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
- Coronavirus Act 2020 receives royal assent and guidance published on furloughed workers
- General levy increase revoked
- New standard lifetime allowance confirmed
- Companies House grants extension on company accounts
- BEIS committee launches inquiry on audit reform
- EIOPA publishes model pension benefit statements
- FCA delays Directory of Certified and Assessed Persons
- FCA delays changes to DB transfer rules
- FRC publishes final strategy and budget for 2020/21
- Joint statement by FRC, FCA and PRA
- HMRC issues pension schemes newsletter 118
- ICO on coronavirus
- PASA extends DB transfers code consultation
- PASA launches COVID-19 guidance for administrators
- PASA announces new cybercrime and fraud working group
- PLSA publishes COVID-19 resources
- PPF: Hampshire update
- New TPR guidance on Coronavirus
- TPO focus on existing queries and complaints
- McCloud and Sargeant: update on action to address unlawful age discrimination
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.
On 25 March 2020, the Coronavirus Act 2020 received royal assent. As well as including provisions on NHS pensions, to encourage healthcare providers back to work (see 7 Days), it includes provisions to allow employees to take “emergency volunteering leave” from employment to act as a volunteer in the health or social care sectors. Those on such leave will be entitled to “the benefit of all of the terms and conditions of employment which would have applied if the employee had not been absent”. The Act states that an “emergency volunteering rule” will be read into the rules of all employment-related benefit schemes, treating “relevant terms” (relating to membership of the scheme, accrual of rights and determining the amount of benefits) as if the member were not on leave.
Separately (the Act giving HMT the power to direct HMRC to “create new functions in relation to COVID-19”), HMRC published guidance on 26 March 2020 on the Coronavirus Job Retention Scheme announced by the Chancellor – a scheme to reimburse employers for employment costs of furloughed employees (those placed on a temporary leave of absence due to Coronavirus). The guidance states that employers can use a portal to claim for 80% of furloughed employees’ usual monthly wage costs, up to £2,500 a month, plus the associated Employer NICs and minimum automatic enrolment employer pension contributions on that wage. HMRC will “issue more guidance on how employers should calculate their claims” for NICs and automatic enrolment contributions, before the scheme becomes live.
On 27 March 2020, the DWP published an update in respect of its consultation on the Occupational and Personal Pension Schemes (General Levy) review 2019. The general levy on occupational and personal pension schemes recovers the funding provided by the DWP in respect of the core activities of TPR, the activities of TPO, and part of the activities of MAPS.
Following consultation with industry in autumn 2019, the Government made regulations that were due to increase the general levy with effect from 1 April 2020 (see 7 Days). The Government has now laid regulations to revoke these Regulations “given the unprecedented circumstances following the Coronavirus (COVID-19) outbreak”. The levy rates will, therefore, not increase on 1 April 2020. The Government “will now focus on reviewing the structure of the levy and will be engaging with industry over the course of the next few months”.
The Finance Act 2004 (Standard Lifetime Allowance) Regulations 2020 were made on 23 March 2020, confirming that the standard LTA for the tax year 2020/21 is £1,073,100 (increased from £1,055,000).
On 25 March 2020, it was announced that businesses will now be able to apply for a three-month extension for filing their accounts. As part of the agreed measures, while companies will still have to apply for the extension to be granted, those citing issues around COVID-19 “will be automatically and immediately granted an extension”. Applications can be made through a fast-tracked online system.
The BEIS Committee has launched an inquiry on Delivering Audit Reform to “help map out a path for implementing meaningful reform of the UK’s audit industry”, following a series of inquiries from the BEIS Committee, the CMA, Sir Donald Brydon, and Sir John Kingman. The provisional target date for the submission of written evidence is currently advertised as 4 May 2020 but this will be kept under review and the Committee will continue to take evidence after this date for the inquiry.
On 27 March 2020, EIOPA published two model pension benefit statements for DC schemes to provide “practical guidance on how to implement the annual information document that IORPs are required to send to their members following the implementation of the IORP II Directive”. The models were developed “in line with the principles identified by EIOPA in its Report on the IORP II Pension Benefit Statement” (see 7 Days). EIOPA notes that the models are voluntary and may be further developed and adapted to the national specificities and/or characteristics of each pension scheme.
