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

Pension Schemes Bill 2016

The Pension Schemes Bill was published on 20 October 2016, having received its first reading in the House of Lords the previous day.

The main aims of the Bill are to provide for the greater regulation of master trusts, and to strengthen existing legislation on exit charges with a view to helping remove barriers for consumers who want to access their retirement savings flexibly.

Speaking on the master trust proposals within the Bill, the Minister for Pensions, Richard Harrington, said:

“We are helping to create a culture of saving across the country and have delivered much needed change to our pension system to make saving easier, fairer and safer for all.

“We want to make sure that people saving into master trusts enjoy the same protection as everyone else, which is why we are levelling-up that protection, to give these savers more confidence in their pension schemes.”

Master trust schemes will be required to demonstrate that they meet five key criteria:

  • persons involved in the scheme are fit and proper
  • that the scheme is financially sustainable
  • that the scheme funder meets certain requirements in order to provide assurance about their financial situation
  • systems and processes requirements, relating to the governance and administration of the scheme are sufficient
  • that the scheme has an adequate continuity strategy

The Bill is expected to receive Royal Assent next year and, once passed, will be known as the Pension Schemes Act 2017.

For more details, please see our Alert.

Savings (Government Contributions) Bill – Public Bill Committee invites written evidence

The House of Commons’ Public Bill Committee has invited written comments from people with relevant expertise and experience, or an interest in the Savings (Government Contributions) Bill 2016-17, which sets out the framework for the introduction of Lifetime ISAs.

The Committee is due to meet for the first time on 25 October 2016. Written evidence must be submitted by the end of the Committee stage, scheduled for 5pm on 1 November 2016.

For more details of the Bill, please see our Alert.

The Registered Pension Schemes (Bridging Pensions) and Appointed Day Regulations 2016

Some DB schemes pay members who retire before SPA a higher pension at the outset, which is then reduced at SPA to take account of the individual’s State Pension coming into payment. The aim is to allow the member to receive a similar overall level of income in retirement, regardless of when their State Pension actually starts.

Although often referred to as bridging pensions, these arrangements are also known by a variety of other names including “level pensions”, “step-up pensions” and “State Pension offsets”.

The Finance Act 2004 provides that benefits from registered pension schemes can only be reduced in certain circumstances, one of which is in relation to bridging pensions. These measures were amended by the Finance Act 2016, so that the pensions tax rules on bridging pensions would start to be aligned with DWP legislation in the wake of the introduction of the new single tier State Pension, and the abolition of DB contracting-out, from 6 April 2016.

The Registered Pension Schemes (Bridging Pensions) and Appointed Day Regulations 2016 will ensure that the existing circumstances in which a bridging pension can be reduced can continue now that the single tier State Pension is paid by the DWP. In particular, the regulations specify when a reduction applies in relation to those who reach pensionable age on or before 5 April 2016, and those who reach pensionable age on or after 6 April 2016. The reduction in each case will be a simple multiple of the “relevant state pension rate”.

The regulations were laid before Parliament on 18 October 2016 and are due to come into force on 8 November 2016.

CBI publishes policy briefing on DB scheme sustainability

On 22 October 2016, the CBI published a policy briefing on some of the issues posed to many businesses by DB pension commitments.

Among other things, the CBI notes that business “want to see action to ensure a well-regulated system that is focused on the long-term, not artificial pressure driven by an approach to scheme calculations that risks damaging growth and pensions”. It also notes that Brexit has thrown these challenges into even shaper relief.

The paper focuses on what can be done to help companies manage the real costs of DB schemes, including:

  • flexibility in funding plans within an effective regulatory system
  • modernising inflation indexation
  • addressing the negative spiral created by a “gilts plus” approach to valuing schemes
  • unlocking pension scheme investment in more illiquid assets, including infrastructure.

DWP updates charge cap guidance

The DWP has updated its guidance for trustees and managers of occupational pension schemes which are used for automatic enrolment.

The guidance, which was republished on 21 October 2016, explains how the charge cap works, with particular emphasis on identifying the default arrangement and how to assess charges. It has been updated to confirm which costs and charges are subject to the charge cap.

DWP updates guidance on employing older workers and working past 50

The DWP has also updated its guidance on employing older workers and working past the age of 50.  This guidance is aimed at:

  • older people who want to work longer
  • employers who could benefit by employing older people

Among other things, the guidance provides links to resources for employers on the legal requirements associated with older workers, including flexible working arrangements, as well as guidance for individuals on pensions and finance in later life.

DWP publishes research on the Pension Wise service

The DWP has published the interim findings of research which was commissioned to evaluate customer experiences of using the Pension Wise guidance service.

