7 days

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

Single tier state pension: further regulations laid before Parliament

The Pensions Act 2014 (Consequential, Supplementary and Incidental Amendments) Order 2015 was laid before Parliament on 11 December 2016.

The Order makes consequential, supplementary and incidental amendments to the Pensions Act 2014 in relation to the new state pension for people reaching pensionable age on or after 6th April 2016. The amendments largely deal with the administration of the state pension and extend existing administrative arrangements to do with claims, decision-making, payments, overpayments and adjustments between overlapping benefits to the new state pension.

The majority of the amendments take effect on 6 April 2016, when the new state pension comes into effect.

Revised version of the Bank of England and Financial Services Bill published

On 17 December 2015, a revised version of the Bank of England and Financial Services Bill 2015-16 was published following the “report stage”, a line by line examination of the Bill.

The Bill now includes:

  • a clause amending FSMA to give HMT power to send remit letters to the FCA on aspects of the Government’s economic policy to which the FCA should have regard
  • as announced in the Government’s policy paper published on 9 December 2015, a new section for FSMA which, if adopted, will require the FCA to make rules requiring certain authorised firms to check that advice has been received before annuity holders may sell their annuity income stream. The FCA will consult on its proposed rules during 2016
  • a clause amending the Pension Schemes Act (PSA) 2015 to allow appointed representatives of authorised financial advisers to advise on the conversion and transfer of safeguarded benefits, for the purposes of the advice safeguard established in the PSA 2015.

The third reading – a further chance for amendments to the Bill – has yet to be scheduled.

The Pensions Act 2014 (Commencement No.7) and (Savings) (Amendment) Order 2015 published

The Pensions Act 2014 (Commencement No.7) and (Savings) (Amendment) Order 2015 was made on 16 December 2015. The seventh Commencement Order made under the Pensions Act 2014, it brings into force provisions enabling regulations to be made in relation to NI credits in the new state pension system.

This Order also makes amendments to the Pensions Act 2014 (Savings) Order 2015 to create further savings.

Creating a secondary annuity market: response to the call for evidence

As part of the March 2015 Budget, the Government announced its desire to extend the retirement flexibilities to annuity holders (see our Alert), and called for evidence on the creation of a secondary annuity market.  The consultation invited interested parties to comment on the policy detail, asking questions which covered the scope of annuities eligible for sale, changes to tax legislation, how to encourage an effective market, and consumer protection.

On 15 December 2015, the Government published its response to the call for evidence. The response document confirms that the Government will consult on the detail of the tax framework for the secondary annuity market in spring 2016, and will also look to amend other relevant legislation. In addition, the FCA will consult on measures that are designed both to protect consumers and to promote competition.

Implementation is now scheduled for April 2017, to allow time to work with firms and the FCA to develop “an effective package of measures” to protect consumers. The response document states that the Government is confident that a “framework will be in place by then, and that it is committed to implementing the market by that date”.

For full details of the Government’s response to the call for evidence, please see our Alert.

CPS report into “unsustainable” LGPS published

The LGPS is “unsustainable”, according to a report published on 17 December 2015 by the Centre for Policy Studies (CPS). Notwithstanding Lord Hutton’s 2014 reforms, the report claims that the scheme ultimately risks running out of cash to meet pensions in payment, because of excessive pension promises relative to contributions, facilitated by years of “ineffective” and complex governance.

The paper also includes “league” tables that reveal the range in the operating costs of individual LGPS funds.

The report is due to be followed by a further paper which discusses HMT’s recent proposal to reconfigure the 89 LGPS funds as six British Wealth Funds (see our December 2015 Public Sector Briefing for details).  The next paper is set to include specific proposals to make the LGPS sustainable for the long term.

DWP publishes analysis of review of the automatic enrolment earnings trigger and qualifying earnings band for 2016/17

On 15 December 2015, the DWP published analysis to support its review of the earnings trigger (for establishing eligibility) and qualifying earnings band (for calculating contributions) for automatic enrolment into a workplace pension.

The trigger and earnings bands are reviewed every year and revised if appropriate, with consideration given to whether costs and benefits to individuals and employers are appropriately balanced.

The Government has again decided that the earnings trigger should be frozen at £10,000 for a fifth year; the analysis suggests that this will bring an additional 130,000 individuals into the scope of automatic enrolment. The lower limit of the qualifying earnings band for 2016/17 will remain at £5,824, with the upper limit increased to £43,000 (up from its 2015/16 value of £42,385) – both in line with the National Insurance Contributions Lower and Upper Earnings Limits.

DWP publishes further state pension materials

The DWP has published further materials in relation to the state pension changes taking place from 6 April 2016.

On 16 December 2015, it published a “questions and answers” document, explaining the changes and who will be affected. On the same date it published a set of slides, aimed at helping stakeholders explain the changes to others.

The DWP also published revised versions of its state pension factsheets on 18 December 2015, making a minor amendment to the extra amount given for qualifying years. The DWP has also temporarily removed the factsheet entitled “Introducing the Contracted-out Pension Equivalent (COPE) amount”, while changes are made to it.

Pension Charges Survey 2015 published

On 17 December 2015, the DWP published its Pension Charges Survey 2015: Charges in defined contribution pension schemes. The research study was designed to capture the full range of charges that applied to DC workplace pension schemes that were open to new members in the year prior to April 2015 (when the annual charge cap was introduced).

Key findings include:

  • all members of the qualifying master trusts, 88% of members of the other qualifying trust-based schemes, and 76% of members of the qualifying contract-based schemes covered by this study already paid charges within the annual charge cap of 0.75 per cent (or an equivalent combination charge) before it was introduced
  • members of contract- and trust-based schemes at smaller employers usually paid higher charges than members working for larger employers
  • consultancy charges and commission were relatively rare. All providers confirmed that they would be removing these in anticipation of the April 2016 ban.

DWP publishes public responses to consultation on investments in occupational pension schemes

On 18 December 2015, the DWP published the responses it received to the consultation on recommendations made by the Law Commission in its report “Fiduciary duties of investment intermediaries”, which looked at the regulations governing investments in occupational pension schemes.

Having considered these responses, the Government concluded there was not a compelling case to amend the regulations, but notes that it is important that trustees are supported in understanding their responsibilities in taking investment decisions.

The Government published its own response on 12 November 2015 – see our 7 Days of 16 November 2015.

Department of Health consults on changes to NHS pension scheme

The Department of Health published a consultation on 17 December 2015 seeking views on the draft National Health Service Pension Scheme, Injury Benefits and Additional Voluntary Contributions (Amendment) Regulations 2016.

The draft proposes amendments to the regulations that provide the rules for the NHS Pension Schemes in England and Wales, the supplementary AVC arrangements and the Injury Benefits scheme. Amongst other things, the changes will enable GPs to have pension earnings from sub-contracts where the holder of the main contract is also an NHS employer, and will permit money purchase AVC arrangements to pay lifetime allowance excess lump sums.

The consultation closes on 12 February 2016.

EIOPA publishes fourth Consumer Trends report

EIOPA published its fourth Consumer Trends report for the EEA on 18 December 2015.

The report analyses the shift from DB to DC pensions “from a consumer protection perspective”. It looks at the issue of transferability of pension rights and its implications for members, beneficiaries and policy holders. It also notes that changes in the decumulation phase are placing “an increasing onus on individuals to adopt financial decisions affecting their retirement planning. As a result, information and transparency issues, including disclosure of costs and charges, gradually gain importance” to enable informed member decisions.

EIOPA consults on improving communication with occupational pension scheme members

​On 21 December 2015, EIOPA published a Consultation Paper on “Good Practices on Communication Tools and Channels for communicating to occupational pension scheme members”.

EIOPA examined existing practices to identify ideas for improving communications, and the paper highlights the following areas:

  • how the welcome or enrolment pack is transmitted to new members
  • the ways in which active and deferred members receive regular information about the status of their individual pension entitlements
  • whether any retirement planning tools are made available to members
  • how ad hoc information on changes which directly affect pension scheme members is communicated
  • how to inform scheme members about their options when they change job, including for pension transfers
  • when the point of retirement is drawing closer, whether, and how, scheme members should be informed about the options available.

The consultation closes on 22 March 2016.

FRC issues letter to audit committee chairs on improving corporate reporting

On 15 December 2015, the FRC published a letter of advice to audit committee chairs of larger listed companies, summarising key developments for 2015 annual reports.

The letter encourages companies towards “Clear & Concise” reporting to ensure that their annual reports contain information that is relevant to investors, and identifies some of the key themes in corporate governance and reporting.

The FRC notes the ongoing drive for improvement in effective disclosure. In relation to pension reporting, it notes that where there is diversity of treatment “critical judgements and accounting policy choices must be explained”.

HMT publishes response to Work and Pensions Committee

On 17 December 2015, HMT published the Government’s response to the October 2015 report of the Work and Pensions Committee into pension freedoms guidance and advice.

The Government welcomes the Work and Pensions Committee’s first report of the 2015-16 session, which made a number of recommendations for both the Government and the FCA. The Government also recognises that “there is still progress to be made in ensuring that consumers are able to get the support they need in a way that works for them”, and notes that it is “committed to ensuring that the new system works in practice and will work with the committee going forward to enable all consumers to benefit from the pension freedoms”.

The Government confirms that the FCA will be issuing its own response to the Committee’s report.

