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
- The Scottish Rates of Income Tax (Consequential Amendments) Order 2018
- CMA publishes further Working Paper
- Overseas pension transfers consultation response published
- DWP publishes tailored review of NEST Corporation
- Environmental Audit Committee calls for financial regulators to report on climate change risks
- FCA publishes non-advised drawdown pension sales review findings
- FCA / PRA policy statements on FSCS management expenses levy limit
- HMRC pension schemes newsletter 97 published
- PPF issues new version of its section 179 valuation guidance
- New address confirmed for TPO
- TPR consults on master trust code
- TPR continues to roll out 21st Century Trusteeship campaign
The Scottish Rates of Income Tax (Consequential Amendments) Order 2018 was made and came into force on 29 March 2018. This Order makes consequential amendments to various provisions of income tax legislation following the introduction of a “starter rate” and “intermediate rate” of income tax that will apply to Scottish taxpayers’ non-savings, non-dividend income for the tax year 2018/19. The amendments made by the Order ensure that the income tax system works as intended in relation to Scottish taxpayers from 6 April 2018.
As we reported in 7 Days on 26 March 2018, HMRC published guidance last month, setting out how the tax reliefs (including pensions relief at source) will work, with the new Scottish income tax rates in force.
The Competition and Markets Authority (“the CMA”) has published a further working paper entitled “Asset manager product recommendations“, as part of its investigation into investment consultancy. It asks whether investment consultants are providing value for money in relation to the quality of their services, and notes that it has not found evidence that recommended products outperform their benchmarks net of asset management fees.
Any responses to the paper should be submitted by 5 April 2018.
The paper confirms that the inquiry is on-going and that the CMA aims to publish its provisional decision report in July 2018.
On 27 March 2018, the DWP published its response to the 2016 consultation on overseas pension transfers and the advice requirement, which sought views on how pension scheme members with “safeguarded” (generally, DB) benefits transfer their pensions overseas, and how such transfers had been affected by the introduction of the advice requirement. The call for evidence also sought views on how a possible easement might work if it was found that the advice requirement was placing disproportionate obstacles in relation to overseas transfers.
The Government has concluded that “that the advice requirement as applied to overseas transfers is largely working and does not require an easement”. It intends to retain the advice requirement for overseas transfers “at the present time since the gains provided in consumer protection outweigh the issues faced by some members with delays in the overseas transfer advice process.”
On 28 March 2018, the DWP published a “tailored review” of NEST. The review is intended to ensure that NEST “remains fit for purpose, well governed and properly accountable for what it does”.
The Environmental Audit Committee has written to Defra Secretary Michael Gove MP calling for him to use powers under the Climate Change Act to formally require TPR, the FCA and the FRC, to produce climate adaptation reports.
The letter results from the Committee’s Green Finance inquiry, which is examining how the UK can mobilise the investment necessary to meet its climate change targets and factor sustainability into financial decision making.
Mary Creagh MP, Chair of the Environmental Audit Committee, said “financial regulators have a responsibility to understand the risks that climate change could pose to the financial stability of the UK and the institutions that they regulate. A young person auto-enrolled in a workplace pension today may be 45 or 50 years away from retirement. In that timescale, climate change – and society’s response to it – will have huge economic consequences for a wide range of industries and investments. […] There is a compelling case for the UK’s other regulators to use the opportunity of the current Adaptation reporting round to integrate climate change risk management into their work.”
The FCA has published the findings of its non-advised drawdown pension sales review, as part of its ongoing review into the impact of pension freedoms.
It has found that the firms in its sample generally provided the necessary information, in line with FCA requirements, to help customers make informed decisions about accessing pension benefits without financial advice. However, it also notes that despite information being provided to customers, the review identified that “with the advent of pension freedoms, some customers appear not to be fully engaging with the information and are therefore potentially putting themselves at risk of harm.”
The findings will inform the FCA’s wider review of the retirement income market through the Retirement Outcomes Review (“ROR”) final report, which is due to be published during the first half of 2018, and the potential package of remedies it will set out. The findings and the ROR final report will also inform the joint strategic approach of the FCA and TPR to the pensions and retirement income sector, which is due to be published later this year.
On 29 March 2018, the PRA issued a policy statement relating to the management expenses levy limit (“MELL”) for the FSCS for 2018/19, and the FCA issued the related Financial Services Compensation Scheme (Management Expenses Levy Limit 2018/2019) Instrument 2018.
Under FSMA, the PRA and the FCA must set a limit for the total management expenses that the FSCS can levy on financial services firms without further formal consultation. The MELL of £77.66 million applies from 1 April 2018 (the start of the FSCS’ financial year) to 31 March 2019. This figure covers:
- the management expenses budget (£72.7 million), excluding complainants’ compensation costs (which are levied separately)
- an unlevied contingency reserve of £5 million – a reduction of £0.3 million from 2017/18. This would only be levied if the FSCS faced a significant unforeseen event or events that necessitated additional funding.
Pension schemes newsletter 97 was published by HMRC on 28 March 2018. Among other things, it includes information on:
- relief at source, including in relation to Scottish Income Tax
- a technical issue on reporting overseas transfers using HMRC’s form APSS262
- the Finance Act 2018.
On 29 March 2018, the PPF issued a new version of its section 179 valuation guidance (used for assessing a scheme’s funding position on the PPF basis). The new guidance takes account of the regulations which came into force in February in relation to step-down (or bridging) pensions. This new version of the guidance is to be used for valuations with an effective date on or after 6 April 2018.
New factors have also been issued to convert step-down pensions to be converted to a lifetime equivalent pension so that they can be compared against the compensation cap.
Following the move of TPAS’ dispute resolution function over to TPO, the new TPO address has been confirmed as 10 South Colonnade, Canary Wharf, London, E14 4PU.
Schemes should ensure that their documentation and member communications signpost the new services correctly. For further detail, please see our latest Pensions & investment litigation Briefing.
On 27 March 2018, TPR published its draft master trust code of practice for consultation.
From October 2018, master trusts will have to apply to TPR for authorisation to operate in the market. The Code outlines how master trusts will be expected to meet the new authorisation criteria and what they will need to evidence for TPR to grant authorisation and to continue to operate in the market. If an existing master trust chooses not to apply for authorisation or does not meet the authorisation criteria, it will have to wind up and exit the market. New master trust schemes will have to be authorised before they can begin to operate in the market.
The consultation on the draft code will run until 8 May 2018. Authorisation will commence on 1 October 2018, and existing schemes will have six months from that date to apply to TPR for authorisation.
TPR has released further guidance in its campaign to protect workplace pension savers by driving up the standards of governance across pension schemes.
The latest instalment looks at advisers and service providers, considering their selection, appointment and review.
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, trustees’ roles and responsibilities, “clear purpose and strategy”, “trustee training and improving your knowledge”, and “skills and experience” (looking at the selection, review and evaluation of the trustee board).