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

Coronavirus – Sackers response

At Sackers we are committed to ensuring that the Coronavirus outbreak causes minimal disruption for our clients, and have taken several steps to ensure it is ‘business as usual’. For details of these steps, as well as key points for trustees and employers to consider in light of the outbreak (which we will continue to update), please see the dedicated section of our website, or talk to your usual Sackers contact.

Finance Bill receives Royal Assent

The Finance Bill 2019 – 21 received Royal Assent on 22 July 2020, becoming the Finance Act 2020.

The Act largely legislates for announcements made in the March 2020 Budget. In relation to pensions, this includes amendments to shift the main thresholds applicable to the tapered AA upwards by £90,000 (see our Alert), with effect from the start of the 2020/2021 tax year. It also formalises the policy already in place to prevent people who return to work to help with the response to Coronavirus from losing any protected pension age (see 7 Days).

In addition, the Act amends insolvency legislation to give HMRC priority in the recovery of VAT and certain other debts owed to HMRC in insolvency proceedings (see 7 Days). This moves HMRC up the creditor hierarchy for the distribution of assets if a company enters insolvency, and could impact occupational pension scheme trustees’ ranking on an insolvency and therefore the amount they may ultimately recover. The insolvency changes were originally scheduled for 6 April 2020, but now come into effect on 1 December 2020.

Amendments to PPF creditor rights under Corporate Insolvency and Governance Act

Regulations came into force on 23 July 2020, amending regulations recently passed giving the PPF powers to step in to exercise rights in place of a scheme’s trustees where there is a moratorium or restructuring plan under the Corporate Insolvency and Governance Act (see 7 Days). The amending regulations extend the scope of the PPF’s rights on a moratorium in respect of relevant Co-operative and Community Benefit Societies, and when restructuring plans are in place in relation to “relevant societies” (including credit unions).

Draft tax legislation on collective money purchase schemes

On 21 July 2020, HMRC published draft legislation and a policy paper on the tax treatment of collective money purchase schemes (“CMPS”). CMPS are proposed to be introduced under the Pension Schemes Bill – see our Alert.

The aim is for the legislation to be introduced in the Finance Bill 2020-21, to take effect from 6 April 2021. It would amend the Finance Act 2004 to allow CMPS to operate as UK-registered pension schemes, meaning they would benefit from the same tax treatment and exemptions as existing UK-registered pension schemes. If these changes are not made, payments to CMPS might lead to unauthorised payment charges. It may also prevent a CMPS from registering for tax purposes in the first place, meaning that tax relief would not be available and the pension scheme could not be used for automatic enrolment purposes.

DCIF report on ESG

On 24 July 2020, the Defined Contribution Investment Forum (“DCIF”) published a two-part report which “gives pension scheme decision-makers a clear rationale and framework for embracing environmental, social and governance (ESG) issues”. The first part of the report, The Key to Unlocking Member Engagement, “examines how DC savers have become even more concerned about ESG issues in the last two years”. The second part of the report, the Good Citizen’s Guide to ESG, aims to provide a “step-by-step guide to having thoughtful & structured conversations about ESG”.

Survivor benefits for opposite–sex widowers and surviving male civil partners in public service pensions

The Government made a written statement on 20 July 2020 on the treatment of opposite-sex widowers and surviving male civil partners in public pension schemes.

In 2017, the Supreme Court held, in Walker v Innospec, that a same-sex partner should receive the same survivor’s benefits as an opposite-sex partner. Following that judgment, the Government decided that public service schemes should award same-sex spouses and civil partners benefits equivalent to those granted to widows of opposite-sex marriages (in certain cases). There was an exception in specific schemes where, in the past, improvements to female members’ survivor benefits have involved the member making additional employee contributions.

A case brought in the ET earlier this year “highlighted that these changes may lead to direct sexual orientation discrimination within the Teachers’ Pension Scheme”. The Government has concluded that changes are required to the Teachers’ Pension Scheme to address the discrimination, and that this difference in treatment will also need to be remedied in other public service pension schemes.

