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
- Coronavirus – Sackers response
- April changes round-up
- New legislation published
- Deadline extended for climate-related risk consultation
- EIOPA delays consultation deadlines
- ESMA report on central clearing solutions for pension scheme arrangements
- FCA letter on investment pathways and DB transfers
- FCA updated guidance on Coronavirus
- Updated guidance on Coronavirus Job Retention Scheme for furloughed workers
- Deadline extended for consultation excluding pensions from dormant assets scheme
- Countdown Bulletin 52 – April 2020
- HMRC newsletter on Managing Pension Schemes Service
- Guidance on good practice for virtual board and committee meetings and new legislation on AGMs
- Updated PPF compensation cap
- PPF business plan for 2020/21
- PPI briefing note on how changes to price indices could affect DB schemes
- New TPR Coronavirus guidance on scheme administration
- TPR blog on Coronavirus
- Savers urged: “stay calm and don’t rush financial decisions”, despite Coronavirus
At Sackers we are committed to ensuring that the Coronavirus outbreak causes minimal disruption for our clients, and have taken several steps to ensure it is ‘business as usual’. For details of these steps, as well as key points for trustees and employers to consider in light of the outbreak (which we will continue to update), please see the dedicated section of our website, or talk to your usual Sackers contact.
As ever, 6 April 2020 heralds a number of changes for pensions, including:
- Allowances: as announced in the March Budget and as outlined in the Finance Bill 2019-21, the main thresholds applicable to the tapered AA rise by £90,000. This means that threshold income is now £200,000, so individuals with income at or below that level will no longer be affected by the tapered AA, and the tapered AA only kicks in for individuals whose adjusted income is above £240,000. In addition, the upper boundary of the taper has been extended, so that for those earning £312,000 and above the tapered AA reduces to £4,000. This change will come into force when the Finance Bill becomes an Act, with retrospective effect to 6 April 2020. The standard LTA for the tax year has also risen to £1,073,100 (from £1,055,000) (see 7 Days). HMRC has updated various pension scheme administration forms and guidance pieces to reflect these changes
- Parental Bereavement Leave provisions come into force (see 7 Days)
- FCA rules extending the remit of IGCs come into force (see 7 Days)
- FCA requirements, intended to make the cost of drawdown products clearer and comparison easier, come into force (see 7 Days), although the FCA has given some flexibility on this deadline (see “FCA updated guidance on Coronavirus” below).
The DWP issued a consultation and draft regulations in July 2019 (see our Alert) designed to integrate into pensions law an order produced by the CMA following its investigation into the investment consultants market, and enabling TPR to oversee the new requirements. It had been anticipated that the regulations would come into force on 6 April 2020, but there has been no word as to their progress. Watch this space.
The Automatic Enrolment (Earnings Trigger and Qualifying Earnings Band) Order 2020 was made on 27 March 2020 and comes into force today, 6 April 2020. The Order confirms the upper and lower thresholds of the qualifying earnings band (for calculating contributions for automatic enrolment purposes) for the 2020/21 tax year. These will continue to be aligned with NIC rates – £6,240 for the lower limit of the qualifying earnings band, and £50,000 for the upper limit. The current automatic enrolment and re-enrolment earnings trigger of £10,000 remains unchanged for 2020/21.
On 1 April 2020, the DWP and Pensions Climate Risk Industry Group (“PCRIG”) extended the deadline for their consultation on new non-statutory guidance for occupational pension schemes on assessing, managing and reporting climate-related risks (see 7 Days). The consultation will now close on 2 July 2020 (previously 7 May 2020).
EIOPA announced on 2 April 2020 that, due to the impact of Coronavirus on the capacity of institutions to respond, it will be extending the deadlines for its consultations and calls for evidence. This includes an extension to the deadline for its consultation on implementing technical standards for supervisory reporting and cooperation as mandated by the Pan-European Personal Pension Product (“PEPP”) Regulation (see 7 Days), which will now close on 17 June 2020, rather than 20 May 2020 as initially planned.
