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
- Walker v Innospec – Supreme Court judgment
- O’Brien v Ministry of Justice – Supreme Court judgment
- Government publishes independent review of modern working practices
- CPS publishes paper on Reinforcing Automatic Enrolment
- FCA publishes interim findings of Retirement Outcomes Review
- HMT announces second Finance Bill 2017
- Pensions Ombudsman Annual Report and Accounts 2016/17 published
- PPI Briefing Notes published
- TPAS Annual Report and Accounts 2016/17 published
- TPR Annual Report and Accounts 2016/17 published
On 12 July 2017, the Supreme Court handed down its judgment in the case of Walker v Innospec Limited. In a landmark ruling, it overturned the Court of Appeal’s 2015 judgment, and unanimously agreed that Mr Walker’s husband should be entitled to a full survivor’s pension.
The Supreme Court ruled that an exemption in the Equality Act 2010 (“EA10”), which permits the restriction of survivors’ benefits for same-sex partners, is incompatible with EU Directive 2000/78/EC (“the Framework Directive”) and must be disapplied. Occupational pension schemes must therefore now provide civil partners and same-sex spouses with the same survivors’ benefits as opposite sex married couples.
In light of this judgment, the House of Commons Library has updated its briefing paper on Pensions: civil partnerships and same sex marriages.
For further details of the Supreme Court’s ruling, please see our Alert.
The Supreme Court concluded that the correct approach to be applied to the matter at issue was unclear and has therefore referred the question to the CJEU.
A case report will follow in due course.
On 11 July 2017, BEIS published The Taylor Review, an independent review of modern working practices by Matthew Taylor, Chief Executive of the Royal Society of Arts.
The review considers the implications of new forms of work on worker rights and responsibilities, as well as on employer freedoms and obligations. It sets out seven principles aimed at addressing the challenges facing the UK labour market.
Amongst other recommendations, the Review calls on Government to explore ways to “improve pension provision amongst the self-employed, making the most of opportunities presented by digital platforms and the move to more cashless transactions”. It welcomes the DWP’s review of automatic enrolment.
On 14 July 2017, the Centre for Policy Studies published a paper by Michael Johnson which suggests a number of specific pension reforms aimed at “Reinforcing Automatic Enrolment“.
His recommendations, ahead of the DWP’s review of automatic enrolment, are intended to:
- give individuals a stronger sense of personal ownership over their savings
- ensure that the AE opt-out rate remains low
- broaden AE’s eligibility criteria particularly for lower earners and the self-employed
- increase the potential retirement income of lower earners
- incentivise contribution rates above the statutory minimums
- radically simplify the current pensions and savings system, and
- save the Treasury £10 billion a year.
The report goes on to make 12 specific suggestions as to how the Government could do more to encourage saving, especially among the young and the self-employed, in particular by “redistributing the current savings incentives”.
On 12 July 2017, the FCA published the interim findings of its Retirement Outcomes Review. Launched in July 2016, the review is the first major comprehensive study into how the retirement income market has changed since the pensions freedoms were introduced in April 2015.
The review found that:
- accessing pension pots early has become “the new norm”. 72% of pots have been accessed by consumers under age 65, with most choosing to take lump sums rather than a regular income
- 53% of pots accessed have been fully withdrawn. However the fully withdrawn pots are mostly “small” (90% being below £30,000), and 94% of consumers making full withdrawals had other sources of retirement income in addition to the state pension
- drawdown has become much more popular, with twice as many pots moving into drawdown than annuities.
The review identified five emerging issues:
- over half of fully withdrawn pots were not spent but were moved into other savings or investments. The review believes that some of this is due to a lack of public trust in pensions, which could “result in consumers paying too much tax, missing out on investment growth or losing out on other benefits”
- most consumers who access their pots early follow the ‘path of least resistance’, accepting drawdown from their current pension provider without shopping around.
- consumers are increasingly accessing drawdown without taking advice. Before the freedoms, 5% of drawdown was bought without advice compared to 30% now. Drawdown is complex and these consumers may need more support and protection.
- providers are continuing to withdraw from the open annuity market which could bring a risk of weakened competition over time.
- product innovation has been limited to date, particularly for the mass market.
The review identifies a range of possible measures to address some of the emerging issues.
The FCA invites feedback on the initial findings and recommendations by 15 September 2017. It is aiming to publish its final report in the first half of 2018.
A Written Ministerial Statement on the Finance Bill was made on 13 July 2017 by Mel Stride, Financial Secretary to the Treasury.
The Statement confirms that a Finance Bill will be introduced “as soon as possible” after the summer recess. The intention is that this new Bill will legislate for all policies that were included in the pre-election Finance Bill (now the Finance Act 2017), but which were dropped before the final version to ensure that it received Royal Assent before Parliament was dissolved in advance of the 2017 General Election.
The Government also confirmed their intention that all policies originally announced to start from April 2017 will be effective from that date. This includes:
- the reduction of the money purchase annual allowance (“MPAA”) from £10,000 to £4,000
- the Pension Advice Tax exemption – provisions allowing employers to pay for individuals to take relevant pensions advice, or reimburse individuals for the costs of such advice, without any liability for income tax arising, provided that the payment did not exceed £500 in a tax year.
The reduction in the MPAA and the planned retrospectivity have already been the subject of heated debate which shows little sign of abating. We will be following progress of the Bill closely.
The Pensions Ombudsman published its Annual Report and Accounts on 10 July 2017.
The report reveals that it handled around 6,000 enquiries in 2016/17, up 22% from the previous year. It also highlights the continued rise in complaints in relation to pension transfers, which increased from 6% to 11% of its case load. However, the number of pension scam cases was seen to decrease significantly, accounting for just 8% of new investigations compared to 16% in 2015/16.
Pensions Ombudsman Anthony Arter commented that the year “was a time of consolidating our new approach for the resolution of disputes, 70% of which are now informally resolved” through the use of its adjudicators. 40% of investigations are now completed within six months.
On 11 July 2017, the PPI published Briefing Note 101, “Using accessible pension savings to provide a financial safety net”. The note considers the impact on pension income of a debt prevention measure suggested by StepChange Debt Charity. The proposal, which would be integrated into the pension system, involves diverting part of pension savings into an Accessible Pension Savings fund. The Briefing Note discusses the policy proposal and models the potential impact on pension outcomes of individuals, and the potential issues that could arise in implementation.
Briefing Note 102 was published on 12 July 2017. “What is the impact of not shopping around for annuities?” explores the annuity market two years on from the introduction of the pension freedoms, and sets out changes in volumes being bought, use of DC savings in retirement, and possible developments within the annuity market. It also explores the amount of money that people might be forgoing by not shopping around for the best annuity rate.
TPAS published its Annual Report and Accounts on 10 July 2017.
The report shows that TPAS helped 180,499 customers in 2016/17, and that the number of visits to their website increased by 23%.
On 10 July 2017, TPR published its Annual Report and Accounts for 2016/17. The report sets out how it has met ongoing challenges across the pensions landscape by adapting its regulatory approach, “strengthening its resources in its frontline regulatory teams, being clearer about its expectations and through the bolder use of its enforcement powers to act more quickly and decisively”.
TPR Chair Mark Boyle, said “We have had success with, and learnt from, some very high profile cases, and we have also started a major internal review of the way we regulate which will deliver new regulatory approaches in line with our growing responsibilities, all of which will ensure we remain fit for purpose for years to come.”