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
- TPR publishes first part of consultation on revised code for scheme funding
- Order made on revaluation of GMPs
- Order made clarifying VAT exemption for management of pension funds
- DWP publishes general levy consultation response
- Illustrative Collective DC regulations published
- FCA amends COBS rules to remove barriers to patient capital investment
- Government statement that electronic signatures are valid
- Spring Budget 2020 briefing paper published
On 3 March 2020, TPR published the first stage of a “major” consultation on its revised code of practice for DB funding. This first consultation sets out TPR’s initial proposals for a “clearer, more readily enforceable funding framework, which implements the new requirements set out in the Pension Schemes Bill”.
As the consultation document is lengthy (running to 175 pages) TPR also issued a shorter companion guide alongside it.
Under the proposals, trustees will be able to choose either a “Fast Track” or a “Bespoke” approach to completing and submitting their scheme valuation. As the more straightforward (and prescriptive) approach, the Fast Track will only be available to schemes whose valuation meets certain guidelines.
TPR does not expect its “new proposed approach to be too onerous for most schemes to implement”, but appreciates that “there could be significant impact for some schemes, particularly those that have been running excessive and unjustifiable levels of risk”.
At this stage, TPR anticipates that “the final code will be shorter and more focused, simply outlining the twin-track compliance structure, proposed Fast Track parameters and the principles for those following Bespoke”. The second stage of the consultation, on the draft funding code itself, is scheduled for the end of the year.
The first stage consultation closes on 2 June 2020. For more information please see our Alert.
The Social Security Revaluation of Earnings Factors Order 2020 was laid before Parliament on 5 March 2020. The Order sets the rate for revaluing deferred GMPs in formerly contracted-out DB schemes, in line with the movement in average earnings. This is set at 4%, reflecting the increase in average earnings in Great Britain in the year to September 2019.
On 3 March 2020, the Value Added Tax (Finance) Order 2020 was made, extending the existing VAT exemption for the management of investment funds to the management of pension funds that satisfy certain conditions, and removing the current restriction on the type of assets that a close-ended collective investment undertaking can invest in for its management to qualify for exemption.
Directly effective EU law already in place allows businesses to exempt their supplies of fund management services from VAT; this Order is intended to “provide certainty for businesses and be aligned with the majority of current practice in the sector” by bringing UK law into line with that overriding EU law. The Order comes into force on 1 April 2020.
For more information on the treatment of VAT in pension schemes, see our Alert.
On 4 March 2020, the DWP published a response to its consultation on options to raise the general levy rate for the year 2020 to 2021 onwards (see 7 days). The general levy on occupational and personal pension schemes recovers the funding provided by the DWP in respect of the core activities of TPR, the activities of TPO, and part of the activities of MAPS.
The Government has decided to proceed with Option 1 set out in the consultation document: an increase of 10% to the levy rates on 1 April 2020, and further increases from April 2021 informed by a wider review of the levy. Regulations enacting this change have been made and laid in both Houses of Parliament.
The Government has published illustrative regulations setting out provisions for Collective DC (“CDC”) schemes under the high level framework set out in the Pension Schemes Bill (currently working its way through Parliament, see our Alert). These include requirements for application for authorisation of a CDC scheme, calculation of benefits, valuations and events which trigger the involvement of TPR.
The draft makes it clear that it is only illustrative and that “the policy for CDC schemes remains subject to further consideration, consultation and parliamentary passage of the Pension Schemes Bill 2020”. It also states that the final CDC regulations are “expected to be similar to analogous provisions” in place for master trusts (see our Alert).
On 4 March 2020, the FCA published a Policy Statement setting out final rules and guidance on changes to its COBS rules. These changes seek to address “any unjustified barriers to retail investors investing in a broader range of long-term assets in unit-linked funds, while maintaining an appropriate degree of investor protection”. This follows on from a feedback statement published by the FCA last month on whether there are unnecessary barriers to investing in patient capital (see 7 days).
A ministerial statement was made on 3 March 2020 giving the Government’s response to the Law Commission’s report on electronic signatures (see 7 days). This statement agreed with the “report’s conclusion that formal primary legislation is not necessary to reinforce the legal validity of electronic signatures. The existing framework makes clear that businesses and individuals can feel confident in using e-signatures in commercial transactions”. It also agreed with the Law Commission’s recommendation that “an Industry Working Group should be established, which the Government should convene [because] there are issues on the security and technology of electronic signatures that require further consideration”.
The Government also confirms that it will ask the Law Commission to undertake “a wider review of the law of deeds” (suggested in the Law Commission’s report) when time permits.
In relation to pensions, the paper notes that the “Government says that it will report on a review being carried out into pensions tax relief arrangements for senior doctors at the Budget” (see 7 days). It also states that “the Government may take the opportunity to address a disparity wherein non-taxpayers on ‘net pay’ pensions arrangements can’t benefit from pensions tax relief but those on ‘relief at source’ arrangements can”.
The briefing paper also hints that additional changes may be made, commenting that “history suggests that we might expect more tax measures in the Budget. Chancellors have often been most active in making tax policy in the first year following a General Election”.