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
- Early Parliamentary General Election Act 2019
- The Occupational Pensions (Revaluation) Order 2019
- The Finance Act 2004 (Specified Pension Schemes) Order 2019
- The Over the Counter Derivatives, Central Counterparties and Trade Repositories (Amendment, etc., and Transitional Provision) (EU Exit) (No. 2) Regulations 2019
- Consultation: Simpler annual benefit statements for workplace pensions
- Guidance: Benefits and pensions for UK nationals in the EU, EEA or Switzerland after Brexit
- FCA announces impact of Brexit delay
- HMRC issues pension schemes newsletter 114
- PPI report: Approaching the endgame: the future of DB pension schemes in the UK
The Early Parliamentary General Election Act 2019 received Royal Assent on 31 October. It provides for an early general election to take place on 12 December 2019.
The Pension Schemes Bill 2019-20 (see our Alert) will fall when Parliament is dissolved on 6 November 2019, but we expect it to be reintroduced, in some form, by the next government.
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 2019 was laid before Parliament on 31 October 2019, and will come into force on 1 January 2020. It 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 2020.
UK tax relief is available on investment income and growth of pension schemes that are registered in the UK. Schemes do not need to be resident in the UK to become UK registered pension schemes.
In a recent First-tier Tribunal decision the judge held that, as per his interpretation of the FA04, pension schemes established under an enactment of a country or territory other than the UK are not eligible to apply to be registered pension schemes. The court held that this inability to register and receive tax relief on UK investment income was contrary to EU law. As a result, the scheme was allowed to claim tax relief on its UK investments.
It has, however, always been the Government’s intention to allow foreign equivalents of UK pension schemes to apply to become registered pension schemes so they can obtain UK pensions tax relief and be subject to the same conditions as their UK-based counterparts. The Finance Act 2004 (Specified Pension Schemes) Order 2019, which comes into force on 21 November 2019, aims to ensure the policy intention is met and remove any doubt from this interpretation.
The Over the Counter Derivatives, Central Counterparties and Trade Repositories (Amendment, etc., and Transitional Provision) (EU Exit) (No. 2) Regulations 2019
EMIR regulates over-the-counter (“OTC”) derivatives, central counterparties (“CCPs”) and trade repositories (“TRs”). Regulation (EU) No. 2019/834 (“REFIT”), which came into force on 17 June 2019, introduced targeted amendments to ensure EMIR requirements are applied more proportionately to non-financial counterparties, small financial counterparties and pension funds.
Before its amendment by REFIT, EMIR provided an exemption from the clearing obligation for EEA pension funds. This exemption was necessary as there is currently no appropriate technical solution for pension funds to clear all transactions covered by the clearing obligation through CCPs (and in particular to comply with the requirements for posting collateral) without imposing disproportionate costs on funds and, consequently, on pension fund members.
Although the exemption in EMIR expired on 16 August 2018, ESMA had issued a statement that the clearing obligation should not be enforced until the changes in REFIT came into force. REFIT then retroactively extended the exemption for EEA pension scheme arrangements to 18 June 2021 (with an option for the Commission to further extend the exemption twice by one-year increments).
The Over the Counter Derivatives, Central Counterparties and Trade Repositories (Amendment, etc., and Transitional Provision) (EU Exit) (No. 2) Regulations 2019 are intended to ensure that EMIR and related legislation will continue to operate effectively at the point at which the UK leaves the EU. The regulations maintain the pension fund exemption, for both UK and EEA funds, after the UK’s exit from the EU, and set it to expire on 18 June 2023. The regulations also empower HMT to further extend the exemption by up to two years at a time if no appropriate technical solution for pension fund clearing has been found.
On 1 November 2019, the DWP issued a consultation to seek views on:
- the Government’s approach to achieving simpler annual statements for workplace pensions
- the relationship of simpler statements with innovative communication tools, including pension dashboards
- how to encourage savers to open their statements.
It closes at 11:45pm on 20 December 2019.
On 29 October 2019, the Government updated its guidance on the rights of UK nationals in the EU, EEA or Switzerland to benefits and pensions if there’s a no-deal Brexit to confirm that state pension uprating will continue beyond 2023 for those in Ireland, Switzerland, Norway, Iceland and Liechtenstein.
On 30 October 2019, the FCA announced that the delay in the UK’s departure from the EU means that firms need not take action to implement Brexit contingency plans for 31 October.
The FCA will be extending the date by which firms and funds should notify it for entry into the temporary permissions regime to 30 January 2020. Fund managers will have until 15 January 2020 to inform the FCA if they want to make changes to their existing notification.
Firms should continue to comply with existing regulatory requirements, including those relating to MiFID transaction reporting and EMIR trade reporting requirements. The arrangements described in the FCA’s press release of 11 October are suspended and it expects firms to continue to report as normal.
On 30 October 2019, HMRC issued pension schemes newsletter 114. It includes information on:
- registration statistics
- pension flexibility statistics
- pension scheme administration – moving pension recipients from one payroll to another
- relief at source
- its scheme pays guidance.
The newsletter also provides an update on HMRC’s progress with the production of guidance on tax issues related to GMP equalisation. It confirms that in December 2019 HMRC is aiming to publish guidance on:
- the LTA
- LTA protection regimes including enhanced, fixed, primary and individual protection
- the AA.
This guidance will be high-level and specific to GMP equalisation only. For schemes choosing to equalise through conversion, HMRC states that the issues are proving more complicated to resolve and it continues to explore them. Work on other pension tax issues, including the payment of crystallised lump sums such as serious ill-health lump sums, small pots and trivial commutation, is also ongoing. HMRC is aiming to provide a further update on its progress on these issues and state when it plans to provide more guidance in its December publication.
On 29 October 2019, the PPI published a report on the future of DB pension schemes in the UK. With the majority of private sector DB pension schemes mature and cash flow negative, the report considers how they will continue to meet their obligations to members without endangering the core business of the employer sponsor.