In particular, the research was commissioned to help the DWP understand:

  • how people find out about the service
  • what drives people to make an appointment with the service
  • customer experiences of using the service, including satisfaction levels
  • customers’ perceptions of the impact that the service has had on their knowledge and understanding of their retirement options
  • what actions customers take shortly after their appointment.

The research is based on interviews with a sample of customers who had appointments between February and April 2016. Further publications from this programme are expected to follow in 2017. The DWP plans to use findings from this research programme to support future design and delivery of the Pension Wise service.

EIOPA publishes review on statement of investment policy principles (SIPPs) for pension schemes

On 21 October 2016, EIOPA published its “Peer Review of the Statement of Investment Policy Principles for Institutions for Occupational Retirement Provisions (IORPs)”.

The aims of the review were to explore the role of regulators and to identify best practices. The review focused in particular on the development and approval of the “SIPP” (or “SIP” as it is commonly called in the UK), its content, frequency of review and submission to national regulators, consistency checks and assessments performed by national regulators, as well as disclosure practices.

Overall, EIOPA found that SIPPs are primarily used as a supervisory tool for the identification of risks, and as a compliance check of a pension scheme’s investment policy. It also found that the contents of SIPPs vary between EU Member States and are based on national measures, which the majority of Member States have implemented in addition to the requirements of the IORP Directive.

The review identified eight best supervisory practices and recommended three actions for national regulators, with a view to easing the burden on schemes. EIOPA recommends that:

  • supervisory procedures in relation to SIPPs should be clearly defined in order to improve coordination between national regulators
  • there should be a “single point of entry” for submitting SIPPs to national regulators, such as a secure web-based platform which allows current and past SIPPs to be accessed from the same place, and from which reminders can be issued to schemes when the next one is due
  • national regulators should develop an appropriate communication in which they explain to schemes their rights and responsibilities in relation to SIPPs.

FRC publishes revised technical standard for SMPIs

On 21 October 2016, the FRC published a revised version of Actuarial Standard Technical Memorandum 1 (“AS TM1”), which sets out the basis on which annual SMPIs should be determined.

The revised version of the standard includes two amendments made following changes by the IFoA’s Continuous Mortality Investigation in relation to the mortality tables specified in AS TM1. The changes are the same as those made by the FCA for point of sale and in-force business projections in PS16/12: Pension reforms – feedback on CP15/30 and final rules and guidance.

The revised standard will be effective from 6 April 2017.

FRC publishes annual review of corporate reporting

The FRC’s Annual Review of Corporate Reporting 2015/16 was published on 21 October 2016.

The review found that most companies, in particular larger public companies, comply with the accounting framework in relation to their corporate reporting of accounting information. However, it also highlights calls for companies to be more balanced in the reporting of their performance, noting that “Failure to acknowledge when things have not gone so well, excessive use of underlying profit figures or inappropriate use of alternative performance measures (APMs) are found too often and erode trust and undermine the quality of corporate reporting”.

Commenting on the implications of Brexit for corporate reporting, Paul George, Executive Director for Corporate Governance and Reporting at the FRC, said: “Brexit could have significant implications for the adoption of international financial reporting standards depending on the exit arrangements negotiated by the Government. The FRC continues to support the application of a single set of high quality global financial reporting standards for listed companies. Investors have told us they want comparability when reading company accounts.”

HMT cancels plans for a secondary annuities market

HMT announced on 18 October 2016 that, after an extensive programme of engagement with the pensions industry, financial regulators and consumer groups, it has decided not to take forward plans to introduce a secondary annuities market “because the consumer protections required could undermine the market’s development”.

HMT explains that it had become “increasingly clear that creating the conditions to allow a vibrant and competitive market to emerge, with multiple buyers and sellers of annuities, could not be balanced with sufficient consumer protections”.

Briefing paper on the LGPS published

On 20 October 2016, the House of Commons Library published briefing paper CBP-7743 on the LGPS, ahead of a debate by ministers on an e-petition relating to the LGPS investment regulations, which is taking place today (24 October 2016).

The petition, which gained 105,771 signatures, said that “5 million people rely on the LGPS to pay their pensions. Government wants powers over LGPS investment funds, but they could gamble away members’ money on infrastructure projects. This is not allowed in any other UK scheme, including the MPs’. The LGPS must be invested in members’ best interests. Parliament must debate this issue and make the government accountable for these powers of intervention as any such direction may breach the law. Specifically Article 18 paragraph 3 of the EU Directive 41/2003 Institutions for Occupational Retire Provision: “Member States shall not require institutions located in their territory to invest in particular categories of assets”.”

PLSA publishes interim report of its DB Taskforce

The PLSA launched its interim report on the challenges facing DB schemes on 20 October 2016 at its annual conference.

