7 days

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

Draft Finance Bill 2017

Published today (5 December 2016), the draft Finance Bill 2017 sets out changes to legislation announced in this year’s Budget and, more recently, in the autumn statement.

Key Bill provisions in relation to pensions include:

  • employer-arranged pensions advice exemption: in response to the Financial Advice Market Review, the Bill increases the existing £150 Income Tax and NICs exemption, to cover the first £500 worth of pension advice provided to an employee in a tax year. It will allow advice on both pensions and, general financial and tax issues relating to pensions. The measure will take effect from 6 April 2017
  • measures to align the tax treatment of foreign pensions more closely with the UK’s domestic pension tax regime

As announced in the autumn statement, in 2017, the normal timetable for delivering the Budget will switch from spring to autumn.  However, in order to phase in this change, there will be a Budget in both spring and autumn next year.

The closing date for comments on the draft provisions is 1 February 2017.

The State Pension Revaluation for Transitional Pensions Order 2016

The State Pension Revaluation for Transitional Pensions Order 2016 was laid before Parliament on 28 November 2016.

The part of a person’s new state pension, based on their pre-April 2016 contribution record, that exceeds the full rate of the new state pension as at 6 April 2016 is commonly referred to as a “protected payment”. The Pensions Act 2014 provides for the revaluing of “protected payments” by increasing these payments by the “revaluing percentage” 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 Order specifies the increase in the general level of prices during the review period was 1.0 per cent.

The Order comes into force on 19 December 2016 for the purpose of making any advance award of state pension. For all other purposes, it comes into force on 9 April 2017, and applies to claimants reaching pensionable age on or after 10 April 2017.

GMP equalisation

As mentioned in last week’s 7 Days, the DWP is consulting on a new methodology for equalising pensions for the effect of inequalities caused by GMPs in private pension schemes. Meanwhile, HMT is separately consulting on how best to treat GMPs for affected members of public service pension schemes.

Please see our Alert for further details.

BEIS issues green paper on corporate governance reform

On 29 November 2016, BEIS launched a new public consultation on measures to strengthen corporate governance.

The green paper asks for views on issues such as executive pay, employee and customer voice, and corporate governance in large private businesses. New options outlined include increasing shareholders’ (including pension funds’) influence over directors’ remuneration, including increasing transparency and simplifying and strengthening long-term incentive plans.

Amongst other things, the green papers notes that “there have, of course, been a limited number of examples of particularly poor corporate conduct where the views and needs of stakeholders – such as employees, suppliers and pension beneficiaries – have not been given appropriate consideration. These examples are not representative of the UK business community as a whole, and we need to consider how to respond appropriately and proportionately to the concerns they have raised”.

The Government welcomes “other suggestions to help address the corporate governance challenges facing us”. Responses should be submitted by 17 February 2017.

DWP and HMT launch pension scams consultation

On 5 December 2016, the DWP and HMT jointly launched a consultation seeking views on measures to tackle pension scams, including a ban on cold calling in relation to pensions. This follows the announcement made in the autumn statement.

The consultation sets out a package of measures aimed at tackling three different areas of pension scams:

  • a cold calling ban aims to cut off a key source of pension scams whilst also sending a clear message to consumers that they should hang up if cold called about their pension
  • current legislation gives pension schemes limited scope to refuse a transfer to a scheme which looks like a scam, even if they have legitimate concerns as to the safety of a member’s savings. The Government is consulting on clarifying the law so that firms can block pension transfers based on clear objective criteria
  • single-member occupation pension schemes currently require no registration with TPR, and can be set up using a dormant company as the sponsoring employer. They are therefore an easy way for fraudsters to register a pension scheme with HMRC. The Government is consulting on making it a requirement that only active companies can register a pension scheme.

The consultation is open until 13 February 2017.

Consultation on changes to the NHS Pension Scheme published

On 1 December 2016, the Department of Health published a consultation on changes to the NHS Pension Scheme rules, to support the development of NHS England’s new models of care as described in the 5 Year Forward View.

The consultation document describes these changes and presents the draft National Health Service Pension Scheme and Additional Voluntary Contributions (Amendment) Regulations 2017, which also includes a set of technical corrections and clarifications to further improve the operation of the NHS Pension Scheme rules.

DWP publishes workplace pension participation and saving trends: 2005 to 2015

On 1 December 2016, the DWP published its annual analysis of workplace pension participation and saving trends of employees eligible for automatic enrolment in a workplace pension, for 2005 to 2015. The figures show that the number of people saving into workplace pensions continues to rise and has increased by 4.4 million since 2012.

Minister for Pensions, Richard Harrington said, “It is clear automatic enrolment is playing a key role in shaping the retirement landscape for generations to come. However I want to build on this success and will be looking at how we can get even more people saving, and saving more.”

