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 Occupational Pensions (Revaluation) Order 2018
- Revaluation of State Pension components – Orders made
- State Pension uprating confirmed
- Pensions dashboards: feasibility report and consultation
- FSCS to raise “supplementary levy”
- HMRC publishes Countdown Bulletin issue 39
- PPF launches new website
- PPI publishes report on CDC schemes
- Hymanson v HMRC – First-tier Tribunal (13 November 2018)
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, are 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 2018 was laid before Parliament on 26 November 2018, and is due to come into force on 1 January 2019. 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 2019.
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 2018 was 2.4%, both the higher revaluation percentage (for service before 6 April 2009) and the lower revaluation percentage will be 2.4%.
The Government laid two Orders before Parliament on 22 November 2018. These deal with the revaluation of certain components that may form part of an award of the new State Pension for persons reaching SPA on or after 9 April 2019.
The part of a person’s new State Pension which exceeds the full rate as at 6 April 2016 (the date the single tier State Pension was introduced), is commonly referred to as a “protected payment”. The Pensions Act 2014 provides for the revaluation of “protected payments” by increasing these payments by the “revaluing percentage”, as specified in the last Order to come into force before the person reaches pensionable age. Under the Social Security Administration Act 1992, the “revaluing percentage” is the percentage of the increase in the general level of prices since 6 April 2016, specified in an Order made under that Act.
Article 2 of The State Pension Revaluation for Transitional Provisions Order 2018 specifies that the increase in the general level of prices during the review period (the three-year period ending on 5 April 2019) was 6.5%.
A person’s protected payment may be shared in a divorce settlement, resulting in the creation of a new State Pension scheme pension debit and credit. The State Pension Debits and Credits (Revaluation) (No.2) Order 2018 will revalue new State Pension scheme pension debits and credits to reflect price increases since the debit or credit was created.
Both Orders will come into force on 5 January 2019 for the purpose of making an advance award on a claim for a State Pension to a person who reaches pensionable age on or after 9 April 2019, and on 8 April 2019 for all other purposes.
The Government has confirmed that the basic and new State Pension will be increased by 2.6% for 2019/20. Under the Government’s “triple lock” commitment, State Pensions are up-rated in line with the highest of CPI, earnings or 2.5%. For 2019/20, therefore, they will be up-rated by 2.6% (the May-July Average Weekly Earnings figure).
The proposed benefit and pension rates for 2019/20 were published at the same time. From 6 April 2019, the Basic State Pension will rise to £129.20, and the full rate of the new State Pension will rise to £168.60, per week.
On 3 December 2018, the DWP published a feasibility report and consultation in relation to the pension dashboards.
The document sets out:
- the findings of the study which examined how Government could help the pensions industry to create pensions dashboards
- the Government’s recommendations for dashboards, and invites comments to inform policy decisions and any new laws that may be needed.
The Government states that its “expectation is that industry should start to supply data to a dashboard, on a voluntary basis, from 2019”. It will then seek to legislate “to facilitate industry in delivering dashboards, including compelling schemes to provide their data for dashboards, when parliamentary time allows”. It is suggested that small Self-Administered Schemes and Executive Pension Plans should be exempted from any requirements.
While the plan is to move to multiple dashboards, it is hoped that an industry-led dashboard, facilitated by the SFGB, will be introduced from 2019. The aim is that “the majority of schemes will be on-boarded within 3 to 4 years from the first dashboards being available to the public”. State Pension data will be integrated, and the project is to be funded by the industry.
The consultation includes questions on appropriate safeguards, and fee levels, for those involved. It closes on 28 January 2019.
The latest FSCS newsletter notes the cost of the “continuing growth in pensions claims”. Mark Neale, FSCS Chief Executive warns that, despite raising a levy on life and pensions advisers of £75m (the maximum allowable for nine months from June 2018 to March 2019), the FSCS expects a deficit by year end of just under £70m. This will necessitate “a supplementary levy falling on the retail pool”, to be announced in January 2019.
The newsletter states that SIPP and “other pension transfer-related failures” accounted for 45% of all defaults declared to the service and 83% of resulting claims during 2018.
On 26 November 2018, HMRC published issue 39 of its “Countdown Bulletin”, which provides information for schemes following the ending of DB contracting-out.
The latest edition of the bulletin includes information on:
- Scheme Financial Reconciliation
- the deadline for Scheme Cessation queries (31 December 2018 confirmed)
- delays in Scheme Reconciliation Service queries
- Contributions Equivalent Premiums notified by automated responses.
In line with the recent re-launch of TPR’s website, the PPF has also updated its site. Content has been rewritten and reorganised. A new section has also been added “that provides helpful and reassuring information about what it means to become a member of the PPF, for people who may be worried about their pension.”
As with TPR’s site, we are aware that, as a result of the update, some links to pages on the original website are not currently working.
The PPI has published a report, What is CDC and how might it work in the UK?, exploring the defining features of CDC schemes, as well as the potential benefits they may offer and the hurdles they are likely to face in design and operation. It seeks to demystify CDC and the considerations which are likely to be important as it develops in the UK.
The First-tier Tribunal (“FTT”) has found that HMRC’s decision to revoke an individual’s fixed protection was unreasonable and directed that it be reinstated.
For further detail, please see our case report.