Week ending 15 March: HMRC regulations for pensions flexibility|Auto-Enrolment easements|‘Better Pensions’|
Occupational and Personal Pension Schemes (Disclosure of Information) (Amendment) Regulations
Under these regulations, SI 2015/482, amendments are made to the Occupational and Personal Pension Schemes (Disclosure of Information) Regulations 2013, SI 2013/2734, as follows:
- New pension flexibilities. These Regulations amend SI 2013/2734 to support those changes by requiring trustees and managers of certain pension schemes to give members information about their benefits and about the new pensions guidance service in order to help them decide what to do with their benefits
- Public service pension schemes. Amendments ensure that SI 2013/2734 works as intended in relation to the new public service pension schemes which are being introduced from April 2015.
Occupational and Personal Pension Schemes (Transfer Values) (Amendment) Regulations
Pension Schemes Act 2015 introduced the concept of ‘flexible benefits’, and gave pension scheme members flexibility when accessing pension savings.
It was anticipated pension scheme members would wish to transfer benefits to a different scheme for flexible arrangements, and as such, PSA 2015 amended the initial Pension Schemes Act 1993 to give people the right to transfer pension benefits up and beyond the normal retirement age. Regulations, SI 2015/498, ensure the process of transfer continues to operate as intended following changes by PSA 2015.
The requirement for members to cease pensionable service before the transfer process takes place has been removed. This means members can exercise the right to transfer specific categories of benefits while accruing rights to different benefits categories.
When a member makes an application for a statement of entitlement, they will now receive a cash equivalent value for each benefit category they hold in the scheme.
Where trustees are unable to action a transfer request because the member failed to provide proof they took appropriate independent advice, they will now not be penalised for not completing the member’s request within the required timeframe.
The Transfer Values (Disapplication) Regulations 2010, SI 2010/6, which restricted members of NEST from transferring their pension rights out of NEST, will be revoked from 1 April 2017.
Amendments have also been made to ensure references to legislation reflect amendments in PSA 2015, and references to Regulations reflect the extension of the right to transfer benefit categories introduced by PSA 2015.
HMRC regulations for pensions flexibility
The Registered Pension Schemes (Provision of Information) (Amendment) Regulations 2015 (SI 2015/606) and the Registered Pension Schemes (Transfer of Sums and Assets) (Amendment) Regulations 2015 (SI 2015/633) have been made and laid before Parliament.
- Amend the Registered Pension Schemes (Provision of Information) Regulations 2006 to reflect the changes to the tax treatment of death benefits
- Amend the Registered Pension Schemes (Transfer of Sums and Assets) Regulations 2006 to prevent individuals who took out lifetime annuities before 6 April 2015 transferring to another annuity on or after that date in order to take advantage of the new flexibilities.
NICs exemption for pension flexibility advice
The Pension Schemes Act 2015 includes an exemption from income tax for employer payments for or reimbursements of the cost of advice that the Act requires employers to provide if their employees or former employees wish to convert or transfer DB benefits. Regulations, SI 2015/543, have been made which also exempt such costs from Class 1 NICs.
Regulations, SI 2015/501, amend the Occupational and Personal Pension Schemes (Automatic Enrolment) Regulations 2010, by reducing the information requirements on employers, introducing certain circumstances where the employer duty is turned into discretion, and also prescribing alternative quality requirements for defined benefits schemes. The changes include:
- Where notice of termination of employment has been given, the employer’s duty to automatically enrol or re-enrol is turned into a discretion, and the entitlement of a jobholder or worker to opt in to or join a scheme does not apply
- The employer duty to automatically enrol or re-enrol a worker or jobholder is also turned into a discretion where a worker or jobholder has decided, in the last 12 months, to leave a qualifying scheme; where a jobholder benefits from certain tax protection; and where a worker has received a winding-up lump sum in the last 12 months
- Where the employer exercises the power to make arrangements for the jobholder or worker to join a relevant scheme, the employer is to be treated as if they were discharging a duty
- The period of time in which an employer must give relevant information about the jobholder to the trustees or managers of the occupational pension scheme or personal pension scheme is amended from one month to six weeks
- Alternative quality requirements for UK defined benefits schemes are introduced
- The requirements imposed on employers with regard to the provision of information to employees is amended, with the aim of reducing the burden to give several different pieces of information to different kinds of workers at different times
- Enrolment information to be given to all jobholders upon automatic enrolment and re-enrolment is amended
Auto-Enrolment thresholds confirmed for 2015/16
Under SI 2015/468, the revised amounts for the 2015/16 tax year for the automatic enrolment qualifying earnings band and rounded figures for that band are set out. The figures for the lower and upper earnings boundaries will be increased to £5,824 and £42,385 respectively for the 2015/16 tax year. The changes come into effect on 6 April 2015.
