Developments in Employee Benefits law and practice

11 April 2016

Newsletter summarising employee benefits news for the week ending 10 Apr: Over 55s divided on whether pension freedoms are a good thing | Most millennial will lose out under new State pension and other stories

FCA Business Plan for 2016/17

The FCA has published its annual Business Plan, which sets out seven priority themes: pensions, financial crime and anti-money laundering, wholesale financial markets, advice, innovation and technology, firms’ culture and governance, and the treatment of existing customers. Risk and planned activities in respect of pensions are set out below.



  • Policy changes and demographics will have a major impact on the pension sector over the longer term. Consumer choices throughout retirement are becoming both more complex and more significant.
  • Pension products with high costs and uncapped fees.
  • Some consumers have chosen alternative investments, with different risks and advice implications.
  • Some consumers are unable or unwilling to engage in their pension choices, and many struggle to contribute to a pension.



  • Review on retirement outcomes in 2016/17 to consider the impact of pension reforms on competition and switching in the market.
  • Consultation on early exit charges cap.
  • Consumer protection model for secondary annuities market.
  • Review effectiveness of independent governance committees.
  • Policy statement, final rules and guidance in Q2 2016 relating to pension and retirement income.
  • Continue review of firms' disclosures to existing customers about enhanced annuities through their advised sales process.
  • Crack down on pensions scams and unsuitable advice.

Over 55s divided on whether pension freedoms are a good thing

According to research commissioned by the Institute and Faculty of Actuaries, 44% of Brits aged over 55 view the pensions freedoms introduced on 6 April 2015 as a good thing and 29% say they are a bad thing.

The research, conducted by YouGov, shows that the nation is split on the benefit of the pensions freedoms changes. For those over 65, positive opinion of the reforms dropped to 37%.

Encouragingly, 73% of respondents reported being aware of the new pensions freedom rules, which is a positive result for the government’s awareness raising initiatives around the reforms. However, awareness was stronger amongst those of a higher social grade, reaching 80%, versus 62%.

Only 5% of total respondents reported accessing their defined contribution (DC) pension savings since the freedoms were introduced. The top four ways they accessed their savings were:

  • 65% took a tax free lump sum;
  • 17% entered into an income drawdown arrangement;
  • 6% took the full pot; and
  • 5% bought an annuity.

Positively, 55% reported understanding the difference between the ‘guidance’ that is provided by the government’s Pension Wise service and paid for regulated financial ‘advice’. However, 30% did not understand the difference, showing there is more work to do by the government and industry in making sure individuals understand.

75% of respondents reported feeling confident in making decisions regarding their retirement savings, versus 25% who did not feel confident. Those who reported feeling unconfident rose to 30% for women and those aged 55-64, and to 33% for those identified as working class.

Worryingly, only 21% felt that their DC pot and state pension combined would be enough to live on for the rest of their life.

FCA: Retirement income market data

This report, covering data for the period October-December 2015, is published as a supplement to FCA’s regular Data Bulletin and it is noted that information on this sector will be included in future Data Bulletins.


Oct-Dec 2015

Jul-Sept 2015

Total number of pots accessed for the first time in the quarter to take an income or fully withdraw their money as cash



Number (and % of pots) of annuities purchased



23,385 (12%)

Number (and % of pots) of new drawdown policies entered and not fully withdrawn

37,150 (29%)


Number (and % of pots) of pots where first partial UFPLS payment taken and not fully withdrawn

3,045 (2%)


Number (and % of pots) of full cash withdrawals by new customers - via UFPLS, flexi-access drawdown (FAD) or small pot lump sum

65,610 (52%)

113,100 (58%)


C-Out Countdown Bulletin 15

The April 2016 (issue 15) of the HMRC publication Countdown bulletin, which provides information on National Insurance services to the pensions industry, is now available. This bulletin includes information on:

  • statements CA1629; and
  • the Guaranteed Minimum Pension (GMP) Checker, formerly known as the GMP Micro Service, availability from 6 April 2016.
Most millennial will lose out under new State pension
The majority of millennials will see a notional loss from the new State Pension, according to the Pensions Policy Institute, which has undertaken analysis of the Department for Work and Pensions’ impact assessment of the new State Pension, to estimate the number of people of different ages who may be notionally better or worse off.

Key points from the analysis are:

  • Approximately three quarters of people in their twenties are set to lose a notional average of £19,000 over the course of their retirement (6.3m of 8.4m expected pensioners);
  • The 2.1m people in their twenties who will make a notional gain are expected to gain £10,000 on average;
  • Approximately two thirds of people in their thirties are set to lose a notional average of £17,000 over the course of their retirement (5.1m of 7.7m expected pensioners);
  • The 2.7m people in their thirties who will make a notional gain are expected to gain £10,000 on average.

PPF Transformation Appendix update

The PPF has published an updated version of the Transformation Appendix to its 2016/17 Levy Determination, to correct an omission of part of the intended text. The policy intent was that the methodology was unchanged from 2015/16, and the correction to the Appendix clarifies the intended methodology.

HMRC updates scheme administration templates

HMRC has published updated versions of a number of pension scheme administration documents to take into account changes from 6 April 2016. The new forms and guidance include:

  • An overview on how the ending of contracting-out will affect pension entitlements, including use of the new GMP checker service.
  • Guidance on new information that administrators must report to HMRC.
  • Details of how schemes should deal with lump-sum death benefit payments including the tax to deduct.

HMRC has also published an updated guide to pension scheme tax rates and there is new guidance on pension savings statements too.

ILC paints bleak picture for future pensioners

Ten years to the day after the final report of the Pension Commission, the International Longevity Centre – UK (ILC-UK) have announced its second National Retirement Income Summit.

The Pensions Commission painted a future where individuals would need to do a combination of working longer, saving more, or paying more tax. The Commission argued that a failure to act would lead to poorer pensioners.

ILC-UK analysis highlights positive progress in extending working lives, preventing pensioner poverty and getting more people into saving. But the think tank warns of complacency and paints a bleak picture for future pensioners.

ILC-UK analysis, published on its website finds that since the Pensions Commission -

  • The average age of exit from the labour force is increasing but it is still below what it was in the 1960s and 1970s
  • In fact, the average time spent in retirement continues to increase
  • Auto-enrolment has delivered a growing number of employees with workplace pensions
  • But median contribution rates are low and a growing proportion of us have no savings. Final Salary pension coverage continues to fall
  • Younger people are less well placed than previous generations to save and may attract lower long term returns on their savings
  • Effective tax rates have been falling but have increased more recently
  • Spending on pensioner benefits slightly above the long run average as a percentage of GDP.

2016 expenses and benefits guide published

HMRC have published the 2016 version of their expenses and benefits guide (480), which explains the tax law relating to expenses payments and benefits received by directors and employees.


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

Julian Rowe, Head of Technical | Email: