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
- Finance (No.2) Bill 2017-19
- Revaluation of State Pension components
- Draft Local Government Pension Scheme (Scotland) Regulations 2018
- ACA Pension Trends Survey 2017 – second interim report
- DWP publishes master trust pension schemes consultation
- DWP publishes proposed benefit and pension rates for 2018/19
- FCA focuses on pension transfers
- HMRC consults on changes to the administration of relief at source
- HMRC publishes pension schemes newsletter 93
- Investment Strategy: A bird’s eye view – a report by Cass Business School
- TPAS and MAS launch integrated web chat service
- TPO publishes updated memorandum of understanding with the Financial Ombudsman Service
Following the Chancellor’s November Budget, the latest Finance Bill was published on 1 December 2017.
Among other things, the Bill includes:
- new powers for HMRC to register and deregister certain pension schemes to tackle scams and fraudulent schemes
- powers for HMRC to refuse to register master trusts not authorised by TPR, or occupational pension schemes whose sponsoring employer has been a dormant company for a continuous period of one month.
In relation to master trusts, changes proposed to the Finance Act 2004 are intended to allow HMRC to align the pension scheme tax registration process with TPR’s authorisation and supervision regime for master trusts under the Pensions Act 2017.
MPs will next consider the Bill at its Second Reading on 11 December 2017, with the Bill then scheduled to be considered in Committee of the Whole House on 18 and 19 December 2017. The measures are intended to come into force on 6 April 2018.
The Government laid two Orders before Parliament on 27 November 2017, which 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 10 April 2018.
The part of a person’s new State Pension which exceeds the full rate as at 6 April 2016, 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 2017 specifies that the increase in the general level of prices during the review period was 4%.
A person’s protected payment may be shared in a divorce settlement, resulting in the creation of a new State scheme pension debit and credit. The State Pension Debits and Credits (Revaluation) (No.2) Order 2017 will revalue new State scheme pension debits and credits to reflect price increases since the debit or credit was created.
Both Orders will come into force 21 days after the date on which they are laid 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 10 April 2018, and on 9 April 2018 for all other purposes.
The Scottish Public Pensions Agency (SPPA) has published the draft Local Government Pension Scheme (Scotland) Regulations 2018 for consultation.
Following the implementation of LGPS reforms from 1 April 2015, work has continued with practitioners to identify areas in the regulations that require clarification and correction. These amending regulations are the product of that work and include other policy developments.
The bulk of the proposed amendments are to clarify existing provisions or arise from changes suggested by stakeholders, to which the SPPA has agreed. These include changes in relation to AVCs, the Annual Allowance (scheme pays), and auto-enrolment. The draft regulations also introduce further flexibility to assist fund authorities and employers in addressing funding liabilities when a body ceases to be a scheme employer
The consultation closes on 1 January 2018.
The ACA published the final report of its annual pension trends survey on 30 November 2017.
Ahead of the 2017 auto-enrolment review (which is due in the next few weeks), the survey looked at how pensions auto-enrolment has progressed across firms of all sizes, and how the planned increases in minimum contributions over the next two years might play out.
In addition, ahead of the Government’s White Paper on DB pensions (which is due in early 2018), the report looks at what employers are comfortable with and what they are hoping the paper will cover.
Some 466 employers of all sizes were surveyed, with over 760 pension arrangements. Among the findings of the report are that:
- 57% think the self-employed should be brought into pensions auto-enrolment
- 87% are against a radical reform of pensions tax, although 77% support more help targeted towards those on lower incomes
- 84% support easements in pension indexation where employers running DB schemes are in serious financial difficulties
- combined employer and employee median pension contributions into some auto-enrolment schemes amount to just 2-3% of earnings
- 46% oppose reducing the lower trigger point for auto-enrolment (currently £10,000 per annum), whilst 44% support a lowering of the trigger point
- 44% oppose increases in minimum auto-enrolment contributions post-April 2019, when the statutory default contributions will be a minimum of 8% of qualifying earnings, whilst 41% support a gradual increase.
The report also notes that, from April 2019, following the increase in minimum contributions, auto-enrolment median opt-out rates are forecast to rise to 16-20% of eligible employees from 11-15% at present.
On 30 November 2017, the DWP published a consultation seeking views on draft regulations for the authorisation and supervisory regime for master trust schemes under the Pension Schemes Act 2017.
The main aims of the new regime are that:
- members of master trust schemes have equivalent protections to members in other types of pension schemes
- the risks specific to master trust scheme structures, including the size and scope of schemes, lack of employer engagement, diverse business models and other factors that influence their financial resilience and viability, are proportionately and proactively regulated
- there is an appropriate balance between preventing risks occurring and giving TPR powers to intervene when necessary.
Master trust schemes will be assessed against five key tests:
- persons involved in the master trust scheme are fit and proper
- that the scheme is financially sustainable
- that each scheme funder meets specific requirements in order to provide assurance about their financial situation (including through presenting a business strategy and full audited accounts)
- the administrative and governance systems / processes used in running the scheme are sufficient
- the scheme has an adequate continuity strategy.