HMT launches public sector exit payment recovery consultation

HMT launched a consultation on 20 December 2015 seeking views on allowing for the recovery of exit payments when a high earner returns to the public sector shortly after exit. The consultation covers the draft regulations that will give effect to powers enacted in the Small Business, Enterprise and Employment Act 2015. It is intended that the regulations will take effect from April 2016, subject to Parliamentary scrutiny.

Since the last public consultation on this subject, the Government has modified some elements of the policy to ensure that the recovery provisions are fair and consistent. These changes include:

  • lowering the minimum earnings threshold for individuals subject to the recovery provisions from £100,000 to £80,000
  • applying the policy to qualifying returns to any part of the public sector, instead of only returns to the same part of the public sector
  • reduction of the recovery amount over time for a return at any point up to 12 months from exit
  • recovery will include employer funded pension “top up” payments made under the LGPS to align with the recovery of other similar payments.

The draft regulations also list the public sector organisations that are in scope of the regulations and those that are proposed to be exempt.

The consultation will close on 25 January 2016.

ONS publications released

According to the latest figures from the ONS published on 17 December 2015, net investment of £33bn was estimated by insurance companies, pension funds and trusts in the third quarter of 2015. This was the highest level of net investment since the second quarter of 2009. It also notes a slight trend towards a switch back to gilts in pension funds.

On 18 December 2015, the ONS published statistics looking at estimates of private pension wealth in Great Britain, in the period July 2012 to June 2014. Figures show that 35% of adults aged 16 and over contributed to a private pension, with 84% of employees in the public sector belonging to an occupational pension scheme compared to a figure of only 42% in the private sector. Around a quarter (24%) of all households in Great Britain had no private pension wealth.

Pension Wise move from HMT to DWP in April 2016

In a Written Ministerial Statement issued on 16 December 2015, David Cameron confirmed that the responsibility for Pension Wise will transfer from HMT to the DWP with effect from 1 April 2016, as first announced in September 2015.

The Transfer of Functions (Pensions Guidance) Order 2015, laid before Parliament on the same date, makes the statutory transfer and supplemental provisions connected with the transfer.

Pensions Institute report on early intervention strategies for trustees and sponsoring employers of stressed DB schemes

The Pensions Institute and Cass Business School together published a report on 14 December 2015 entitled “The Greatest Good for the Greatest Number: An examination of early intervention strategies for trustees and sponsoring employers of ‘stressed’ defined benefit schemes”. The report looks at the “reality that many trustees face” – ie of significant underfunding and the management of “seemingly impossible conflicts of interest between the diverse stakeholders”.

The report finds that 1,000 schemes, representing more than 15% of PPF Index schemes, are “subject to unmanageable stresses and are very unlikely to pay future pensions in full to members and their dependants.”

PLSA publishes 2015 Stewardship Survey results

The PLSA published the 2015 edition of its annual Stewardship Survey on 18 December 2015, looking at the ways in which pension funds engage with their investments in order to achieve the best possible returns.

Respondents were in almost unanimous agreement (93%) that Environmental, Social and Governance factors are material to investment returns, a slight increase from 90% in 2014 and significantly up from 81% in 2013, reflecting the heightened interest in the issues. Over a third (37%) of pension funds reported that stewardship was regularly discussed at trustee meetings; this proportion has risen significantly over the last four years (17% in 2012).

PPF Levy Determination 2016/17 published

On 17 December 2015, the PPF published its 2016/17 Levy Determination, confirming that the 2016/17 pension protection levy estimate will be £615m.

Final levy rules for 2016/17 remain largely unchanged for second year of the triennium, with some amendments made to the handling of mortgage certifications and recertification of ABCs following feedback to the PPF’s September 2015 consultation (see our Alert for more details).

The determination confirms that the levy scaling factor and the scheme based levy multiplier will be 0.65 and 0.000021 respectively.

For further details of the determination, please see our forthcoming Alert.

PPI publishes Briefing Note 78 – Financial education and retirement: international examples

The PPI published a new Briefing Note on 17 December 2015 on “The impact of DC regulation on employer scheme choice”. The note reflects some of the findings from a research report on the regulation of DC pensions, conducted by the PPI on behalf of Scottish Widows.

The research draws on discussions conducted with experts on regulation, and desk research, to explore the differences between the two regulatory regimes for DC pensions. It considers the pros and cons of the respective regimes for DC pensions, with a focus on the impact of each for savers.

Re BCA Pension Plan (High Court)

A High Court judgement was given on 2 December 2015 in the case of BCA Trustees Limited (“the Trustees”). The Trustees had argued that a mistake had been made during the consolidation of their trust deed and rules.

The judge agreed and made an order permitting the scheme to be administered as if the drafting mistake had not been made.  However, it was still open to the members to contend that a different construction of the trust deed and rules should be applied.

For full details, please see our case report.

Best wishes for the festive season and 2016

This is our last 7 Days of 2015. The first edition of the new year will be published on Monday 4 January 2016.

With best wishes for 2016 from all at Sackers.