The automatic enrolment and re-enrolment earnings trigger for the 2015/16 tax year is also set out and will remain at £10,000.
Select Committee calls for single regulator and independent commission
The Work and Pensions Committee has published a report - ‘Progress with automatic enrolment and pension reforms’ – calling for the following:
Responsibility for pension regulation is currently shared between the Financial Conduct Authority (FCA) and The Pensions Regulator. The Committee says what savers really need is a strong, single regulator to act in their interests. It is not convinced that the FCA is sufficiently focused on pensions and believes that the big shift to the new pension flexibilities in April means that it is now time to make this change, which it originally recommended back in 2013.
New independent pension commission
A range of issues are identified in the report which the Committee believes would best be addressed by establishing a new independent pension commission, along the lines of the 2005-06 Pensions (Turner) Commission. This would be able to take the same evidence-based and inclusive approach to assessing the impacts of the recent pension reforms, and recommend further improvements where necessary.
Protecting pension savers
The government has set up the Pension Wise service which will provide free guidance at the point when savers can first access their pension savings. The Committee says this is a welcome and necessary step, but it is unlikely to be sufficient in itself to protect all savers from financial risk.
Age at which pension saving can be accessed
Given the significant tax relief provided for pensions, increased longevity, and the importance of ensuring that people do not underestimate the income they need in retirement, the age at which people should be able to access their pension pots should be changed to five years before the State Pension age, except where there are ill health grounds.
Read more here.
GMP Increase Order
Under SI 2015/470, the amount by which the Guaranteed Minimum Pension element of an individual’s occupational pension entitlement must be increased is specified as 1.2%.
Code of Practice for public sector schemes
The Pensions Regulator Code of practice 14: Governance and administration of public service pension schemes (including codes on reporting breaches of the law, funding defined benefits and reporting late payment of contributions to occupational pension schemes) will come into force on 1 April 2015.
Social Security benefits and contributions for 105/16
The Social Security Benefits Up-rating Order 2015 (SI 2015/457) includes the annual increase to Basic State Pension and other state benefits.
The Social Security (Contributions) (Re-rating and National Insurance Funds Payments) Order 2015 (SI 2015/588) sets Class 3 and Calls 4 NIC rates for 2015/16.
The Social Security (Contributions) (Limits and Thresholds) (Amendment) Regulations 2015 (SI 2015/577) sets LEL, UEL, primary & secondary thresholds and introduces upper secondary threshold for NICs in 2015/16.
Which? has launched a campaign calling for ‘Better Pensions’ as it finds people could lose out on thousands if they are sold inappropriate retirement products.
The Which? report has been launched in the wake of the Financial Conduct Authority (FCA) warning people about the risks in cashing in their final salary pensions under the new freedoms.
In a snapshot investigation of income drawdown products currently on the market, Which? looked at how the reforms might impact a consumer who uses their existing provider’s products, and found the costs vary significantly.
Research by Which? uncovered several high charging drawdown products, including one that charges 2.76%. Which? thinks this is too high for the mass market and wants to see a cap introduced on products sold to customers by their existing provider.
