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
- Guaranteed Minimum Pensions Increase Order 2018 published
- PPF Levy Ceiling and Compensation Cap Order 2018 published
- Draft Social Security Benefits Up-rating Order 2018 published
- FSCS plan and budget 2018/19
- FCA / PRA joint consultation on FSCS management expenses levy limit
- HMT releases response to public service GMP equalisation consultation
- House of Commons Library briefing paper published
- PPF publishes revised Contingent Asset agreements and updated Guidance
The draft Guaranteed Minimum Pensions Increase Order 2018 has been published, and will come into force on 6 April 2018.
The Order specifies the amount by which the GMP element of an individual’s occupational pension entitlement must be increased – 3.0% for the tax year 2018/19.
The Pension Protection Fund and Occupational Pension Schemes (Levy Ceiling and Compensation Cap) Order 2018 was laid before Parliament on 16 January 2018.
The Board of the PPF charges a levy on DB occupational pension schemes (and the DB element of hybrid schemes) to fund the compensation it will pay to schemes’ members if their employer becomes insolvent and the scheme is underfunded below a certain level. The level of compensation payable to members who are below their scheme’s normal pension age is normally limited to a maximum of 90% of the compensation cap. The Secretary of State is required to set a levy ceiling preventing the Board from raising the levy above a set maximum and uprate this annually in line with the general level of earnings in Great Britain.
This year’s Order sets the levy ceiling at £1,024,372,330 (up from £1,007,249,095) for the PPF’s financial year beginning 1 April 2018. The Order also specifies the amount of the PPF compensation cap as £39,006.18 (up from £38,505.61).
The Social Security Benefits Up-rating Order 2018 has been published in draft, and will come into force on 6 April 2018.
The Order is made as a consequence of a review under various sections of the Social Security Administration Act 1992 and includes details of the sums mentioned in those sections. It relates to the up-rating of certain social security benefits, pensions and allowances. Amongst other things, it confirms the increase in the full state pension from £159.55 to £164.35 – a rise of 3%, in line with the “triple lock” (the Government’s current commitment to raise the state pension in line with the higher of prices, earnings or 2.5%).
The Social Security (Contributions) (Rates, Limits and Thresholds Amendments and National Insurance Funds Payments) Regulations 2018 were also published in draft. These regulations are set to increase certain NIC rates, thresholds and limits, for the purpose of calculating Class 1, Class 2, Class 3 and Class 4 NIC liabilities from 6 April 2018.
GAD’s report to Parliament on the 2018 re-rating and up-rating orders was published on 16 January 2018.
On 19 January 2018, the FSCS published its Plan and Budget for 2018/19. The document provides the scheme’s expected management costs and initial forecasts of the levies that financial services firms will pay next year.
As in the previous year, the FSCS forecasts increased costs in the life and pensions sector. The report states that SIPP and other life and pensions-related claims show signs of continuing to rise over the coming years, and notes the fact that that pension claims are generally high value, and are the “most complex and expensive … to process” increases the cost of compensation in this area.
The indicative levy for 2018/19 is £336 million, up from £316 million in 2017/18. Following the FSCS’s January 2018 consultation, the levy time periods are in the process of being aligned, with the 2018/19 “year” due to run from 1 July 2018 to 31 March 2019 with pro-rated class thresholds.
The FSCS welcomes feedback on its plans for 2018/19. The final levy is due to be confirmed in April 2018.
On 18 January 2018, the PRA and the FCA issued a joint consultation on the management expenses levy limit (“MELL”) for the FSCS for 2018/19.
Under FSMA, the PRA and the FCA must set a limit for the total management expenses that the FSCS can levy on financial services firms without further formal consultation. The proposed MELL of £77.7 million would apply from 1 April 2018 (the start of the FSCS’ financial year) to 31 March 2019. This figure covers:
- the proposed management expenses budget (£72.7 million), excluding complainants’ compensation costs (which are levied separately)
- an unlevied contingency reserve of £5 million – a reduction of £0.3 million from 2017/18. This would only be levied if the FSCS faced a significant unforeseen event or events that necessitated additional funding.
The consultation period closes on 16 February 2018. The final rules are expected to be in place for the start of the FSCS’ financial year on 1 April 2018.
On 22 January 2018, HMT released its response to the consultation on the Indexation and equalisation of GMP in public service pension schemes.
The consultation considered three broad policy options for addressing the joint challenge of indexation and equalisation of scheme pension to take account of the GMP:
- case-by-case calculations
- extension of the interim solution
- conversion of the GMP to scheme benefit.
Since 6 April 2016, the Government has been implementing its “interim solution”, by which it fully indexes the GMP of public servants who reach SPA after 5 April 2016 and before 6 December 2018 (when SPA will be fully equalised at 65 for men and women). The outcome of the consultation is that this solution is to be extended for a further two years and four months (ie until 6 April 2021), during which period, the Government “will investigate the possibility of an alternative long-term methodology, known as “conversion””. It states that it “will continue to consult with departments and schemes to decide whether a suitable methodology and legislation can be brought forward to enable conversion to take place in the future. The government will also continue to take account of alternative solutions that may also address this issue”.
The House of Commons Library published a briefing paper on 17 January 2018, outlining the provisions of the Financial Guidance and Claims Bill 2017-19.
The Bill is scheduled to receive its Second Reading today, Monday 22 January 2018.
On 18 January 2018, the PPF published updated standard form contingent asset agreements along with revised guidance. This follows the publication of the final rules for the PPF Levy for 2018/19 on 19 December 2017, which explained that the updated standard form contingent asset agreements (used for group company guarantees, securities over certain assets, or bank guarantees) would be released in mid-January 2018.
The PPF states that the revised agreements will ensure that “they continue to be effective in reducing the risks to pension schemes of employer insolvency and the levy credit that is offered is appropriate”. The approach being taken by the PPF was consulted on in March 2017 and October 2017.
The new forms need to be used for any new arrangements executed on or after 18 January 2018; arrangements entered into before this date can be certified or recertified for 2018/19 without moving to the new versions.
Some schemes with existing contingent assets will need to move existing agreements to the new forms if they are to be recognised in the levy from 2019/20 onwards.
For further information please see our Alert.