specific situations. The regulations:
- clarify that, for the purpose of the compensation cap, two or more scheme benefits are only added together where they are either all attributable to the person’s pensionable service or all attributable to a pension credit arising from a divorce or dissolution settlement
- make it clear that where a person has accrued pension entitlement on the basis of their own pensionable service and, in addition has a pension credit, the two sources of entitlement are kept separate and separate caps will be applied when calculating compensation
- “put it beyond doubt” that pensionable service is treated cumulatively in relation to the compensation cap where a person has two or more tranches of entitlement arising from the same source
- increase the maximum amount of money purchase rights the PPF can discharge from £2,000 to £10,000, ie in line with the changes to the tax rules.
The regulations come into force on 6 April 2017. Changes in relation to pension entitlement arising from more than one source are to be treated as having effect from 6 April 2005.
On 10 March 2017, EIOPA published its 2016 Market development report on occupational pensions and cross-border IORPs.
The report provides an overview of the European occupational pensions landscape, giving a detailed insight into IORPs active nationally and those operating on a cross-border basis.
The FCA released a policy statement on 7 March 2017, summarising the feedback received from its consultation on the introduction of the Lifetime ISA (“LISA”) and outlining the resulting rules and guidance.
The introduction of the LISA is being implemented in part through The Individual Savings Account (Amendment) Regulations 2017, which were laid before Parliament on 20 February 2017. The FCA’s policy statement notes that these regulations are subject to the “affirmative procedure” and therefore require approval by Parliament. If changes are made to the regulations as a result of that Parliamentary process, the FCA will consider whether any consequential changes to its current proposals are required.
The new rules will come into force from 6 April 2017.
On 10 March 2017, the FCA announced proposals for updating the methodology used to calculate the redress owed to consumers who were given unsuitable advice to transfer out of a DB scheme, and published a guidance consultation on the issue. This followed a PwC review of the existing methodology.
The FCA proposes that the current redress methodology, including the underlying assumptions, is amended to take account of changes to the pensions environment, including by updating the inflation and mortality assumptions used, and generally looking to update assumptions on a more regular basis to reflect the volatility of the market. It states that the proposals are also intended “to make it more likely to put consumers back into the position that they would have been in if they had not been given unsuitable advice” to transfer out of their DB scheme.
The FCA explains that any changes to the methodology will apply to future redress payments. Where redress is due, the FCA advises that a complaint should not be settled on a “full and final” basis until the outcome of the consultation is known.
The consultation closes on 10 June 2017. The FCA intends to reach its conclusions by the autumn.
The PLSA has released the second report by its DB Taskforce, entitled “The Case for Consolidation”.
The DB Taskforce’s report examines four models of consolidation, “from simple consolidation of administration functions through to pooling of assets, combining governance and finally the pooling of liabilities with the removal of the employer”. It also sets out an approach for the creation, authorisation and supervision of “Superfunds”, which the DB Taskforce believes “can offer a much better route to protecting members’ benefits”.
To understand the impact of a Superfund, specifically the effects on the security of members’ benefits and the funding requirements for schemes and employers, the DB Taskforce commissioned a modelling report from Gazelle.
The DB Taskforce will continue to evaluate the operating model for Superfunds, and develop proposals for measures that a government would need to introduce in order to take such a model forwards.
The PLSA launched a new “Made Simple” guide on 8 March 2017, covering the subject of indices and benchmarks.
This guide aims to provide trustees with an introduction to the various purposes indices serve for investors, and sets out some of the important attributes that should be considered when selecting an index.
Weekly pensions digest
For our free publications and updates
Commonly used abbreviations in pensions