Developments in Employee Benefits law and practice

15 August 2017

Weekly update on new developments in the pension industry for week ending 15 August 2017: Department for Digital, Culture Media & Sport publishes Data Protection Bill | What has happened to the income of retired households over the past 40 years? | Trustees working harder but being paid less | TPR finalises monetary penalty policies and revised description of a professional trustee | TPR names pension schemes whose trustees failed to complete their basic duties | Latest Contracting-Out Countdown Bulletin

Department for Digital, Culture Media & Sport publishes Data Protection Bill

The Department for Digital, Culture Media & Sport has announced plans for a new Data Protection Bill, which will bring the EU General Data Protection Regulation into force. It is intended to give individuals more control over their digital footprint, personal data, how it is used and how it is passed on by companies.

ICO will be empowered to issue fines up to £17m or 4% of global turnover, in cases of the most serious data breaches. The Bill will create a new offence of intentionally or recklessly re-identifying individuals from anonymised or pseudonymised data – offenders who knowingly handle or process such data will also be guilty of an offence. The maximum penalty would be an unlimited fine.

What has happened to the income of retired households over the past 40 years?

Key findings from this recent research by the Office for National Statistics are:

  • In 1977, only around one-fifth (21%) of retired households had an annual disposable income of over £10,000 (after accounting for inflation and household composition) but by financial year ending (FYE) 2016, this had increased to 96% of retired households.
  • Over half of the increase in the income of retired households between 1977 and FYE 2016 can be attributed to increased private pension income alone, which has increased nearly sevenfold over the period.
  • Despite the growth in the average disposable income of retired households, inequality between retired households has shown increases in recent years, though they remain small relative to increases in income inequality for retired households seen throughout the 1980s.
  • In FYE 2016, retired households in receipt of a private pension had disposable incomes that were 1.6 times higher than households that were not.
  • Although since FYE 2011 the average value of cash benefits for retired households has generally been increasing, those without any form of private pension income are not having their incomes supplemented enough by these cash benefits amounts to reduce overall inequality in income.

Trustees working harder but being paid less

According to research by PwC, based on responses from trustees of 54 schemes, ranging in asset size from under £0.5bn to over £5bn, the annual pay for the board chair, and chair committee, had reduced. Board member only trustees have seen pay increase, particularly at the higher end of the scale.

Other findings are –

  • The average number of working days required of board members continues to rise with 37% working between 11 and 30 days per annum. For trustee chairs the average time commitment has plateaued after rising consistently since the survey started in 2007. However, the number of trustee chairs working more than 40 days per annum is at its highest level to date, up to 28% from 24%.
  • The number of respondents on boards with 9-11 members has seen a reduction by nearly a quarter, down to 33% from 55% in 2014. More boards now have between six and nine members, particularly for schemes under £1.5bn. However, there has also been a significant change in board size for schemes with asset sizes between £1.5bn-£5bn who favour 12 to 14 members.
  • The proportion of boards with no independent trustees has increased to 33% in 2016, up from 18% two years ago while the number of independent trustees on each board remains relatively low with 41% employing only one.
  • Despite the overall increase in assets under management in the UK, the majority of respondents do not currently use fiduciary management. For those that do, investment expertise and the ability to be nimble in the current market environment were the top two reasons for its use.

TPR finalises monetary penalty policies and revised description of a professional trustee

TPR has published its response to an earlier consultation on how it will generally use its powers to impose monetary penalties, together with its professional trustee description policy.

Professional trustee description policy

This explains TPR’s revised description and gives examples of when it may consider someone to be a professional trustee.

The new description focuses on whether a person’s business includes trusteeship. Someone will normally be considered a professional trustee if they have represented themselves to one or more unrelated schemes as having expertise in trustee matters generally. Professional trustees are likely to be given higher penalties under the penalties policy.

The new description paves the way to build standards and accreditation for professional trustees through the Professional Trustee Standards Working Group (PTSWG), which has been established by the industry’s professional trustee bodies. The group is developing higher standards for those who are considered to be professional trustees.

Monetary penalties policy

This explains how TPR will generally use its powers to impose penalties under pensions legislation.

TPR will publish regular bulletins setting out how it has used its powers, including monetary penalties it has applied.

TPR names pension schemes whose trustees failed to complete their basic duties

As well as including data on automatic enrolment compliance, TPR’s compliance and enforcement quarterly bulletin includes, for the first time, a link to the names of pension schemes whose trustees have been fined for failing to complete scheme returns or annual chair’s statements.

The schemes of a number of high profile organisations are represented on the list, including national and multinational businesses.

The bulletin highlights that the majority of schemes complied with new legislation obliging them to prepare an annual governance statement, signed by the chair of trustees. Between April and June this year, the trustees of 20 schemes received a mandatory fine for not preparing a chair’s statement. A large proportion of those failing to produce a statement involved schemes with fewer than 100 members but some were large employers.

In the same period the trustees of a number of schemes failed to submit scheme returns even after receiving a warning from TPR, leading to the issuing of fines to 45 trustees.

TPR has also published an updated quarterly list of employers taken to court for failing to pay fines for automatic enrolment non-compliance. The employers had each been issued with an escalating penalty notice (EPN) by TPR but had failed to pay it.

The list features both small and multinational companies, with county court judgments secured by TPR for up to £52,500.

The vast majority of employers continue to be compliant with their workplace pension duties. However TPR's website also features an updated list of a small number of employers that continue to ignore their automatic enrolment responsibilities despite having been issued with – and having paid – escalating penalty notices.

TPR will consider taking additional enforcement action against employers who remain non-compliant, including prosecution in appropriate cases in accordance with TPR’s published prosecution policy.

Other data revealed in the compliance and enforcement bulletin includes:

  • a total of 276 inspections were carried out in the quarter, up from the 224 inspections carried out in the previous quarter – the most completed in a single quarter;
  • TPR issued 4,794 fixed penalty notices (FPN) of £400 for automatic enrolment non-compliance to employers in the quarter, up from 4,673 the previous quarter – the largest total issued to date;
  • a total of 1,384 EPNs were issued in the quarter, up from 1,043 in the first three months of 2017 – this was also the highest quarterly EPN total.

Latest Contracting-Out Countdown Bulletin

The August issue provides guidance and updates on the following topics -

  • SRS and Closure Queries re-runnable solution delivery plan 
  • Not In Scheme Queries 
  • Scheme reconciliation and active member queries 
  • Late expressions of interest 
  • Scheme reconciliation re-run requests

HMRC had advised that it had plans for automating ‘not in scheme’ queries where there had been a transfer, buy-out or change of responsible paying authority from the scheme. However, due to the low volume of queries received and the complexity of the automated solution, it has decided not to proceed with the transfer solution for the time being.

That said, HMRC will continue to explore the feasibility of buy-out and change of responsible paying authority if sufficient queries are received.

HMRC also advises in this Bulletin that it will now accept late expressions of interest to register for SRS.

TPR agrees RAA in connection with British Steel Pension Scheme

The Pensions Regulator (TPR) has announced it has given approval for a Regulated Apportionment Arrangement (RAA) to allow Tata Steel to separate from the British Steel Pension Scheme (BSPS).

The arrangement means Tata Steel can restructure the BSPS, which it said will prevent the company from becoming insolvent.

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