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 Taxation of Pensions Bill published
Government urges individuals to save for retirement
House of Commons Library publishes research briefings on 2014 Budget changes
FCA proposed new rules for independent governance committees
FCA publishes a new capital framework for Self-Invested Personal Pension operators
NEST updates its statement of investment principles
Pensions industry rates TPR’s performance

Draft Taxation of Pensions Bill published

On 6 August 2014, HMRC published for consultation draft guidance and legislation which will implement the changes to the pension tax rules announced in the Budget 2014. Broadly, these changes will:

remove the higher tax charges where people take pensions under money purchase pension savings as they wish
increase the flexibility of the income drawdown rules by removing the maximum “cap” on withdrawal and minimum income requirements for all new drawdown funds from 6 April 2015
enable those with ‘capped’ drawdown to convert to a new drawdown arrangement once arranged with their scheme
enable pension schemes to make payments directly from pension savings with 25 per cent taken tax-free (instead of a tax-free lump sum)
introduce a limited right for scheme trustees and managers to override their scheme’s rules to pay flexible pensions from money purchase pension savings
remove restrictions on lifetime annuity payments
ensure that individuals do not exploit the new system to gain unintended tax advantages by introducing a reduced annual allowance for money purchase savings where the individual has flexibly accessed their savings
increase the maximum value and scope of trivial commutation lump sum death benefits.

Please see our Alert for further details.

Government urges individuals to save for retirement

On 8 August 2014, the DWP published research which states that 11.9m people in the UK are failing to save enough for their retirement.

The research found that the key reasons for this are:

not having a full work history, and so having less than full entitlement to the state pension, and reduced capacity for private pension saving
not contributing to private pensions while in work
not contributing enough to private pensions to generate a large enough retirement income.

The report also identified the impact that the new “Single Tier” state pension and automatic enrolment reforms would have on pension adequacy – reducing the number of undersavers by around 1 million, with automatic enrolment practically eliminating the problem of not saving while in work.

Other key findings include:

maintenance of the triple lock guarantee – introduced by the government in 2010 – into future years will prevent the number of under-savers increasing further
further action to increase employment levels amongst people aged between 50 and state pension age has an important role to play, as does discouraging people from opting out of workplace pensions
increasing contributions paid into workplace pensions could have a positive impact on reducing under-saving.

The DWP considers that further work is needed to consider pension contribution rates which strike the right balance between providing improved retirement outcomes for all but do not have a detrimental impact on working life incomes.

House of Commons Library publishes research briefings on 2014 Budget changes

On 8 August 2014, the House of Commons Library published the following research briefings:

FCA proposed new rules for independent governance committees

The FCA has been working with the DWP and TPR to design a package of reform measures, aimed at helping to ensure that all workplace pension schemes are of high quality and offer value for money (VfM).

On 6 August 2014, the FCA published a consultation on proposed rules that will require the providers of contract-based workplace pensions to set up and maintain independent governance committees (IGCs). It puts flesh on the bones of the Government’s plans for personal pension schemes to be governed in a more “trust-like” way and gives a preview of the additional regulation trust based schemes can expect from the DWP later this year. But the meaning of VfM remains elusive; the FCA does not “intend to prescribe in rules” how IGCs should approach assessing this.

The consultation closes on 10 October 2014.

Please see our Alert for further details.

FCA publishes a new capital framework for Self-Invested Personal Pension operators

In November 2012 the FCA’s predecessor, the Financial Services Authority, consulted on a new regulatory capital framework for Self-Invested Personal Pension (SIPP) operators, to combat the issues that arise when an SIPP operator enters administration.

On 4 August 2014, the FCA outlined its revised capital rules for SIPP operators, which will come into force on 1 September 2014. Some firms will need to raise additional capital to comply.

NEST updates its statement of investment principles

NEST has updated its statement of investment principles (SIP) based on evidence and its experiences from the last three years. The principles are the framework for NEST’s approach to how it manages its members’ money.

NEST’s updated investment beliefs are:

Understanding scheme member characteristics, circumstances and attitudes is essential to developing and maintaining an appropriate investment strategy.
As long-term investors, incorporating environmental, social and governance (ESG) factors is integral to the investment management process.
Taking investment risk is usually rewarded in the long term.
Diversification is the key tool for managing risk.
Risk-based asset allocation is the biggest driver of long-term performance.
Economic conditions and long-term market developments inform our strategic decisions.
Indexed management, where available, is generally more efficient than active management.
Integrating valuation considerations into the investment process can enhance our long-term performance.
Good governance, including an appropriately resourced in-house investment function, is in the best interests of our members.

Pensions industry rates TPR’s performance

Research released on 5 August 2014 shows that TPR continues to receive positive feedback from its key audiences.

The tenth annual Perceptions Tracker report, which reflects how the pensions industry rates TPR on how well it carries out its statutory objectives, found that seven in ten (69%) believe its performance over the last twelve months has been “very good” or “good”.

Respondents were asked for the first time about their awareness of pension scams, with a third saying that their opinion of TPR’s steps to combat such scams has improved over the past year.