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
- Capping early exit charges: DWP publishes guidance and regulations
- DWP consults on auto-enrolment DB alternative quality requirements and provisions for seafarers and offshore workers
- State Pension age review: final report
- FCA policy statement on reporting of retirement income data
- PPF Chief Executive to step down in early 2018
- PPF publishes updated documents
- PPI publishes final report in series on consumer engagement with pensions
- TPR warns it will prosecute companies and individuals for failing to provide requested information
- TPR discusses changing pensions landscape
On 21 July 2017, the DWP published its guidance on capping early exit charges for trustees and managers of occupational pension schemes, and service providers.
The DWP confirms that, following its April 2017 consultation, restrictions are to be introduced with effect from 1 October 2017 on early exit charges for those aged 55 and over who are eligible to access the pension freedoms. In essence, the restrictions include:
- a ban on early exit charges for members of occupational pension schemes aged 55 or over who joined the scheme on or after 1 October 2017 and
- a 1% cap for such members who joined the scheme before 1 October 2017.
These provisions are intended to align with the FCA’s rules banning commission in workplace personal pension schemes.
In addition, the second phase of the member-borne commission ban is to be implemented by preventing charges being imposed on any member of an occupational pension scheme whose employer, or former employer, has used the scheme for automatic enrolment to recoup the cost of commission payments made to advisers. This includes where the relevant contract between the trustees or managers of the scheme and the person providing administrative services to the scheme was entered into before 6 April 2016 and where the scheme was used by the member’s employer, or former employer, for automatic enrolment before this date. An exception is made for commission payments made before the new regulations come into force.
The Occupational Pension Schemes (Charges and Governance) (Amendment) Regulations 2017 (“the 2017 Regulations”), which were laid before Parliament on 20 July 2017, amend the Occupational Pension Schemes (Charges and Governance) Regulations 2015 to reflect the new restrictions.
The amendments made by the 2017 Regulations provide for the Secretary of State to issue statutory guidance on how the value of the member’s benefits is calculated for the purposes of calculating the level of an early exit charge.
DWP consults on auto-enrolment DB alternative quality requirements and provisions for seafarers and offshore workers
On 19 July 2017, the DWP published a consultation inviting views on how aspects of automatic enrolment regulations are working in practice.
As part of the DWP’s current review of automatic enrolment, the Government is required to carry out a statutory review of the operation of the “alternative quality requirement” for DB schemes. The requirement allows for a simpler alternative test to be used so that a scheme can demonstrate that it is of sufficient quality for use as an automatic enrolment scheme. This call for evidence aims to ascertain whether or not the Government’s policy intentions in this area are being achieved, in particular how the simplifications and flexibilities introduced under the test work in practice, and whether there are any unintended consequences.
The consultation is also seeking input and evidence on provisions related to regulations made to include seafarers and offshore workers within automatic enrolment. This document aims to test whether these regulations are working as intended.
The call for evidence on alternative quality requirement tests applies to England, Wales and Scotland. The call for evidence on seafarers and offshore workers applies UK-wide.
Responses to the consultation should be submitted by 30 August 2017.
On 19 July 2017, the DWP published a report explaining the Government’s proposal for changes to the State Pension age from 2028. This is the Secretary of State for Work and Pension’s report on the first Government review of State Pension age, as required under the Pensions Act 2014.
The report proposes a new timetable for rises in State Pension age to 68, with the aim of maintaining “fairness between generations in line with continuing increases in life expectancy”. Under the proposed new timetable, State Pension age will increase to 68 between 2037 and 2039, earlier than the current legislation which had proposed the rise between 2044 and 2046. The change will affect everyone born between 6 April 1970 and 5 April 1978.
The review was informed by two reports published in March 2017:
- the Government Actuary’s report on how State Pension age timetables might need to change based on life expectancy projections
- an independent report by John Cridland CBE which also considered wider factors associated with changes in State Pension age, and proposed the chosen increase.
