Developments in Employee Benefits law and practice

11 June 2018

New Manage and Register Pension Schemes service launched

HMRC have published a newsletter explaining the new Manage and Register your Pension Schemes service, which was launched on 4 June 2018.

The newsletter confirms the launch of the first phase of the new Manage and Register Pension Schemes service for anyone registering as a pension scheme administrator or applying to register a pension scheme.

HMRC have also updated their GOV.UK guidance to reflect when the new service should be used and published a new guide for practitioners.

Another new guide - Manage a registered pension scheme - explains how to tell HMRC about changes in the pension scheme has also been published.

https://www.gov.uk/government/publications/manage-and-register-pension-schemes-service-newsletter-june-2018

https://www.gov.uk/topic/business-tax/pension-scheme-administration

Workplace Pension Participation and Savings Trends

Automatic enrolment was introduced to help address the decline in private pension saving and to make long-term saving the norm. It aims to increase workplace pension saving in the UK and forms part of a wider set of pension reforms designed to enable individuals to achieve the lifestyle they aspire to in retirement. This annual official statistics publication is the fifth edition in the series. It complements the automatic enrolment evaluation reports by providing more detailed breakdowns of two key measures for evaluating the progress of automatic enrolment implementation: increasing the number of savers, by monitoring trends in workplace pension participation and persistency of saving; and increasing the amount of savings, by monitoring trends in workplace pension saving.

Workplace Pension Participation and Savings Trends

https://www.gov.uk/government/statistics/workplace-pension-participation-and-saving-trends-2007-to-2017

TPR analysis of ‘Tranche 13’ data

The Pensions Regulator (TPR) has published an analysis of the expected positions of defined benefit pension schemes with valuation dates between 22 September 2017 and 21 September 2018 (known as ‘Tranche 13’ schemes).

The analysis gives further context to TPR’s 2018 annual funding statement, published in April 2018.

Market conditions and impacts on scheme funding

TPR’s analysis shows that most major asset classes have achieved double digit positive returns over the last three years which may affect schemes carrying out valuations in 2018.

Overall, TPR’s modelling suggests that schemes undertaking valuations at 31 March 2018 will have marginally improved funding levels and deficits from those reported three years ago. However, the deficits have not improved to the extent that would have been expected over the inter-valuation period, and so it is likely that their current recovery plans will not be on track to remove the deficit revealed at the previous valuation. If trustees want to keep the same end date to their current recovery plan, deficit reduction contributions (DRCs) will need to be increased.

Developments in employers’ profits, balance sheets and dividend payments

The strength of the employer covenant is a key consideration for trustees and employers when setting their funding plans. TPR’s analysis of sponsoring employers suggests that the majority of employers have seen an increase in the nominal value of their profits and balance sheets over the last three years.

For the group of FTSE350 companies that paid both DRCs and dividends in each of the previous six years, TPR has seen, at the median level, the ratio of dividends to DRCs increase from 10.2:1 to 14.8:1. This is mainly driven by the significant increase in dividends over the period, without a similar increase in contributions.

For non-FTSE350 public companies that paid DRCs and at least one dividend during the past decade, the ratio of dividends to DRCs has increased from 3.1:1 to 4.8:1.

Implications for recovery plans (RPs) and affordability

TPR’s modelling highlights that if Tranche 13 schemes were to retain their RP end dates, or for those schemes nearing the end of their RP make a modest increase in the RP length, the median required increase in DRCs would be around 0% to 25%. About 35% of schemes would be able to retain their DRCs at the same level or less while under 20% would need to increase DRCs to more than double their current levels. The schemes that need to increase their DRCs to more than double their current levels are generally schemes where current DRCs represent a relatively low percentage of company profit before tax.

A key factor for trustees and employers when agreeing an appropriate RP is the affordability position of the employer, recognising that what is affordable may be affected by the employer’s plans for sustainable growth.

http://www.thepensionsregulator.gov.uk/docs/db-analysis-tranche-thirteen-review-2018.pdf

Baby boomer retirement crisis looms

Longevity and a decade of historically low interest rates are proving a dangerous cocktail for the over-50s generation according to new joint research by The London Institute of Banking & Finance and Seven Investment Management (7IM).