Departments responsible for the administration of affected schemes “will consult on and take forward changes as soon as possible”. Schemes “will notify their members of changes and any actions they need to take”.

Updates to PTM

On 23 July 2020, HMRC made a number of updates to its PTM. The changes are mainly clarificatory or administrative, but do include amendments to reflect the tapered AA changes and protected pension age provisions set out in the Finance Act 2020 (see above).

HMRC newsletter on Managing Pension Schemes Service

On 21 July 2020, HMRC published a newsletter with updates on its new service to manage and register pension schemes. The Managing Pension Schemes Service replaces the current Pension Schemes Online service.  The newsletter includes guidance on new accounting for tax (“AFT”) features, payments relating to AFT returns, migration, signing on and further sources of information. It also provides a revised timetable for delivering “Phase 2” of the Service (see 7 Days).

Call for evidence on pensions tax relief administration

A call for evidence on the operating of both the main methods of administering pensions tax relief and what improvements might be made was published by HMT on 21 July 2020. This follows the Government’s pledge at the March 2020 Budget to review the position and recent calls, including from the House of Commons’ Public Accounts Committee, for HMRC to review the effectiveness of pensions tax relief.

The main methods for providing tax relief on pensions savings are:

  • net pay arrangements – an individual receives tax relief when contributions are taken out of their pay by their employer before tax is calculated
  • relief at source (“RAS”) – a scheme claims tax relief at the relevant basic rate from HMRC because individuals make pension contributions out of their earnings after tax has been calculated. Individuals who pay tax at rates higher than the basic rate can claim any extra relief directly from HMRC.

For the majority of savers, the method of tax relief operated by their pension scheme makes no difference to the relief they are entitled to. However, those whose marginal rate of income tax is below the basic rate may benefit from RAS as it results in a “top-up” to their contributions.

Responses must be submitted by 11pm on 13 October 2020.

Consultation response: exit payments in the public sector

On 21 July 2020, HMT published a response to its consultation on regulations implementing a £95,000 cap on public sector exit payments (see 7 Days). Based on responses received, the Government will take forward the proposals, subject to some revisions, including that it will no longer implement the cap in two stages and “will instead capture the whole public sector as soon as possible, with few exceptions”.

The final versions of the draft legislation and guidance, and details on when the cap will come into force, will be published at a later date.

ICO updated statement on Schrems II

On 27 July 2020, the ICO published an updated statement on the judgment of the CJEU in the Schrems II case, which held that the EU-US Privacy Shield does not provide appropriate safeguards for transfer of data outside the EEA (see our case summary).

The statement notes that the European Data Protection Board has issued FAQs on the invalidation of the Privacy Shield and the implications for the Standard Contractual Clauses (“SCCs”), and that this guidance still applies to UK controllers and processors. “Further work is underway” to provide more comprehensive guidance on extra measures that may now be required. The ICO is considering what the decision means in practice and “will continue to apply a risk-based and proportionate approach” in accordance with its Regulatory Action Policy.

PPI report on small pots

On 22 July 2020, the PPI published a report on policy options for tackling the growing number of deferred members with small pots. The report “investigates the impact on providers and members of different policy approaches to reducing the number of small pension pots in the future”. In summary, the report suggests:

  • to effectively reduce the number of small deferred pots, large scale policies will need to be introduced alongside more streamlined, uniform systems for payroll and pot transfers
  • policies aimed at consolidating pots are likely to provide a better long-term solution than tackling charging structures
  • as all policies have potential benefits and drawbacks, a combination of policies may be helpful
  • consolidator models reduce the number of deferred member pots, member charges and provider costs to varying degrees
  • policymakers will need to consider the trade-offs for employers, members and providers involved in each policy
  • increases in cost efficiency will result in greater reductions in costs for providers.