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
- HMRC releases GMP equalisation tax guidance
- Budget day to remain as 11 March 2020
- DWP writes to TPR about climate change
- DWP publishes automatic enrolment evaluation report 2019
- EIOPA consults on technical standards for the PEPP
- FCA publishes views on retirement savings and income sector
- Consultation proposes excluding pensions from dormant assets scheme
- PLSA publishes updated Stewardship Guide and Voting Guidelines
- TPR’s quarterly compliance and enforcement bulletin
On 20 February 2020, HMRC released long-awaited guidance (“the Guidance”) on some of the pensions tax issues arising when equalising benefits for the effect of GMPs. The Guidance focuses specifically on the so-called “dual record keeping methods” for achieving equalisation approved in the Lloyds case, covering the impact of GMP equalisation benefit adjustments on both the AA and LTA.
HMRC makes clear that the Guidance “relates to benefit adjustments where the reason for the adjustment is solely for GMP equalisation” and that it “does not cover other benefit adjustments”.
Taking a pragmatic approach, HMRC confirms that increased entitlements resulting from GMP equalisation will not generally constitute new accrual of benefits (requiring a test against the AA) in respect of deferred members. Similarly, benefit adjustments solely for GMP equalisation purposes should not prejudice applicable LTA protections. However, an adjustment may trigger a retest against the LTA in certain circumstances (eg for pensions in payment).
The Guidance stops short of looking at some of the trickier areas, such as lump sum and death benefit payments, which HMRC says it will produce further guidance on “as soon as possible”. It also does not cover the pensions tax implications of reshaping benefits as part of a GMP conversion exercise, which HMRC says it will “continue to explore”.
New Chancellor of the Exchequer, Rishi Sunak, announced on Twitter on 18 February 2020 that the Budget will still take place on 11 March 2020 (see 7 days), despite the resignation of the former Chancellor, Sajid Javid.
On 19 February 2020, the DWP published a letter to Charles Counsell, Chief Executive of TPR, setting out the DWP’s “views on integrating climate change risks and opportunities into [TPR]’s activities”. The letter follows on from the publication of the Government’s Green Finance Strategy in July 2019 (see 7 days).
The letter discusses how the DWP believes climate change “fits within the role” of TPR, aligning with several of TPR’s core objectives. The DWP envisages that “in the coming months … [TPR] will wish to set out a strategy for dealing with the financial risks arising from climate change, including how this strategy will be resourced and implemented and involving continuing engagement with the TCFD Regulators’ Taskforce”. It also makes recommendations as to what TPR’s report on climate change adaptation in the occupational pensions sector, due by December 2021, should cover.
On 24 February 2020, the DWP published its automatic enrolment evaluation report 2019. This is the final report the DWP plans to publish on an annual basis now that the implementation period for automatic enrolment is over.
The report “evaluates the delivery, implementation and effects of automatic enrolment into workplace pensions…It brings together evidence from the whole period in which automatic enrolment has been implemented”. The DWP “will use the findings to inform the evaluation of the workplace pension reforms and ongoing development of automatic enrolment policy”.
EIOPA launched a consultation on 20 February 2020 on implementing technical standards for supervisory reporting and cooperation as mandated by the Pan-European Personal Pension Product (“PEPP”) Regulation (see 7 days). The proposals “specify the annual supervisory reporting requirements on PEPP and formalise the notifications required by the PEPP Regulation to facilitate efficient processes in the cooperation between competent authorities and EIOPA”.
The consultation ends on 20 May 2020.
On 18 February 2020, the FCA published its Sector Views 2020. This gives the FCA’s view on how each financial sector is performing, based on the position at mid-2019. The analysis includes a chapter on pension savings and retirement income, which highlights unsuitable advice, the sale of unsuitable products, poor value across the value chain and pension scams as key issues causing “consumer harm”.
The report also notes that the retirement income market is a “key area” of the FCA’s focus, “particularly the suitability of both products and advice as the industry adapts to pension freedoms”. It comments that “from a wider perspective, the prospect that consumers may not get a retirement income that meets their needs or expectations remains the central challenge”.
The consultation considers whether certain pension products should be covered, although the Government’s position is that these assets “should not be included in the scheme at this time”.
The consultation ends on 16 April 2020.
The PLSA published its updated annual Stewardship Guide and Voting Guidelines on 21 February 2020. The updated documents offer “practical guidance for schemes in acting as good stewards of their assets, including how to exercise votes on key issues of concern during AGM season”. The PLSA states that the 2020 version has “been extensively updated to better support schemes in light of disclosure requirements on stewardship, and to help them hold their managers and service providers to account”.
The Guide includes a “toughened-up section” on climate change, with the PLSA commenting that “pension fund investors must be prepared to hold the directors of the companies in which they invest individually accountable on how well they manage climate change risks”.
Following findings in the PLSA’s recent AGM Voting Review, that executive remuneration remains “one of the largest sources of shareholder discontent”, the updated Voting Guidelines also urge investors to consider executive pension contributions, which the PLSA says should be in line with percentages applied to the overall workforce.
On 20 February 2020, TPR published its quarterly compliance and enforcement bulletin for October to December 2019. The bulletin focuses on regulatory initiatives (which involve TPR communicating directly with schemes) covering the following areas:
- fair treatment (pension scheme contributions versus dividends)
- lengthy recovery plans
- investment governance and
TPR notes that it has “seen very encouraging results” from the initiatives so far, reminding schemes that “there’s no excuse not to comply with…regulatory initiatives and make improvements where [TPR] indicate they are necessary”.
The bulletin also looks at enforcement, where TPR says it is “tough on mismanagement of scheme funds”, and discusses the responsibility of advisers for inaccurate auto-enrolment claims.