Based on a scenario of someone with the typical pension pot of £36,000, drawing down £2,000 a year, Which? calculates that a cap of 0.5% would leave someone in its scenario around £10,300 better off than with charges at 2.75%. A 0.75% cap would mean that they have a total of around £8,800 more over their retirement and a 1% cap would give them around £7,500 more.
Which? also found one provider charging 0.5% more than another for investing in the exact same fund, and one provider’s charges ranging from 0.44% to 1.24% for very similar funds, which can make a significant difference over the course of someone’s retirement.
The Which? ‘Better Pensions’ campaign is calling for action to make sure everyone can benefit from the freedom and choices available to them. Which? wants a government-backed drawdown scheme to be established to give everyone access to a good value, low cost product no matter who their pension provider.
Which? Says it knows that people are worried about how much money they will need in retirement. The latest research from the Which? Consumer Insight Tracker reveals 66% of those aged 50-64 are worried about the value of their pension and just 19% of people trust the providers of long-term financial products, such as pensions, to act in their best interests.
Which? also found only 41% of retired people say they are living comfortably on their pension.
Which? wants the government, pension providers and regulators to protect people when they take money out of their pension by:
- Establishing a government-backed provider to ensure everyone can access a good value, low cost product
- Introducing a charge cap for default drawdown products
- Safeguarding savings in schemes that go bust.
Financial Services and Markets Act 2000 (Banking Reform) (Pensions) Regulations
Under SI 2015/547, ring-fenced banks will not have to pay towards any deficit in group-wide pensions schemes, under new UK regulations. Instead, they will be required to make arrangements to ensure they cannot be held accountable for the future liabilities of group members.
PPF sets out three year plan
The Pension Protection Fund (PPF) has launched its Strategic Plan, setting the course for the next three years.
The PPF has evolved significantly since it was set up in 2005 as the lifeboat for the underfunded retirement schemes of insolvent employers. It now has over 200,000 members and has paid out a total of £1.6bn in compensation, to date.
In the year ahead the PPF will be using its new insolvency risk model to calculate levy invoices for the first time. This tailored model, created in partnership with Experian, will provide members with a more predictive insolvency risk model, improving transparency and customer service levy payers.
In order to deliver a unique and excellent service to its customers, the organisation will be implementing its major project to bring member services in-house. This change will give the PPF greater flexibility and control over the service it provides its members.
Fuller working lives
The government has recently published several publications in connection with its initiative for extended working lives
Investment management guide
The National Association of Pension Funds (NAPF) has published a guide on investment management agreements (IMAs) for pension fund trustees. The guide has been made in collaboration with law firm CMS and aims to help trustees deliver the best scheme possible by developing effective agreements with their investment managers.
Consultation: Section 75 employer debt in non-associated multi-employer defined benefit pension schemes
This consultation is seeking views and evidence about the operation of the employer debt regime for non-associated multi-employer pension schemes, as well as the possible impact of any changes.
In addition, it is looking for opinions on the easements currently open to employers in such schemes such as withdrawal arrangements, approved withdrawal arrangements and a period of grace.
Latest auto-enrolment compliance report shows that over 5 million have been enrolled
Source: The Pensions Regulator
The Pensions Regulator: Enforcement action
The Pensions Regulator has prohibited David Fellowes, Francine Becker and a company they controlled, Avalon Pension Trustees Limited, from acting as trustees of trust schemes in general. It is noted that the individuals had acted as trustees of nine pension schemes investigated by the Regulator in relation to pension scams activity. In addition to the determination notice relating to the nine schemes formerly run by the individuals, the Regulator has also published three notices on a further 15 scam pension schemes.
The Individual Savings Account (Amendment) Regulations
These Regulations amend the Individual Savings Account Regulations 1998/1450 to increase the annual subscription limits to £15,240 and, for a junior ISA, £4,080.
John W Wilson LLB(Hons) FPMI ACII, Head of Technical, JLT Benefit Solutions| Email: firstname.lastname@example.org