The DWP notes that the master trust market has grown rapidly since 2012, when auto-enrolment was introduced. There are currently 87 master trusts, which now represent 90% of savers who have been automatically enrolled into a workplace pension.
The consultation has been welcomed by TPR, who will administer the new regime, as it “has long called for much stricter regulatory controls on master trust schemes and voiced concerns over the current very low barriers to market entry”. TPR goes on to state that it “believes that authorised master trusts will be the lynchpin in the development of a sustainable and safe occupational defined contribution (DC) schemes market”.
It is expected that the new regulations will come into effect from October 2018.
The DWP has published a schedule of proposed benefit and pension rates for the tax year 2018/19. This includes the new State Pension, which will increase in line with the “triple lock” (the pledge to increase the State Pension by the of higher prices, earnings or 2.5%) to a weekly rate of £164.35 (from £159.55) for the full rate.
The FCA continues to focus on pension transfers, with a view to reducing the amount of pension scam activity affecting members.
In a recent speech by Megan Butler, FCA Director of “Supervision – Investment, Wholesale and Specialists”, delivered on 14 November 2017 and published on the FCA’s website today (4 December 2017), she outlined some of the FCA’s work on DB to DC transfers advice.
Butler explains that the FCA considers the transfer of pension savings from a DB to a DC scheme to be “one of the most complex transactions an individual can undertake”. In its work over the last two years to review DB transfer business, the FCA has found that a number of firms were:
- failing to obtain enough information about clients’ needs and personal circumstances
- failing to consider the needs of the client alongside the client’s objectives when making a recommendation
- making inadequate assessments of the risk a client was willing, and able to take, in relation to their pension benefits.
Butler stressed that “it is essential that any advice you give is centred on meeting the best interests of clients. For this reason, we think it is right to widen out our DB to DC project work”.
In addition, on 1 December 2017, the FCA published a reminder to pension scheme members of questions to ask themselves if they are considering transferring money from their pension into a new arrangement.
HMRC has published a technical consultation on draft regulations (and accompanying explanatory memorandum) to make changes to the Registered Pension Schemes (Relief at Source) Regulations 2005.
When pension scheme administrators reclaim tax relief using relief at source, the draft regulations require scheme administrators to submit the annual return of individual information within three months of the end of the year of assessment. This is to ensure that HMRC can advise administrators of the correct rate of tax relief to apply to members’ contributions following the introduction of the Scottish rate of income tax.
The draft regulations will also require administrators to submit the annual claim within three months of the end of the tax year of assessment. They will also introduce a process to be followed when excess relief has been claimed, as well as interest charges in these circumstances.
The changes are designed to result in a common filing date, and to ensure consistency and fairness by encouraging scheme administrators to report and repay excess relief without delay.
The consultation will close at 11:45am on 31 December 2017.
HMRC published pension schemes newsletter 93 on 30 November 2017. Issues covered in the newsletter include:
- the Autumn Budget on 22 November 2017, which confirmed that the LTA will increase in line with CPI from 6 April 2018, and proposed changes to tax registration for master trusts which are part of the new Finance Bill (see above)
- pension payments to trustees in bankruptcy or third parties, which HMRC may treat as unauthorised payments
- practical updates in relation to the new Pensions Online Service.
On 28 November 2017, Cass Business School published a report for the DC Investment Forum, “Investment Strategy: A bird’s eye view”, which focuses on the investment strategy available to members of trust-based DC schemes.
The report is based on discussions and interviews with experienced pension scheme trustees, pension scheme administrators, and pension scheme advisers. It indicates that DC pension schemes predominantly choose to use passively managed funds over actively managed funds, based on the fact that they are cheaper. The report also looks at pre- and post-retirement design, drawdown, and the use of illiquid asset classes.
TPAS and MAS have together launched an integrated webchat service, which is designed to ensure that customers are connected to the most appropriate webchat platform for information on the specific topic they need to discuss.
TPAS has been working with MAS since January 2016 to ensure that telephone helpline callers with pension queries are connected to TPAS, while those with wider financial questions have their calls answered by MAS. As this initiative has proved successful, the two bodies have extended this cooperation to cover live chat services from their respective websites.
The TPAS webchat is available from 9am-6:20pm from Monday to Friday, and from 7pm-9pm on Tuesday evenings.
On 1 December 2017, TPO and FOS signed an updated Memorandum of Understanding, with a view to improving the framework for co-operation and the exchange of information on complaints that fall within their respective remits. The aim is to ensure that anyone with a pension complaint is aware of the respective organisations and is clearly directed to the right organisation so that their complaint is addressed properly and promptly.
An explanatory leaflet, which can be found on both the TPO and FOS websites, explains how to get help with pension complaints, and the types of complaint which should be directed to TPO and FOS respectively.
The memorandum of understanding will be reviewed again in 12 months.
On the same day, the FCA launched a consultation on changes to its Handbook rules for authorised firms, which include changes to deal with the signposting of consumers to TPO and FOS. The consultation closes on 1 February 2018, with any changes due to come into effect on 1 April 2018.