Set against the backdrop of the collapse of BHS and the Government’s consultation in relation to the British Steel Pension Scheme, the DB Taskforce, which is chaired by Ashok Gupta, was launched by the PLSA back in March 2016.  Its remit is to undertake a review of the challenges currently facing DB pension schemes and to make recommendations to the Government with the aims of helping to ensure the sustainability of open DB schemes and that closed DB schemes run off more efficiently.

The report reflects views gathered from across the pensions industry, including from trustees, sponsoring employers, advisers and scheme members, as well as from the Government and regulators.  In addition to the views expressed in the 31 responses received to its “Call for Evidence” on 9 June 2016, the DB Taskforce also conducted 13 interviews with scheme managers and trustees of DB schemes and in-depth interviews with key stakeholders.

The key findings of the Taskforce are that:

  • the current system is too fragmented
  • the current regulatory approach to scheme resolution is inflexible
  • the current approach to benefit design and benefit change is rigid
  • the current approach to pension scheme risk bearing is sub-optimal.

Next steps

The DB Taskforce will explore the themes emerging from its key findings during the next phase of its work, “with a view to developing recommendations for action and views on how we might achieve the policy reforms required to help ensure the sustainability of DB schemes”.  As part of this process, it will continue to seek input from across the pensions and investment sectors so that the solutions it presents to the Government are ones which “have widespread support and around which consensus can be built”.

The final report is due to be published in March 2017. Anyone wishing to feedback on its initial analysis and findings can contact the DB Taskforce at: DBTaskforce@plsa.co.uk.

PLSA announces master trust committee

The PLSA has announced the launch of a master trust committee “to be the voice of master trust pension provision within its membership”.

Made up of 13 senior executives, the committee is expected to set out the PLSA’s strategic direction on master trust policy, promote and support the development of the master trust market, and help master trust savers achieve a better retirement income.

PLSA Chief Executive, Joanne Segars, commented: “The Committee will act as an advocate for master trusts as a model of strongly-governed and value for money schemes, to develop a strategic and pro-active policy framework, for example helping to ensure the coming Pensions Bill delivers for savers. It will also act as a thought leader on issues relating to master trusts, for example through research and events.”

PLSA announces internal governance review

The PLSA has also announced a comprehensive review of its own governance, to ensure that it supports the association’s work on behalf of members and stakeholders, operates effectively and attracts the right people.

PLSA Chair, Lesley Williams, said: “In a world that changes as quickly as ours we want to make sure we can reinvent ourselves when we need to…. That’s why the PLSA is undertaking a comprehensive review of its own governance to make sure we have the right structure to deliver our strategy and purpose, the right people within that structure and the right selection processes for those people.”

First Requirement Quality Marks awarded

The PLSA presented the first Retirement Quality Marks since the award was launched in September 2016.

The awards were presented to Xafinity, Lifesight and L&G by the Pensions Minister, Richard Harrington, on 19 September 2016 at the PLSA’s annual conference.

Adrian Boulding, Chair of the Pensions Quality Mark Board, said: “In the age of pension freedoms, today’s awards mark the start of a new chapter for the pensions industry. Guiding savers to the right at-retirement product is important in driving up the standards of the products in the industry.”

PLSA research on the use of property to fund retirement

The PLSA has released the first findings from new research which looks at how 35-85 year olds currently use or plan to use property to fund their retirement.

The research suggests approximately two million people in the UK have used their property to finance retirement. Within this group, downsizing was the most popular (chosen by 11%), with buy to let and letting holiday homes coming next, at 4% each. Re-mortgaging was the least common choice, selected by just 1%.

The PLSA notes that younger people are more likely to think of their property as part of their retirement planning. Of the 6 million people in the UK who are not retired and who are home owners with a mortgage, 53% thought that their home would play a part in financing retirement, even though 13% don’t expect to pay off their mortgage before they retire. 33% of 35-44 year olds feel they will have no choice but to use their property to finance retirement. Despite this, the PLSA found little support for the commonly heard phrase “my house is my pension” – only 18% of people surveyed agreed with this statement.

Case Summary: Webber v Department for Education – High Court, 8 July 2016

In this case, the High Court found that the cut-off date for the recovery of overpayments, for limitation purposes, should be the date on which TPO received the scheme’s “Reply” to Mr Webber’s complaint.

In a statement on the High Court’s decision, the Pensions Ombudsman, Anthony Arter, said: “The judgment is specific on its facts concerning overpayment complaints. However, I welcome that Mr Justice Bartley-Jones QC’s judgment recognises that the processes of the Court and The Pensions Ombudsman are different and looked to accommodate that.”

TPO now plans to review its processes and procedures for dealing with overpayment cases, together with existing legislative provisions with a view to considering whether any possible amendments are necessary.

Please see our summary for details of the High Court’s decision.