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

Autumn Budget 2017

The Chancellor, Philip Hammond, gave his first Autumn Budget on 22 November 2017. After weeks of speculation, there were very few, and no major, announcements relating to pensions.

Points of interest were as follows:

  • the Lifetime Allowance will increase in line with CPI, rising to £1,030,000 for 2018-19, as planned
  • as expected, the basic State Pension will increase by 3% in April 2018, under the “Triple Lock”
  • the Government will support long-term investment by “giving pension funds confidence that they can invest in assets supporting innovative firms as part of a diverse portfolio”. This follows on from HMT’s consultation in the summer. To help with this, HMT has said that TPR will clarify guidance on investments with long-term investment horizons
  • the Treasury plans to establish a working group of institutional investors and fund managers to look at how to remove barriers which may be holding back some DC pension savers from investing in illiquid assets
  • taxing gains made by non-residents on immovable property: to align the UK with other countries and remove an advantage which non-residents have over UK residents, all gains on non-resident disposals of UK property will be brought within the scope of UK tax. This will apply to gains accrued on or after April 2019. The Government intends to include targeted exemptions for institutional investors such as pension funds
  •  life assurance and overseas pension schemes: tax relief for employer premiums paid into life assurance products or certain overseas pension schemes will be “modernised” to cover policies when an employee nominates an individual or registered charity to be their beneficiary. The change is due to have effect on and after 6 April 2019
  • as announced at Spring Budget 2017, the Government will legislate in the Finance Bill 2017-18 to introduce HMRC powers to register and de-register master trust pension schemes and schemes registered with dormant companies as the sponsoring employer. The draft legislation and Tax information and impact note (“TIIN”) were published on 13 September 2017, and the legislation remains unchanged following consultation. The changes are due to have effect on and after 6 April 2018.

The OBR’s latest “Economic and fiscal outlook”, published at the same time, notes “a large downward revision [in the number of adults over SPA] due to higher mortality rates at older ages than previously assumed”.

We await publication of the remaining clauses of the Finance Bill 2018-19, due out on 1 December 2017.

The Occupational Pensions (Revaluation) Order 2017

When a person leaves a final salary pension scheme before normal pension age, with a preserved (or “deferred”) pension, that pension is likely to have lost value due to inflation by the time it is put into payment.  Revaluation provisions, introduced for those who left schemes after 1 January 1986, were therefore designed to provide a measure of protection against inflation where there is at least one full year between the member leaving a scheme and reaching their normal pension age.

The Occupational Pensions (Revaluation) Order 2017 was laid before parliament 20 November 2017, and is due to come into force on 1 January 2018. The Order sets out the revaluation required (for that part of a pension in excess of GMP rights) for people who will reach their scheme’s normal pension age in 2018.

Pensions based on pensionable service before 6 April 2009 must be increased at least in line with the lower of the increase in the general level of prices over the whole period of deferment or 5% per annum.  The Pensions Act 2008 reduced the cap to 2.5% compound per year, for pensions based on service from 6 April 2009.

Since 2010, the Secretary of State has considered CPI to be the most appropriate measure of inflation to use for this purpose.  As the CPI figure for the year to 30 September 2017 was 3%, the higher revaluation percentage (for service before 6 April 2009) has been set at 3%, with the lower revaluation percentage capped at 2.5%.

State pension guidance updated

The DWP has updated its guidance aimed at helping people understand the changes to the State Pension from 6 April 2016. The revised guidance includes clarified information about qualifying years and starting amounts.

Pensions Institute report looks at changes to private sector pensions market

The Pensions Institute at Cass Business School has published a new report, “The Meaning of Life 2”, which sets out to update the findings of its November 2015 investigation into the UK’s life company business model. The report looks at the dramatic changes to the political landscape in the UK and continuing changes to the investment and private sector pensions market, including the effect of Brexit, pension freedoms and implementation of Solvency II.

Amongst other things, the report finds that, although “the range of retirement products available to consumers has shrunk, pensions freedoms and choice has made the retirement income environment more complex for consumers. The vast majority do not seek advice which results in sub-optimal decisions and ultimately is detrimental to consumers.”

PPI publish Briefing Note 103 – How prepared are people for retirement?

The PPI have today (27 November 2017) published a Briefing Note which explores people’s changing thoughts over time about pensions and their retirement. The aim of the report was to understand how their thoughts had changed over the years between 2006 and 2016 and how certain individuals are of their own future.

The Briefing Note asks how well prepared individuals feel for retirement, how realistic their views are and how this varies by age group and income level. It also considers what possible interventions might help address knowledge gaps.

TPR continues to roll out 21st Century Trusteeship campaign

TPR has released a further paper in its campaign to protect workplace pension savers by driving up the standards of governance across pension schemes.

Its latest communication, entitled “Clear purpose and strategy”, advises trustees that “setting a clear purpose and strategy is essential to managing your scheme effectively and getting good outcomes for members”. To this end it recommends that trustees develop, and regularly review, a business plan for their schemes.

TPR is not creating new or higher standards. Instead, the campaign, which is part of TPR’s commitment to support schemes by being clearer and more directive, will outline how people involved in running schemes can take action to meet expected standards and what action TPR will take if they don’t improve. Earlier releases looked generally at good governance, and trustees’ roles and responsibilities.

TPR to begin AE spot checks in the South

On 21 November 2017, TPR announced that it was continuing its regime of spot checks for compliance with automatic enrolment duties to employers based in the South (Sussex, Surrey, Hampshire and Kent) from this week.

Darren Ryder, TPR’s Acting Director of Automatic Enrolment, said: “The vast majority of employers are continuing to provide their staff with the workplace pensions they are entitled to and are keeping up with contributions after that point. These visits help us to identify why some are not, so we can take action where we need to.”

New inquiry launched into “defined ambition” pension schemes

The Work and Pensions Select Committee has launched an inquiry into the merits of collective defined contribution (“CDC”) pension schemes. They are commonplace in the Netherlands, Canada and Denmark but are not yet permitted in the UK.

The Pension Schemes Act 2015 created by the 2010-15 Coalition Government defined “shared risk/defined ambition” or CDC as a distinct pension category. However, regulations under the Act to bring them into effect have not been introduced, and in October 2015, the Government announced the plans would be put on hold “so as not to distract from other major reforms such as auto-enrolment and pension freedoms”.

The Committee is now launching an inquiry into merits of CDC schemes, the role that “defined ambition” CDC schemes could play in the pension landscape, the potential benefits to savers and the wider economy, and the legislative and regulatory framework that would be required to make it work.

The deadline for written submissions is 8 January 2018.