On 2 April 2020, ESMA published a first report for consultation on central clearing solutions for pension scheme arrangements (“PSAs”). Currently, PSAs benefit from a temporary exemption from the clearing obligation (see 7 Days). That exemption, under the ‘EMIR refit’ regulation, lasts until 2021, with the possibility of two further one year extensions. The extension goes “hand in hand” with the objective that “progress is made by the relevant stakeholders” in addressing the challenges to PSAs in clearing their OTC derivative contracts.
The report “documents the progress made towards clearing solutions for PSAs” six months on from the entry into force of EMIR refit, including discussion of the different solutions envisaged so far. It also poses questions for public consultation, focused on possible solutions, “in preparation for the second report due in a year’s time and in order to get input from a wide range of stakeholders”.
The consultation closes on 15 June 2020.
On 31 March 2020, the FCA published a “Dear CEO” letter about Coronavirus to firms providing services to retail investors. Amongst other things, the letter states that the deadlines for new requirements on “investment pathways” for consumers entering drawdown without taking advice (see 7 Days) have been referred to the FCA board “for further consideration”. The FCA will update its website “as soon as possible on this”.
The letter confirms that the FCA’s work with firms providing DB transfer advice will continue but its “policy statement on pension transfer advice, including on contingent charging, has been delayed to Spring 2020” and it has paused its “follow up work on assessing the suitability of advice, which was focused on retirement income advice” (see 7 Days).
On 3 April 2020, the FCA updated its guidance on Coronavirus to cover issues relating to requirements to provide certain pensions information. The FCA recognises that some firms are “facing challenges” implementing new rules that change both the information given to consumers entering pension drawdown or taking an income for the first time and the annual information given to these customers (see 7 Days).
The FCA notes that these rules come into effect on 6 April 2020, and so it expects “firms to have implemented or be in the final phases of implementation”. However, the FCA understands that “firms may experience operational challenges in testing and finalising processes, particularly where they are reliant on third parties to complete this work”. Therefore, it appreciates that “a short delay in some firms’ implementation of the rules may be unavoidable”, though it expects firms to implement “as soon as reasonably practicable”. If this is later than 31 May 2020, firms should notify the FCA.
On 4 April 2020, HMRC updated its guidance on the Job Retention Scheme – a scheme to reimburse employers for employment costs of furloughed employees (those placed on a temporary leave of absence due to Coronavirus) (see 7 Days).
The updated guidance provides more detail on the scheme, including confirmation that “benefits provided through salary sacrifice schemes (including pension contributions) that reduce an employee’s taxable pay should…not be included in the reference salary”. However, HMRC suggests some flexibility, stating that “normally, an employee cannot switch freely out of a salary sacrifice scheme unless there is a life event. HMRC agrees that COVID-19 counts as a life event that could warrant changes to salary sacrifice arrangements, if the relevant employment contract is updated accordingly”.
On 31 March 2020, the Government updated the deadline for its consultation on expanding the dormant assets scheme (a scheme which allows dormant assets to be used for good causes in the UK), and which had suggested that pension products should not be included (see 7 Days). The deadline has moved from 16 April to 16 July 2020 “in light of the ongoing impact of coronavirus”.
On 1 April 2020, HMRC published Countdown Bulletin 52. The Bulletin confirms that HMRC is extending the deadline for issuing final GMP reconciliation data cuts, as part of its work to “reprioritise…in response to the Coronavirus outbreak”. HMRC is still working on the issue but expects “the work to take longer”. HMRC is aiming to publish a final timeline by “the end of April 2020”.
On 1 April 2020, HMRC published a newsletter with updates on its new service to manage and register pension schemes. The Managing Pension Schemes Service replaces the current Pension Schemes Online service. The newsletter provides guidance on using the new Accounting for Tax (“AFT”) return on the Service, launched on 1 April 2020. It also provides a revised timetable for delivering “Phase 2” of the Service (see 7 Days).