In 2015, the annual total amount being saved by employees was £81.8 billion, an increase of £1.4 billion from 2014 and a further £7.1 billion since 2012. The latest analysis estimates there will be an extra £17 billion of workplace pension saving per year as a result of automatic enrolment by 2019/20.

FCA COBS amendments: pension projections for risk warnings

On 2 December 2016, the FCA published their Quarterly Consultation Paper No. 15: CP16/39. In it, the FCA

proposes amendments to the Conduct of Business sourcebook (COBS) rules on pension projections. It explains that the purpose of the changes is to remove certain conflicts that may arise when providing risk warnings under the DWP proposals in its September 2016 consultation on valuing pensions for the advice requirement.

The format of the risk warnings proposed by the DWP does not follow the format of personalised projections under the COBS. Therefore, changes to COBS are required to allow firms to provide the proposed risk warnings without breaching FCA rules.

The proposed amendments are set out in the Consultation Paper, with comments invited on the proposals until 13 January 2017.

PPF confirms changes to S143 and S179 assumptions

The PPF confirmed on 30 November 2016 that it would be making changes to the actuarial assumptions used in section 179 and section 143 valuations, following a consultation.

By law, the PPF has to set its valuation assumptions to reflect pricing in the bulk annuity market. Section 143 valuations are used to determine whether a scheme should enter the PPF following an insolvency event. Section 179 valuations are used to calculate scheme underfunding to determine the risk-based pension protection levy that a scheme should pay.

The PPF’s response to the consultation noted that the reaction “to the proposed changes was positive and there was acceptance that bulk annuity prices had altered sufficiently as to merit a change to the assumptions at the present time”.

The most significant changes are:

  • the use of separate discount rates for pensioners and non-pensioners post retirement;
  • the use of yield indices that have durations that better match average liability durations, including the introduction of a new index-linked gilt yield; and
  • updated mortality assumptions.

There are also some consequential changes to valuations carried out under sections 152 (reconsideration applications), 156 (closed schemes) and 158 (closed schemes with insufficient assets).

Pensions Landscape report published

The PPI published a report entitled “The new pensions landscape”, on 29 November 2016. Commissioned by the ABI, CII, DWP, the People’s Pension and the PLSA, the report looks at changes in policy over the last decade and analyses the effects of each policy on individuals and the Government.

PLSA figures show 87% of pension funds believe executive pay is too high

The PLSA published its AGM Season Report 2016 on 1 December 2016.

The report, which was conducted by means of a PLSA member survey, focusses on the issue of executive pay. It found that:

  • 87% of pension funds say executive pay is too high
  • 60% of pension funds also agreed that high levels of asset management pay is preventing them from properly holding companies to account over pay practices.

TPR to demand record-keeping measures from schemes

On 30 November 2016, TPR announced that it is to ask trustees to report on record-keeping in their scheme return to help improve standards.

A TPR survey of more than 530 trust-based occupational schemes, published on the same day, revealed “little recent improvement in record-keeping”, which TPR deems essential to deliver value for money and protect member outcomes.

Andrew Warwick-Thompson, Executive Director at TPR, said: “It’s disappointing that we are not seeing more schemes taking their duty to keep proper records more seriously. We’ve made clear what our expectations are and many schemes, across all scheme types, are not meeting them. By adding record-keeping measures to the scheme return, we will be able to target our interventions more specifically at those failing in their duties.”

To help schemes meet their duties, TPR has launched a quick guide to record-keeping and will be providing further educational products in 2017, including videos and bite-sized learning.

TPR publishes new quick integrated risk management guide for smaller schemes

On 2 December 2016, TPR published a new quick guide to integrated risk management aimed at trustees of smaller DB schemes.

Andrew Warwick-Thompson, Executive Director at TPR, said “Our new step by step quick guide sets out how trustees of smaller schemes, who may have limited resources, can benefit from IRM and how they can get started. IRM is about more than merely understanding risks. It gives trustees a holistic understanding of their scheme’s sensitivity to risk and enables them to agree a sustainable plan with the employer to help deliver promised member benefits. It’s also a central feature of our annual funding statement and our DB code of practice which sets out what we expect from trustees.”

The new quick guidance provides an overview of the main points, and is designed to be used in conjunction with TPR’s full IRM guidance.

WPC launches probe into self-employed and gig economy workers

On 1 December 2016, the Work and Pensions Committee announced the launch of an inquiry into self-employment and the gig economy, to investigate whether the UK welfare system adequately supports such workers, and how it might be adapted to suit their needs.

The Committee is seeking submissions in response to various questions, including: “How can self-employed people best be encouraged and supported to save for retirement?” and “Should self-employed people be required to enrol in a pension?”

The deadline for written submissions is 16 January 2017.