The findings raise a series of warning flags for policymakers as they show a generation approaching retirement dangerously unprepared, with little understanding of the pressures their assets might come under for funding both the essentials and their aspirations in later life.

The results are from a detailed survey of 2,000 over-50s with at least £50,000 in assets (including their home and pension savings). This cohort is less likely to be able to access benefits and more likely to have to rely on their own resources. The average value of assets among this cohort, including property, pensions, investments and cash, was £523,857.

When planning for retirement and later life, most don’t take financial advice and have not even begun to think about preparing for later life care. The value of property isn’t currently being factored in despite accounting for more than half their assets, which may reflect a desire to leave an inheritance and/or help out younger generations.

The research found that while older Britons are good at counting the pennies, their caution means many have missed out on one of the longest bull markets in history. Instead, they have watched their savings languish in cash accounts generating returns from record low interest rates that have often failed to keep up with inflation.

The result is that many do not have the savings in place to retire comfortably, are under-prepared for the financial challenges they may face in later life and are unrealistic about how far their savings will stretch.

Poorly prepared for retirement and later life care

Only half (50%) of those not yet retired feel well prepared for the day they stop work and 35% worry about how they will manage financially in retirement.

Almost two in five (38%) admit they are going to have to work longer than they had planned and nearly half (47%) say they know they need to save more for retirement.

Despite property values accounting for more than half of total assets in this group, less than one in ten planning for later life are currently considering either downsizing (5%) or releasing equity (8%).

Only 8% say they have plans in place to pay for later life care (even though 73% see preparing financially for later life as an important objective and 72% realise that they will have to pay for it themselves).

Only 20% of those approaching retirement age (50-59) have taken financial advice.

22% still do not have a Will despite most planning to have one.

Family focused

Despite their personal needs nearly half (43%) think it is important to help children and grandchildren out financially. On average, those in their 60s are spending £1,294 a year supporting children and grandchildren with education, transport and housing costs.

43% think that helping their children and grandchildren is an important longer term financial objective and 47% are keen to leave an inheritance.

Not getting financial advice

Many (77%) are not currently taking financial advice (56% have never had advice); 35% say they would never consider getting advice. However, of those who did, over two in five (42%) put a financial plan in place for the first time as a result of going to a financial adviser.

Meanwhile one in five (19%) say they don’t have the financial expertise needed to invest assets on their own, with 44% of those admitting that they don’t have enough knowledge to make the best decisions and 41% responding that they don’t feel confident enough to make decisions without seeking advice.

Cash conscious

93% state that they know how much is in their bank account at any one time

They do not overspend (only 8% say they spend more each month than they take in and only 9% are ‘not in control’ of their finances) and almost three quarters will not spend money without thinking it through (72%).

Cautious investors

They are comfortable investing in cash ISAs (83%) and NS&I savings accounts (74%) but much less so investment trusts or funds (39%) or stocks and shares (40%).

However, they are cautious investors ­– the priority for 42% when investing is to minimise losses – and two thirds have not changed their view of risk over the last year.

https://www.libf.ac.uk/news-and-insights/news/detail/2018/06/05/baby-boomer-retirement-crisis-looms

HMRC updates CWG2 guidance on PAYE and NIC

HMRC guidance 2018 to 2019: Employer further guide to PAYE and National Insurance contributions explains in detail about Pay As You Earn (PAYE) and National Insurance contributions for current and previous years for employers. The guidance has been updated to expand the guidance at section 1.21 Different employer PAYE references for separate groups of your employees which explains about electing to have different employer PAYE references for separate groups of employees, e.g. for wages and salaries or for separate branches of the organisation.

https://www.gov.uk/government/publications/cwg2-further-guide-to-paye-and-national-insurance-contributions

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