The Government states that it has weighed the relevant factors carefully “and decided that this review can best balance them by following John Cridland’s recommendation and increasing the state pension age from 67 to 68 in 2037-39, seven years earlier than its currently legislated date of 2044-46. There is a good case for earlier action on grounds of affordability and the evidence on the proportion of adult life spent in retirement. However, this needs to be balanced against John Cridland’s recommendations on the pace of change.”
Any changes to the State Pension age require primary legislation and as such are subject to full scrutiny by Parliament. The legislation provides for a further review to be conducted by July 2023, which will confirm when State Pension age will increase to 68. The next review will also consider whether rises beyond 68 are needed and when.
The latest technical bulletin from the Government Actuary’s Department (published on 19 July 2017) summarises the main conclusions from the Government’s report.
Associated House of Commons Library papers, considering FAQs raised by constituents with their MPs about pensions, and the review of and timetable for increasing the state pension age, have been updated accordingly.
On 21 July 217, the FCA published a Policy Statement setting out its final rules which require providers of pensions, annuities and income drawdown to report two new data items to it.
Since the introduction of the pension freedoms in April 2015, the FCA has been collecting retirement income data from a representative sample of pension, annuity and income drawdown providers, on a quarterly basis. A consultation published in November 2016 sought views on proposed changes to the FCA’s rules on requirements relating to the reporting of certain data items, proposing to create two new regulatory returns to collect retirement income data and replace the current ad hoc return.
The policy statement sets out the changes made to the rules and guidance in the FCA’s handbook.
The PPF has announced that Alan Rubenstein is to step down as Chief Executive of the organisation in early 2018.
Arnold Wagner, Chairman of the PPF, said “The Board is extremely grateful to Alan for his excellent leadership of the PPF over the last eight years and wish him every success in the next phase of his career. As a result of his achievements as Chief Executive, the PPF is in a strong position, well placed to continue to protect the millions of people in the UK who belong to defined benefit pension schemes. Our task now is to locate a successor to pilot the PPF through its next phase of development.”
On 17 July, the PPF published its Long-term Funding Strategy Update. The Funding Strategy document describes the framework within which the PPF makes its financial decisions and how it assesses the financial risks to it. The Strategy is updated each year to include the latest financial information and a consideration of the risks to the PPF’s funding objectives.
The Update states that the PPF Board is of the view that the “funding horizon” of 2030 and the 10 per cent self-sufficiency margin remain appropriate. However, it notes that “significant uncertainties and risks exist that may affect the PPF”, and that the PPF needs to remain vigilant to the developments and emerging risks in the UK economic climate and beyond.
On 18 July 2017, the PPF published revised tables containing the actuarial factors for cash commutation, early retirement, late retirement, late retirement lump sums and lump sum conversion. The new factors take effect from 1 November 2017.
The PPF published an updated version of its guidance, “General information on PPF Factors for Commutation, Early Retirement and Late Retirement” on the following day.
On 19 July 2017, the PPI published third and final in a series of reports exploring consumer engagement with pensions and financial products, titled “Consumer engagement: the role of policy through the lifecourse”.
This report builds on the first two research reports to segment people by life stage, current level of engagement (and other characteristics), and explores the role that behavioural techniques play alongside other policy levers to help.
On 18 July 2017, TPR published a report on its first criminal prosecutions for failing to provide information requested as part of ongoing investigations.
The regulatory intervention report outlines two separate successful actions taken, and alerts others to the potential for TPR to bring criminal charges for neglecting or refusing to provide information or produce documents. Fines available to the courts are unlimited.
Nicola Parish, Executive Director for Frontline Regulation at TPR, said: “Our power to require companies and individuals to provide us with information is an important tool in our regulatory case work. The refusal to provide specifically requested information was the simple reason for these two recent prosecutions. From now on we will not hesitate to prosecute further companies or individuals if they refuse to give us the right information to investigate cases and ultimately protect pension savers.”
TPR Chief Executive Officer Lesley Titcomb’s latest blog post, “Embracing change”, discusses the “tumultuous shifts in the political, economic and pensions landscape since TPR’s inception”, and identifies five key areas where TPR hopes to “change and improve”.
The blog references a new TPR report, “Protecting workplace pensions”, which summarises the key findings in its “TPR Future” programme and includes the main recommendations that will be taken forward.