Latest pension freedoms stats
Based on figures from Office for Budget Responsibility (OBR), the Government will net an extra £400m in tax from pension freedoms over 2018/19 - taking total yield to £1.3bn for the year. The OBR also found that the “burden” of auto-enrolment will “ultimately be borne by workers” as the policy is set to impact projected wage growth.
According to latest figures from HMRC, pension savers continue to be over-taxed on pension withdrawals, with statistics showing a record £38m was reclaimed in Q3 2018. Representations have been made for the government to review the ‘emergency tax’ treatment of pension freedoms withdrawals. Further information is contained in HMRC’s newsletter, which includes articles on –
- Autumn Budget 2018
- Pension flexibility statistics
- Registration statistics
- Manage and Register Pension Schemes service
- Reporting of non-taxable death benefits
- Relief at source
- Non-statutory clearances
- Applications to register a pension scheme
- Transfers between registered pension schemes
- Reporting overseas transfer charges
- Master Trusts
- Operating PAYE on pension payments
The latest bulletin from the Government Actuary’s Department also comments on the pension freedoms and observes that –
Pensions Freedom has led to vast changes in how consumers access their pensions, with huge reductions in annuity purchases and greater flexibility in access. Whilst product innovation has been slower than expected the incentives to innovate are growing and should result in more options for consumers in future.
Two banned from acting as pension trustees following scam pension investments
The Pensions Regulator (TPR) has banned two men from acting as pension scheme trustees after they transferred funds held under their trust into high risk and suspected scam investments. TPR found that Stephen Alexander Ward and Anthony Salih lacked the ‘competency and capability’ to be trustees and could be jailed if they act as a pension scheme trustee in the future.
The Chancellor has confirmed that the income tax personal allowance will be increased to £12,500 from April 2019. The national living wage (NLW) will increase by 4.9% from £7.83 to £8.21 from April 2019. A JLT Alert on the Budget is available.
Government rejects mandatory climate risk reporting in pensions
The government has rejected the proposal to introduce mandatory climate risk reporting in the recent Environmental Audit Committee (EAC) report on pensions reform. The report, ‘Greening Finance: Embedding sustainability in financial decision making’ made several recommendations on ways to improve pension fund governance.
However, the government accepted some of the recommendations from the EAC’s report, such as agreeing to:
- clarify that trustees have a fiduciary duty to consider long-term risk and opportunities, including environmental risks, and a consultation has been launched into amendments to pension scheme regulations that would require trustees to set out how they take account of financially material risks and opportunities including climate change considerations
- encourage pension scheme trustees to tailor the design of investment strategies to the needs/preferences of their members
- explore rule changes which would require the Independent Governance Committees of contract-based pensions to report on how they manage environmental risks and how they take account of members’ ethical concerns—the Financial Conduct Authority (FCA) is consulting on this.
TPR updates guide to investment governance
Following the Budget 2018 announcement that the government is keen to see pension fund investments in patient capital, The Pensions Regulator has updated its guide to investment governance. This guide accompanies DC code of practice no. 13: Governance and administration of occupational trust based schemes providing money purchase benefits, to cover both social impact investment and patient capital. The updated guidance also includes some other minor changes.
Social impact investment
The guidance highlights that trustees increasingly need to consider the importance of social impact investment within their investment principles and investment delivery approaches. The driver may come through the interest of younger scheme members in having their pension savings invested in assets which have a beneficial social/and or environmental effect for the future.
The guidance explains social impact investing as an investment seeking delivery of tangible positive impacts, usually against basic societal and environmental needs such as food production, provision of clean drinking water, and health care, social and environmental problems; alongside the generation of investment returns. Assets may range from large-scale infrastructure projects, to social housing, to companies with a specific social aim. Investment structures can be anything from listed equities and bonds, to private equity allocations, to bonds with a specific purpose.
The guidance indicates that while some less liquid investments can also form part of a social impact investment approach, that trustees may still consider such an allocation for diversification, positive risk adjusted returns and higher yielding long duration inflation-linked income streams. However, the guidance states that when trustees make investments for social impact alongside a financial return, they need to have good reason to think scheme members share their views and there is no risk of significant financial detriment to the fund.
Trustees are asked to discuss the risks with their investment adviser when considering allocations to social impact investments and how the investments would affect the security, quality, liquidity and profitability of the portfolio as a whole.
The guidance explains that patient capital investment involves the provision of long term finance to high potential firms to enable them to reach their full potential and is typically directed towards start-ups which are looking to up-scale and/or innovate but might also be needed by more established businesses which are looking to achieve next-level growth. In practice, many of these investments are likely to be targeted towards capital intensive R&D businesses, businesses with long product development cycles or businesses with innovative technologies or significant intellectual property needing access to growth funding.
