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
- Finance (No.2) Act 2017 receives Royal Assent
- ABI publishes guidance on vulnerable customers
- DWP publishes guidance on information requirements where members have safeguarded-flexible benefits
- DWP consults on draft PPF (Compensation) (Amendment) Regulations 2018
- Automatic enrolment charge cap will not be changed in terms of “level or scope”
- Government promises cold call ban legislation in early 2018
- Report published on Growing a Culture of Social Impact Investing in the UK
- HMRC updates brief on the VAT treatment of pension fund management services by regulated insurance companies
- NEST launches consultation on changes to scheme rules
- TPR publishes chair’s statement guidance
- Committees publish Bill “to end exploitation in the gig economy”
The Act legislates for 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. From a pensions perspective the Act includes:
- the reduction of the money purchase annual allowance (“MPAA”) from £10,000 to £4,000
- the introduction of a new Pension Advice Tax exemption – provisions allowing employers to pay for individuals to take relevant pensions advice, or to reimburse individuals for the costs of such advice, without any liability for income tax arising provided that the payment does not exceed £500 in a tax year.
Significantly, these provisions have retrospective effect to 6 April 2017.
A further Finance Bill will be introduced following this week’s autumn Budget. This Bill will become the Finance Act 2018 on Royal Assent.
On 16 November 2017, the ABI published guidance aimed at helping firms in the long term savings market better identify, understand and support vulnerable customers. It notes that, “in what is already a complex area, the introduction of the pension flexibility changes in 2015 created new challenges for those customers who may be more vulnerable, such as older people, and those with lower literacy skills”.
The guidance was developed by a working party of life and pension providers, and draws on examples of good practice to raise awareness across the market of how to best identify and support vulnerable customers.
The guide recommends that firms implement a “vulnerability policy” by January 2018, provide regular staff training on vulnerability awareness, and continue to share good practice.
On 13 November 2017, the DWP published guidance for pension providers, administrators, trustees and scheme managers on safeguarded-flexible pension benefits (ie DC benefits with some form of guarantee).
This guidance follows amendments to the Pension Schemes Act 2015 (Transitional Provisions and Appropriate Independent Advice) Regulations 2015, which will require trustees and scheme managers to:
- send tailored communications (personalised risk warnings) to members with safeguarded-flexible benefits
- use the transfer value of members’ safeguarded benefits, when assessing whether the value of their pension pots is above the threshold at which they are required to take financial advice
- make transitional arrangements to inform members who are affected by the change in valuation methodology.
The non-statutory guidance further explains the information requirements where members hold rights to safeguarded-flexible benefits and suggests best practice for those charged with delivering them. Subject to Parliamentary approval, the regulations will come into force on 6 April 2018.
For further information on the changes, please see our earlier Alert.
Between 31 August and 1 October 2017 the DWP ran a consultation which sought views on its preferred approach to address an issue in relation to the bridging pension provisions of PPF compensation.
Bridging pensions allow individuals who retire before SPA to be paid a higher rate of pension initially, which then reduces when the individual begins to receive their State Pension or reaches an age specified in their scheme rules (referred to as the “decrease date”). The consultation sought to resolve an anomaly whereby pensioner members in receipt of a bridging pension at the higher rate when their scheme enters the PPF receive PPF compensation based on this higher rate for life. By contrast, had the pension scheme not entered the PPF, the member’s scheme pension payments would have later reduced, leaving some members financially better off in the PPF than they would have been under their scheme rules. The PPF’s preferred approach for addressing this had been to introduce an actuarial conversion of bridging pensions into a flat-rate lifetime equivalent amount (known as smoothing)
In its response to that consultation (published on 17 November 2017), the DWP states that “the vast majority” of those who responded “agreed that the government should legislate to correct the anomaly. However, a significant proportion of respondents expressed a preference for the alternative approach set out in the consultation, which would be more closely based on the rules of the original scheme. The DWP notes that after “careful consideration of the responses, the government has decided to address the PPF bridging pension anomaly by more closely aligning with the approach that schemes would have taken”.
The DWP has therefore published draft regulations and issued a further technical consultation which asks whether the regulations as drafted achieve the policy intent of allowing the PPF to reduce a member’s compensation to a lower rate after the member reaches the decrease date.
