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
- Brexit and pensions uprating
- Retirement income market data 2018/19
- Align directors’ pensions to workforce by 2022 or face dissent, shareholders tell companies
- MAS appoints steering group to support delivery of pensions dashboards
- PASA GMP Equalisation Working Group publishes methodology guidance
- PPF issues consultation on levy rules for 2020/21
- TPR publishes regulatory intervention report on chair’s statement fines
On 27 September 2019, the DWP announced that the government is sending out letters outlining that, even if we leave without a deal, pensions for those in the EU will be uprated for a further three years (an increase of at least 2.5% annually for the duration of this Parliament and worth up to £200 a year per person).
During the three-year period, the UK government plans to negotiate a new arrangement with the EU to ensure that uprating continues.
The uprating will also affect those living in the EEA states and Switzerland.
On 25 September 2019, the FCA published its analysis of the latest data from firms on the retirement income market.
Key findings include:
- just over 645,000 pension plans were accessed to buy an annuity, to move into drawdown, or to take a first cash withdrawal in 2018/19
- four in ten of all the pension pots accessed had a value of less than £10,000
- over 350,000 pension pots were fully withdrawn at the first time of access, 90% of which were less than £30,000 in value
- 48% of plans were accessed without regulated advice or guidance being taken by the plan holder, 37% of plans were accessed by plan holders who took regulated advice, and 15% by plan holders who did not take advice but received Pension Wise guidance
- 40% of regular withdrawals were withdrawn at an annual rate of 8% or more of the pot value
- pension providers covered by the FCA’s data return received 57,000 DB to DC pension transfers.
The Investment Association (“IA”) has warned companies that they “must set a credible plan to pay all executive directors the same pension contributions as the majority of their workforce…or risk further shareholder dissent”.
Under new guidelines published on 27 September 2019, companies with existing directors who are paid more than 25% of salary as a pension contribution will be given a “red top” (the highest level of warning by the IA’s Institutional Voting Information Service), “unless they have set out a credible action plan to bring their contributions in line with the workforce by the end of 2022”.
This new guidance by the IA follows changes to the UK Corporate Governance Code and the IA’s Principles of Remuneration last year to align executive pension contributions with the workforce. In February 2019, the IA’s guidance set out investors’ expectations to see executive directors paid pension contributions in line with the majority of the workforce. This latest set of guidelines “represent the next step in shareholder expectations on listed companies”.
IA members consider aligning pension contributions for executives with the majority of the workforce “as a point of fairness, in order to foster good employee relations”. The IA notes that executive remuneration, of which pension contributions form a part, “continues to be a growing reputational issue for companies with potential adverse impacts on their long-term value”.
Companies will now be asked “to publish the pension contributions they pay to the majority of their workforce, and review those contributions to all employees to ensure they provide an appropriate pension provision for all”.
MAS has announced the creation of a new steering group for its pensions dashboards, which aim to ensure UK savers have easy online access to key information about which pensions they have, who manages them, and what they are worth. The steering group is made up of representatives from consumer groups, as well as stakeholders from within the pensions, financial services and fintech sectors.
On 30 September 2019, the cross-industry GMP Equalisation Working Group launched by PASA published guidance outlining methods that schemes could use to equalise for the sex based inequalities of GMPs, and suggesting how schemes should deal with common issues that can arise when implementing an equalisation project.
Further guidance from the GMP Equalisation Working Group will be issued in the coming months covering Data, Impacted Transactions and Tax. The Group intends to update its guidance in the future to reflect developments such as the outcome of the next instalment of the Lloyds Bank case and any guidance from HMRC on tax implications.
On 25 September 2019, the PPF launched a consultation on how levies will be calculated for 2020/21.
The consultation does not propose significant changes to the levy rules, but invites stakeholders to comment on how they might need to be developed in the future for schemes without a substantive sponsor and commercial consolidators. Stakeholders are also asked to provide feedback on revised guidance for completing contingent asset guarantor strength reports.
The 2020/21 levy estimate has been published as part of the annual levy consultation. Owing to changes in risk, it will be £620 million, representing an increase of around 8% on the expected 2019/20 collection of £575m and “driven by projected increases in scheme liabilities and underfunding”.
The levy consultation will be open until 5pm on 5 November 2019.
TPR has published a regulatory intervention report about its involvement in two cases where the trustees of two separate master trusts were fined for breaches relating to the statutory requirements to prepare a chair’s statement.
TPR states that it is clear from the judgments “that a chair’s statement must contain sufficient detail in respect of each of the statutory requirements for trustees to demonstrate compliance with the law”. It continues to expect trustees to prepare chair’s statements that satisfy all of the statutory requirements, and will take action on non-compliance.
Where TPR requests submission of a chair’s statement (whether as part of the master trust authorisation process or otherwise), it will “continue to scrutinise its contents carefully to ensure savers are given relevant and timely information about their pension savings which the legislation requires, and the court has now confirmed”.
TPR also confirms that, where it issues fines against trustees for failing to produce a chair’s statement or for producing one which is non-compliant, it will name the schemes on its website.