On 25 March 2020, the FCA provided an update on the publication of the directory of certified and assessed persons (following the replacement of its Approved Persons Regime with the Senior Managers and Certification Regime), which was due to be published by the end of March. This impacts the checks that trustees have to carry out to ensure that members transferring safeguarded benefits have received appropriate independent advice (see 7 Days). Following the Coronavirus outbreak, the directory will be delayed “for at least a month”, with the timing of the launch “now under review”.
The FCA has changed the timeline on publishing its finalised Handbook text on changes to its rules on pensions transfers. This will now be published “in the second quarter or third quarter of 2020” (it had been expected in the first quarter of 2020). The changes were consulted on in 2019 (see 7 Days) and relate to how advisers manage and deliver pension transfer advice, particularly for DB to DC transfers, as well as banning contingent charging and making other changes to the FCA’s rules and guidance.
On 23 March 2020, the FRC published its 2020/21 strategy and budget, following a consultation launched in February 2020 (see 7 Days). The FRC states that it has a “new purpose” – “serving the public interest by setting high standards of corporate governance, reporting and audit and by holding to account those responsible for delivering them”. To meet this, its core objectives are:
- to set high standards in corporate governance and stewardship, corporate reporting, audit and actuarial work and assess the effectiveness of the application of those standards, enforcing them proportionally where it is in the public interest
- to promote improvements and innovation in these areas, exploring good practice with a wide range of stakeholders
- to transform the organisation into a fit-for-purpose, independent regulator.
The strategy “will be replaced in 2021 with a longer-term strategy once the Government’s final positions on several key public policy issues are finalised”.
On 26 March 2020, a joint statement was published by the FRC, FCA and PRA announcing a series of actions in relation to corporate reporting, intended “to ensure information continues to flow to investors and support the continued functioning of the UK’s capital markets” during the Coronavirus pandemic. This includes:
- a statement by the FCA allowing listed companies an extra two months to publish their audited annual financial reports
- guidance from the FRC for companies preparing financial statements “in the current uncertain environment”, complemented by guidance from the PRA
- guidance from the FRC for audit firms seeking to overcome challenges in obtaining audit evidence.
HMRC has published pension schemes newsletter 118, which includes among other items:
- information on temporary changes to pension processes as a result of Coronavirus (including on claims and reports made to HMRC). Additional guidance to “help pension scheme administrators during this time” will be published “very shortly” in a bespoke newsletter
- an explanation of some of the pensions measures announced at the recent Budget, including information for scheme members about the changes, plus a note on changes to the annual allowance calculator. It also notes that a number of GOV.UK guides will be updated “in the next few weeks” to reflect Budget announcements
- updated information on relief at source.
The ICO has launched a launched a new Data protection and Coronavirus information hub, and has updated the URL for the Coronavirus advice page mentioned in last week’s 7 Days.
PASA has extended the deadline to respond to a consultation on its DB Transfers Code of Good Practice (see 7 Days) by five months. Responses now need to be received by 30 September 2020, rather than the end of April, due to the ongoing Coronavirus crisis.
The aim is that the final Code will then be released by the end of the year. In the interim, PASA’s guidance published in 2019 (see 7 Days) remains “fit for purpose” and “should continue to be referenced”.
On 30 March 2020, PASA published guidance for administrators to “support administrators during the COVID-19 crisis”. This guidance discusses what administrators should prioritise, which PASA believes should be:
- ensuring sufficient funds are held to settle benefits and other scheme expenditure
- maintaining evidenced accuracy for benefit calculations
- keeping good records of any work in progress.
It sets out some “basic enablers required when remote working to meet pension scheme priorities”, for example daily operations and leadership calls, and planning for the critical tasks of running pensioner payroll and settling benefits to ensure these continue uninterrupted. It also sets out “higher level enablers” to enable best practice.
PASA has launched a new working group focussed on cybercrime and fraud. The working group will include representatives from a variety of pensions administrators as well as those with a range of related professional skills. Chair of the group, Jim Gee, commented “fraud and cybercrime threaten the value of pensions at a time of life when sources of income become more limited and the chances of financial recovery diminish. Our aim is to develop clear practical standards which can help pensions administrators to protect themselves and the scheme members who rely on them”.
