Developments in Employee Benefits law and practice

10 September 2018

MPs take evidence over pension scheme charges

Politicians have begun taking evidence about whether pension scheme managers are sufficiently open about their charges and the performance of their funds, as increasing numbers of pension scheme members transfer benefits following the introduction of the ‘freedom and choice’ reforms.

The House of Commons Work and Pensions Committee heard evidence from Chris Sier, a former chairman of the Financial Conduct Authority’s institutional disclosure working group and Andy Agathangelou, founding chairman of the Transparency Task Force.

https://www.parliament.uk/business/committees/committees-a-z/commons-select/work-and-pensions-committee/inquiries/parliament-2017/inquiry11/

Update on Government pension reform programme

Guy Opperman, the Pensions Minister, has issued a written statement to Parliament. The statement confirms that:

  • Further information on new notification duties and greater Pensions Regulator powers should be available before the end of the year
  • A consultation on DB scheme consolidation, including superfunds, will be in the Autumn
  • The government will also consult on collective DC schemes
  • The new single financial guidance body will be launched in January
  • The pensions dashboard project will proceed but as an industry initiative.

https://www.parliament.uk/business/publications/written-questions-answers-statements/written-statement/Commons/2018-09-04/HCWS933/

ECJ rules that PPF compensation must be at least 50% of members’ benefits

In Hampshire v PPF, the Court of Justice of the European Union (ECJ) has followed an earlier opinion of its Advocate General. In consequence, the ECJ has held that Article 8 of the Insolvency Directive should be interpreted to the effect that every individual employee is entitled to compensation of at least 50% of the value of their accrued defined benefit pension entitlement in the event of the employer's insolvency.

In the UK, Article 8 is directly effective and capable of having direct effect against the Pension Protection Fund (PPF). So, broadly speaking, the ECJ ruling means that the PPF’s compensation (see below) is unlawful in a number of circumstances where the value of benefits provided by the PPF falls short of 50 per cent of benefits pre insolvency.

A JLT Alert on the ruling is available.

Latest ONS pension stats

  • Total membership of occupational pension schemes in the UK was an estimated 41.1 million in 2017, compared with 39.2 million in 2016 and is the highest level recorded by the survey.
  • Total membership of public sector pension schemes was 15.5 million in 2017, compared with 14.8 million in 2016.
  • Active membership of occupational pension schemes was 15.1 million in 2017, split between the private sector (8.8 million) and the public sector (6.3 million).
  • Active membership of private sector defined contribution schemes was 7.7 million in 2017, compared with 6.4 million in 2016.
  • In 2017, for private sector defined contribution schemes, the average total (member plus employer) contribution rate was 3.4%, falling from 4.2% in 2016.

https://www.ons.gov.uk/peoplepopulationandcommunity/personalandhouseholdfinances/pensionssavingsandinvestments/bulletins/occupationalpensionschemessurvey/uk2017

Latest FCA pensions freedom stats

Retirement income market data
October 2017 to March 2018

Since the pension freedoms in April 2015, more than 1.8 million pension pots have been accessed for the first time.

Compared to the same period in the previous year:

Latest FCA pensions freedom stats
*Where a tax-free lump sum has been paid but no income has ever been taken

https://www.fca.org.uk/publication/data/data-bulletin-issue-14.pdf

Do default investment strategies align with members' needs?

The Pensions Policy Institute has issued Briefing Note 108, which looks at how well the objectives of pension schemes’ default investment strategies meet the needs of their memberships.

The Briefing Note says providers are required to set objectives for their pension schemes’ default investment strategies. However, there are several barriers preventing these objectives always being set in a clear way which provides members and their representatives sufficient information to hold providers to account and assess value for money.

Overcoming these barriers would help default investment objectives to be more transparent and potentially better meet the needs of a greater number of members.

http://www.pensionspolicyinstitute.org.uk/briefing-notes/briefing-note-108---do-default-investment-strategies-align-with-members'-needs

Contact:

John W. Wilson LLB(Hons) FPMI ACII, Head of Research| Email: john_wilson@jltgroup.com

Stephen Williams, Senior Research Consultant | Email: stephen_williams@jltgroup.com