The Chartered Governance Institute (“ICSA”) has published guidance on “what constitutes good practice in the conduct of virtual board and committee meetings”, which aims to help companies struggling with the impact of COVID-19. The purpose of the guidance is to “offer a brief guide to the practical and legal issues that need consideration, and to offer insight into how virtual meetings can be made as effective as possible”. Key points covered in the guidance are:
- choosing the right technology and communication channel
- structuring virtual meetings and avoiding complexity
- the value of preparation
- establishing ground rules for the meeting
- clear instructions on accessing the meeting
- the necessity for good boardroom practices.
Separately, the Business Secretary has announced that the Government will introduce legislation to ensure that those companies required by law to hold Annual General Meetings (AGMs) will be able to do so “safely, consistent with the restrictions on movement and gatherings introduced to address the spread of coronavirus”. Companies will “temporarily be extended greater flexibilities, including holding AGMs online or postponing the meetings”.
On 1 April 2020, the PPF published details of its updated cap for 2020/21. From 1 April 2020, the cap at age 65 has been set at £41,461. This is an increase of 3.6% from the 2019/20 cap, which was £40,020. The increase reflects the level of wage inflation over the period. For members subject to the PPF’s 90% compensation level, this equates to £37,315.
On 1 April 2020, the PPF published its 2020/21 business plan. The plan sets out the PPF’s activities and key milestones for the next twelve months, linked with the achievement of its current three year strategic plan (see 7 Days). The business plan notes that “at the time of publication, the Coronavirus outbreak is causing daily changes” to the way it works. It has chosen to leave its objectives “as they stand” but accepts that there “may be challenges” to achieving those objectives within the next 12 months.
On 1 April 2020, the PPI published a briefing note exploring “the implications of the Government’s proposed reforms to RPI” (see 7 Days) on DB pension scheme members, investments, liabilities and funding positions. The report highlights that “the overall effect of the change is likely to be an increase in scheme deficits”, although “schemes will see a reduction in liabilities in respect of members whose benefits are increased or revalued in line with rises to RPI”.
On 2 April 2020. TPR published guidance for trustees and public service pension schemes on scheme administration in light of the Coronavirus pandemic. It states that trustees should work with administrators to make sure they deliver “critical processes”, which include:
- paying members’ benefits
- retirement processing
- bereavement services, as well as any administrative functions required to support these
- any processes needed to ensure benefits are accurate (eg investing contributions for defined contribution schemes).
Trustees should also “work flexibly” with their administrators “to support them in delivering core functions”, which “may include”:
- agreeing changes in operating procedures
- holding higher than usual amounts in bank accounts
- reducing the burden on administrators by limiting any non-critical demands and queries.
TPR believes that trustees “should allow electronic signatures and documents and encourage other third-party providers to do the same (eg fund managers)”. The legal validity of electronic signatures has been endorsed in a recent statement from Government (see 7 Days); however given the complexity of the issue, schemes should seek legal advice before taking this route.
The Guidance also notes that trustees should be “vigilant and make sure members are not rushed into any financial decisions. They might look to transfer their pension during this uncertain time and could be targeted by scammers.”
TPR released a blog on 1 April 2020: “COVID-19 has changed the world, not our focus on protecting savers”. The blog discusses TPR’s “saver focussed” approach to dealing with the impact of Coronavirus on pension arrangements, and discusses the “major concern” around “the possibility of scammers taking advantage of peoples’ worries to persuade them into transferring funds into bogus investments”.
TPR, the FCA and MAPS released a joint statement on 1 April 2020 “urging savers to keep calm and not rush to make any decisions about their pension” in response to the Coronavirus pandemic. The regulators believe that “fears over the impact of the pandemic on markets and personal finances may make savers more vulnerable to scams or making a decision that could damage their long-term interests”. They suggest that savers should visit the TPAS website for guidance “before making any decisions about their retirement savings”, and use the ScamSmart website “to learn how to protect themselves from pensions scams”.