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

Legislation before Parliament

Draft legislation laid before Parliament is set to make largely technical changes in relation to the new single tier State Pension which will come into force on 6 April 2016.

The State Pension and Occupational Pension Schemes (Miscellaneous Amendments) Regulations 2016 are being made to correct a number of procedural errors in the Occupational Pension Schemes (Schemes that were Contracted-out) Regulations 2015. For further detail as to the errors, see our 7 Days of 21 September 2015.

The new regulations also implement further details of the new State Pension scheme. In particular, they:

  • set out how the pension increase earned through deferring the new state pension is to be calculated where the rate of pension changes during the deferral period
  • contain transitional arrangements for inheriting Graduated Retirement Benefit (an early form of earnings related pension) where a person’s deceased spouse or civil partner reached state pension age or died before 6 April 2016 and
  • provide that a person who is an “overseas resident” is not entitled to uprating increases, including such increases that came into effect while the person was deferring their new state pension.

The regulations also amend regulations dealing with contracted-out occupational pension schemes to make provision in respect of survivor benefits where a GMP is converted into ordinary scheme benefits.

In addition, the DWP has published statistics which show the average amounts of Graduated Retirement Benefit that may be inherited by a surviving spouse or civil partner of a person with entitlement to that benefit.

The Draft Pensions Act 2014 (Consequential and Supplementary Amendments) Order 2016 makes consequential and supplementary amendments of primary legislation in connection with the introduction of the new state pension. The most significant of these relate to the calculation of State Pension under the pre-2016 scheme for a widowed person who reached pensionable age before 6 April 2016 but whose deceased spouse or civil partner was in the new State Pension.

The draft Order also extends a permitted exception to the principle of equality between the sexes in occupational pension schemes to include the new State Pension. This exception relates to bridging pensions and applies where a man and a woman are eligible to receive different amounts of pension, and this difference is only attributable to differences between men and women in their state pension entitlement.

DWP extends response deadlines for consultations

Reducing regulatory burdens

On 4 December 2015, the DWP extended the deadline for submitting responses to their consultation, which, among other things, seeks view on how regulatory burdens on schemes can be reduced while maintaining member protection.

The deadline for responses to this consultation has been extended to 11 December 2015.

For full details of the original consultation, please see our 7 Days of 16 November 2015.

Minor and technical regulatory changes

On 7 December 2015, the DWP also announced that they are extending the deadline for responses to their consultation which proposed changes to four areas of legislation, including formalising a “second line of defence” for trust-based schemes.

The deadline for responses to this consultation has been extended to 15 January 2016.

For full details of the original consultation, please see our 7 Days of 23 November 2015.

DWP publishes new State Pension documentation

The DWP has issued various documents in relation to the new State Pension

On 3 December 2015, the DWP published a report explaining the impact that the new State Pension will have on an individual’s pension entitlement during its first 15 years. It gives the possible reasons why an individual’s outcomes might look different than under the current system. The report also aims to clarify the effects of the new State Pension, allowing stakeholders to clearly see implications broken down by year and gender.

Also on 3 December 2015, the DWP added a new fact sheet entitled “Introducing the Contracted-out Pension Equivalent (COPE) amount”, to their suite of “State Pension fact sheets”. This explains the inclusion of a COPE amount in individuals’ State Pension statements from November 2015.

On 5 December 2015, an international State Pension claim form (with guidance on claiming a State Pension for retirees overseas) was released by the DWP, for individuals who reach State Pension age on or after 6 April 2016.

FCA publishes consultation on amendments to the Compensation sourcebook

On 30 November 2015, the FCA published a consultation paper on amendments to the Compensation sourcebook (COMP) which governs the operation of the FSCS.

Amongst other things, the FCA seeks views on extending eligibility to claim from the FSCS to the trustees of money purchase occupational pension schemes with large employers (including master trusts), so that members of these schemes would be entitled to the same protection from the FSCS as members of schemes with small employers. Trustees of small self-administered schemes (SSASs) which provide defined benefits, with large sponsoring employers, would no longer be eligible under the proposals.