On 26 March 2020, the PLSA published resources to help schemes “deal with short-term issues and prepare for the longer-term effects” of the Coronavirus pandemic. The resources include “top tips for DB schemes and LGPS funds” and “top tips for DC schemes”, based on “best practice”.
The PPF announced on 24 March 2020 that, following the Hampshire ruling (where the CJEU held that EU member states are required to “guarantee each individual employee compensation corresponding to at least 50% of the value of their accrued entitlement” under their occupational pension scheme), it has started to make increased payments to pensioners whose benefits fell below 50% of the value of their accrued benefits because of a combination of the compensation cap and other factors. The PPF is “aiming to increase payments to the majority of pensioners in this group by the end of September 2020”.
The PPF won’t yet pay any arrears (including tax free lump sums). This is “because there are ongoing UK court proceedings” in relation to the way increases are calculated. The court hearing is currently due to take place in the week beginning 11 May 2020.
The PPF is “also continuing to gather data for the members who weren’t capped, but are affected because of other factors”. They hope to increase payments for 90 per cent of those entitled to an increase by the end of March 2021.
On 27 March 2020, TPR released three new sets of guidance for schemes on dealing with the Coronavirus pandemic:
This guidance on investment for trustees of DC schemes highlights the following key points:
- trustees should consider how individual members might react in the current environment to headline market/fund value falls or reduction/loss in earnings. Members could make inappropriate decisions, crystallise losses or be exploited by scams
- trustees should review and manage specific risks that may now exist within their portfolios or with their service providers, for example in relation to sector exposures/concentrations in certain funds
- trustees should review any previously agreed investment and risk management decisions to be implemented in the future. This is to ensure they remain appropriate, efficient and do not introduce risks or crystallise losses
- trustees should review their investment governance structures and delegations to ensure they can continue to function and make decisions in the event of trustee incapacity or absence
- trustees should assess, following the recent performance of their scheme, whether any changes to their governance framework or provider arrangements should be made at an opportune time.
In this guidance, TPR acknowledges that this is an “extremely difficult time for many businesses”; however, it still expects trustees of DB schemes to be provided with regular updates on employer outlook and contingency planning. It also expects employers to “make all reasonable endeavours to provide trustees with the information that they need to assess the impact on the employer covenant and the affordability of deficit repair contributions”.
TPR says that it “will be pragmatic in scenarios where trustees are being asked to agree to a previously unforeseen arrangement (such as DRC reductions or suspensions, or additional debt being secured over employer assets)”, provided that certain conditions are met, for example that the need for it can be justified and the scheme is being treated fairly compared with other stakeholders.
The guidance also confirms that TPR’s annual funding statement will be published “after Easter 2020”.
This guidance covers a range of issues being raised by the pandemic for trustees of DB schemes, including:
- considerations for schemes completing their valuations now
- dealing with employers’ requests for easements, such as requests to suspend or reduce deficit repair contributions, or to release security
- steps trustees should be taking in relation to investments
- considering transfer values, in particular the higher risk of pension scams.
For more information, please see our Alert.
TPO has updated its website with a statement that, while the current situation in respect of Coronavirus lockdown measures continues, it will be “focusing on existing enquiries and complaints only”. This means that any post or emails received will not be dealt with and correspondence (by post or email) will need to be re-submitted once TPO is “in a position to restore full service”. TPO also says that “wherever possible”, it will be using its “discretion to expand our time limit of three years for those new applicants affected by this period of restricted service”.
On 25 March 2020, Economic Secretary John Glen issued a written statement regarding the steps being taken to address the unlawful age discrimination identified in reforms made to the Judicial and Firefighters’ pension schemes following the McCloud judgment.
In February 2020, the Government conducted technical discussions with members and employer representatives on high-level proposals for removing the discrimination (see 7 Days). It will consult on detailed proposals, including in relation to future service, later this year.
The proposals currently being considered would allow relevant members to make a choice as to whether they accrued service in the legacy or reformed schemes for periods of relevant service. Further detail, including in relation to tax implications of the choices, will be given later in the year.