The consultation closes on 3 December 2017. The changes to the PPF compensation rules are due to come into effect in February 2018, subject to Parliamentary procedures.
In a Written Statement made to Parliament on 16 November 2017, Guy Opperman (Parliamentary Under Secretary of State for Pensions & Financial Inclusion) confirmed that the Government had completed its review of the default charge cap (currently set at 0.75%), and had concluded that “after seeking a range of industry and consumer views and considering the findings of the recent Pension Charges Survey, which captures data from providers covering 14.4 million scheme members, […] After seeking a range of industry and consumer views and considering the findings of the recent Pension Charges Survey, which captures data from providers covering 14.4 million scheme members now is [not] the right time to change the level or scope of the cap”.
The Government intends continuing to “actively monitor the situation”. Mr Opperman stated that in the next review, scheduled for 2020, he would expect there to be “a much clearer case for change”.
In an answer to a Parliamentary Question, the Government has confirmed that it is to bring forward the publication of draft legislation to ban pensions cold-calling, including texts and emails, to early 2018. This is slightly earlier than originally anticipated following the DWP and HMT response to consultation released in August 2017.
On 14 November 2017, an advisory group working with the DDCMS and HMT published a report titled “Growing a Culture of Social Impact Investing in the UK”.
The report examines how providers of savings, pensions and investments can engage with individuals “to enable them to support more easily the things they care about through their savings and investment choices”. It suggests that pension scheme trustees and employers need to “engage better with pension scheme members”, and that trustees should work with employers and pension providers “to develop best practice for better engaging scheme members with their pension investments and encouraging them to register on their pension platforms”. It also recommends that the industry provides tools and training for trustees.
Supporting papers published alongside the report include a letter to the FCA and FOS from the Advisory Group, setting out its key findings and recommendations to those bodies, and analysis of pension trustees’ current perceptions of social impact investment.
HMRC updates brief on the VAT treatment of pension fund management services by regulated insurance companies
On 20 November 2017, HMRC updated Revenue and Customs Brief 3 (2017): VAT – treatment of pension fund management services, which was first published on 5 October 2017.
The updated brief announces a change in policy concerning the VAT treatment of pension fund management services provided by regulated insurance companies. Following the CJEU judgment in Card Protection Plan, the existing VAT exemption is to be discontinued from 1 April 2019. The change was originally intended to take effect from 1 January 2018, but HMRC agreed to postpone this in order to provide insurers with more time to take action.
HMRC states that it “understands, however, that the great majority of pension fund management services provided by insurers are supplied for [DC] pension funds and therefore qualify (and have always qualified) for exemption” as special investment funds following the judgment in ATP Pension Services.
Please see our recent Alert for further detail on VAT recovery generally.
On 13 November 2017, NEST launched a consultation on proposed changes to its scheme’s rules. This follows the DWP’s recent consultation seeking views on proposals to improve NEST for the benefit of employers and members.
NEST’s consultation proposes changes that, when taken together with the DWP’s proposed changes to the NEST order, will allow NEST to offer contractual enrolment as a means of joining the scheme. The consultation also sets set out proposed changes to how NEST manages death benefits, which NEST is looking at in light of the removal of restrictions on the scheme earlier this year.
The consultation runs until 29 December 2017.
On 13 November, TPR published its latest compliance and enforcement bulletin. In the bulletin, it notes a nearly 50% increase in the number of compliance notices issued to employers (compared to the previous quarter) for failing to meet automatic enrolment duties.
Alongside the bulletin, TPR published guidance on how to produce a chair’s statement aimed at supporting trustees and providers. The guidance sets out the legal requirements in relation to the chair’s statement and TPR’s expectations as to how trustees should meet them. TPR notes that the guidance does not propose new requirements, but seeks to clarify the expectations already set out in TPR’s DC code and accompanying guidance.
The guide “addresses some common misunderstandings and omissions” that TPR has seen in the statements submitted so far, along with examples of what it would consider to be a “good” or “poor” chair’s statement, and a checklist for trustees.
On 20 November 2017, the Work and Pensions and BEIS Committees published a joint report and draft Bill aimed at closing “the loopholes that allow companies to use bogus “self-employment” status as a route to cheap labour and tax avoidance”. This follows on from the Taylor Review into Modern Working Practice, with the Bill intended to take forward “the best of the Taylor Report recommendations”.