The deadline for responses is 29 February 2016. The FCA intends to publish its rules in a Policy Statement in the second quarter of 2016.

FCA publishes notice on the risk of improper delegation

The FCA published a notice on 30 November 2015, addressed to financial advisory firms and their advisers, on the risks of improper delegation of authorised activities.

In it, the FCA notes that “firms that are approached to delegate their regulated activities, such as providing pension switching advice, to an unauthorised third party need to be aware of the serious implications that may arise as a result of entering into this type of arrangement.”

The FCA has become aware of cases that included retail consumers being recommended to switch their mainstream personal pensions into SIPPs with potentially unsuitable underlying high-risk assets. This had been done through an improper delegation of regulated advice to unauthorised firms or individuals associated with the underlying assets. This model was operated by these parties while purporting to be the financial adviser firms. The authorised financial adviser firms did not personally contact customers or review whether the recommendations were suitable before they were sent out.

The FCA warns that such improper delegation carries significant risks of poor consumer outcomes, and that delegating regulated advice to an unauthorised third party will not mean that the firm can avoid liability or regulatory action for unsuitable advice.

GAD paper on Risk and Governance in relation to Public Service Pension Schemes

On 4 December 2015, GAD published a paper concerning a number of challenges that are facing public service pension schemes. Noting that “the successful functioning of a public service pension scheme needs the careful attention of different parties, each with different roles and responsibilities”, the briefing considers concerns around risk and governance in these schemes.

HMRC publishes new online tax reclaim services

On 30 November 2015, HMRC published links to online services for reclaiming tax in relation to certain pension payments. These online methods are in addition to the postal reclaim service, which remains available. The services allow people to make claims online for the return of overpaid tax following flexible access of part of a pension pot,  on ceasing work and taking all of a pension pot, and on taking all of a pension pot as a small lump sum, or through trivial commutation.

HMRC also gives guidance on how to claim such refunds.

HMT: 2016 Spring Budget Date announced

On 1 December 2015, George Osborne announced that the Government would publish its next Budget on Wednesday 16 March 2016.

OECD publishes Pensions at a Glance 2015

On 1 December 2015, the OECD published the 10-year anniversary edition of its “Pensions at a Glance” publication.

The report highlights the pension reforms undertaken by OECD and G20 countries over the last two years, with chapters providing deeper analysis of the impact on pension entitlements, of short or interrupted careers due to late entry into employment, childcare or unemployment.

A range of indicators for comparing pension policies and their outcomes between OECD and G20 countries is also provided.

Purple Book 2015 published

The tenth edition of The Purple Book was published on 3 December 2015. Jointly published by the PPF and TPR, it aims to gives a comprehensive picture of the risks faced by DB schemes in the UK. The latest edition shows that trends in DB pensions have remained stable over the last year, despite “seismic shifts” in the UK’s DB pension landscape over the past decade.

The figures in the Purple Book come from data as at 31 March 2015, making this the first set of data published since the pension freedoms were announced, although it predates their launch in April 2015.

Key findings include:

  • 13% of DB schemes are open to new members. A further 51% continue to accrue benefits for existing members
  • schemes continued to de-risk through asset allocation changes. Between 2006 and 2015, the equity share of total assets fell from 61.1% to 33%, the gilt and fixed interest share rose from 28.3% to 47.7%, and the “other investments” share of total assets rose from 10.6% to 19.3%
  • the aggregate funding position under section 179 of the Pensions Act 2004 (ie the PPF basis of funding) of schemes in the dataset was a deficit of £244.2 billion. This is the largest section 179 deficit at a PPF year end (31 March) since the establishment of the PPF (although the funding ratio was lower in 2009 and 2012)
  • the section 179 funding ratio for 2015 was 84%.