The guidance highlights that such investments are typically illiquid and would represent a small proportion of a pension fund’s overall asset allocation but offer the potential to benefit from longer term outperformance through:
- Investing in an inefficient market - which is (currently) fragmented and underdeveloped
- Enabling businesses to up-scale and achieve transformational development
- Eliminating short-term financing constraints and enabling management to focus on business development, optimization of value creation and optimisation of any future business disposal strategy
Trustees are reminded that when considering patient capital investment, they will need to undertake sufficient due diligence before investing to ensure they properly understand the main drivers of the expected return and how risks are managed and mitigated. They will also need to consider the suitability of the scale, expected time horizon and illiquidity of the investment in the context of your scheme’s objectives and member profile.
The revised guidance also notes that trustees should now aim for an appropriate balance between independent, employer and member nominated trustee (and perhaps non-trustee, e.g. investment consultant) members of the investment committee. The previous guidance had only suggested that trustees “may wish to consider” such a balance of parties.
Latest PASA guidance on GMP reconciliation
The Pensions Administration Standards Association (PASA) has launched its latest round of guidance for Guaranteed Minimum Pensions (GMPs). The document is designed to facilitate discussion between trustees and their administrator to help bring any remaining GMP reconciliation queries to a conclusion.
Regulations to implement IORP II
Regulations have been laid in connection with the implementation of the second EU Directive on Institutions for Occupational Retirement Provision –
• The Occupational Pension Schemes (Governance) (Amendment) Regulations (2018/1103)
• The Occupational Pension Schemes (Cross-Border Activities) (Amendment) Regulations (2018/1102)
A JLT Alert on the Regulations is available.
New TPR Comms guidance
A Guide to Communicating and Reporting, to be read alongside the Pensions Regulator DC code of practice no. 13 has been issued and can be downloaded here
OPS and PPS (EU Exit) Regulations
The draft Occupational and Personal Pension Schemes (Amendment etc.) (EU Exit) Regulations 2018 have been laid before Parliament. These Regulations are made in exercise of the powers conferred by section 8(1) of the European Union (Withdrawal) Act 2018 in order to address failures of retained EU law to operate effectively and other deficiencies arising from the withdrawal of the UK from the European Union.
High Court rules that GMPs must be equalised
The High Court has ruled that Lloyds Banking Group must amend its three defined benefit (DB) pension schemes in order to equalise Guaranteed Minimum Pensions (GMPs) for men and women.
This is a landmark ruling, which could cost Lloyds around £150m. Around 230,000 female members of the Bank's schemes are expected to be impacted because they joined between 1978 and 1997 and accrued GMPs in lieu of State pension.
Moreover, total costs across all DB schemes that have members with GMPs could be around £20 billion.
A JLT Alert on the case is available.
Court hands recruitment firm largest fine and first custodial sentences to follow a TPR prosecution
A national recruitment agency, its directors and senior staff have been ordered to pay more than £280,000 for plotting to illegally opt workers out of their pension scheme.
The prosecution of Derby-based Workchain Ltd and its staff has led to the largest fine and first custodial sentences for a case brought by The Pensions Regulator (TPR).
Workchain owners and directors Phil Tong and Adam Hinkley encouraged five senior staff at the company to get the workers out of the scheme so the company could avoid making pension payments on their behalf.
Financial controller Hannah Armson, HR and compliance officer Lisa Neal and branch managers Martin West, Robert Tomlinson and Andrew Thorpe then worked together to opt workers out of the NEST pension scheme.
Neal, West, Tomlinson and Thorpe phoned NEST posing as their temporary workers to get the employees’ account ID numbers. They then logged onto NEST’s online system and opted the temporary workers out of their pension scheme.
However after NEST became suspicious about a number of the calls from Workchain, The Pensions Regulator (TPR) examined recordings of the conversations. These captured the moments the defendants secured the NEST ID numbers of multiple workers.
The employer, the directors and five senior staff all pleaded guilty to computer misuse offences after TPR prosecuted them.
At Derby Crown Court, Judge Nirmal Shant QC told the defendants their “co-ordinated effort” had been an “attempt to steal a march” on their competitors.
She said: “This amounted to a deliberate subversion of the automatic enrolment process. It was a deliberate attack on the integrity of the electronic systems of NEST.”
Judge Shant ordered Workchain (formerly known as Smart Recruitment UK Ltd) to pay a £200,000 fine and £60,930 costs. Tong and Hinkley were each given a four-month prison sentence suspended for two years and were ordered to complete 200 hours of community service and to pay £11,250 costs. Armson was given a two-month prison sentence suspended for two years, a five-month overnight curfew and was ordered to pay £1,500 costs. Neal was given a two-month prison sentence suspended for two years and was ordered to do 200 hours of community service and to pay £1,500 costs. West, Tomlinson and Thorpe were each given a two year community order and were ordered to do 150 hours of community service and to pay £500 costs.