Developments in Employee Benefits law and practice

18 April 2016

Week ending 17 April: Automatic Enrolment: Hybrid schemes guidance | Contracting-Out Countdown Bulletin 16 | tPR ‘how to’ guides to support DC code | HMRC updates salary sacrifice guidance | tPR priorities for 2016-19 | PLSA update on EU pension policy |

Automatic Enrolment: Hybrid schemes guidance

Rules setting out the detailed quality requirements that a hybrid pension scheme must satisfy to be used for an employer’s automatic enrolment duties have been published by the Department for Work and Pensions.

The Hybrid Schemes Quality Requirements Rules 2016 came into effect on 6 April 2016. They set out the detailed quality requirements that a hybrid pension scheme must satisfy to be used for an employer’s automatic enrolment duties.

Contracting-Out Countdown Bulletin 16

The latest edition of the Countdown Bulletin (No 16) is available on GOV.UK. Contents include:

  • Statement of Pensions Liability - CA1629, CA1633, CA1635, CA1637 and CA1931
  • The 'GMP Checker' (formerly known as the GMP Micro Service) availability from 6 April 2016
  • GMP Increments
  • Tracking Contracted-out Rights after April 2016
  • Scheme Reconciliation Service (SRS)
  • Information for employers with a Contracted-out scheme
  • National Insurance Categories from 6 April 2016

tPR ‘how to’ guides to support DC code

The Pensions Regulator has launched for consultation six new 'how to' guides to help trustees implement its revised defined contribution code of practice. The consultation will run until 11 May 2016.

The six new guides reflect the key areas of the code:

  • the trustee board
  • scheme management skills
  • administration
  • investment governance
  • value for members
  • communicating and reporting.

The code and guides are expected to come into force in July 2016.

HMRC updates salary sacrifice guidance

HMRC have amended the section on changing the terms of a salary sacrifice arrangement in their online guidance covering salary sacrifice.

If an employee wants to opt in or out of a salary sacrifice arrangement, employers must alter their contract with each change. The employee’s contract must be clear on what their cash and non-cash entitlements are at any given time.

It may be necessary to change the terms of a salary sacrifice arrangement where a ‘lifestyle change’ significantly alters an employee’s financial circumstances. Examples include marriage, divorce, or an employee’s spouse or partner becoming redundant or pregnant. Salary sacrifice arrangements can allow opting in or out in the event of lifestyle changes like these.

As a general rule, if an employee can swap between cash earnings and a non-cash benefit whenever they like, any expected tax and NICs advantages under a salary sacrifice arrangement won’t apply. There are some exceptions, however, including employer made contributions under a registered pension scheme.

tPR priorities for 2016-19

The Pension Regulator’s Corporate Plan 2016-2019 lists tPR’s 10 priorities for 2016-2019. These are:

 

Successfully implement automatic enrolment

The regulator will continue to help small and micro employers meet their automatic enrolment duties by focusing on the quality of its educational materials and enablement tools.

 

Protect consumers from poorly governed master trusts

The regulator will guide employers to automatically enrol staff into multi employer schemes, such as group personal pensions run by FCA-authorised providers and large master trusts that have obtained master trust assurance.

 

Effectively regulate defined benefit schemes

The regulator says its work with government and European partners will help to ensure the current and future challenges to DB benefit provision are met within a flexible and efficient regulatory framework.

 

Effectively regulate public service pension schemes

The regulator will drive improvements to historical governance issues in public service pensions schemes by identifying risks and working with these schemes.

 

Maintain confidence in pensions

The regulator will support safe and secure pensions by mitigating the detrimental impact of scams through securing assets and disrupting scam activity.

 

Improve the quality of scheme governance

The regulator will educate and enable those running pensions to meet the challenges of 21st century governance by setting out what effective and contemporary trusteeship looks like and developing tools and guidance to support them.

 

Extend our regulatory influence

The regulator’s communication strategy will support trustees and employers and promote compliance through a continued education programme across its regulated community.

 

Increase member engagement with pensions

The regulator will focus on improving savers’ understanding of pensions and, if necessary, will facilitate the creation of a pensions dashboard and/or related products in partnership with the FCA and government departments.

 

Develop our people

By continuing to focus on people management and performance, the regulator will maximise the productivity, success and wellbeing of our people.

 

Be an effective and efficient regulator

Through upgraded core IT systems, website development, a clear data strategy, and the adoption of smart working techniques, the regulator will enhance its existing capabilities and invest in the future provision of pension regulation.

 

The regulator has committed to achieving a 17% reduction to its levy 2015-2016 funding baseline by 2019-2020. On its automatic enrolment activities, it has identified a significant reduction against previous planned spend between 2016-2017 and 2020-2021.

 

PLSA update on EU pension policy

The EU pensions regulator, EIOPA, has announced that it is ending its work on a solvency-based funding regime for pension schemes.

For some years (actually a decade or more) the threat of a new pension funding system based on the insurance industry’s Solvency II legislation has been one of the biggest regulatory threats to DB schemes. If implemented as EIOPA intended, with a risk-free discount rate to calculate liabilities, the ‘Holistic Balance Sheet’ would have caused massive increases in deficits and major disruption to pension investment.

Resisting this proposal throughout its iterations has been one of the top lobbying priorities in our EU policy work. I am very pleased to say that, in an Opinion published today, EIOPA has announced its conclusion that ‘a one-size-fits-all solvency regime would not be appropriate’. EIOPA has decided ‘to refrain at this point in time from introducing harmonised funding or capital requirements for IORPs at the EU level’ (see para. 22. of EIOPA's Opinion).  This is a significant win for our membership and the Association.

Although EIOPA is still trying to keep the door ajar with the ‘at this point in time’ reference, there will be no more work on the funding regime. Capital requirements are off the table. Instead, EIOPA plan to develop the ‘HBS’ into a ‘reporting’ regime, to run alongside our existing funding system. Schemes would have to run the calculations and report on them – but not fund against them. Our view is that putting a second set of numbers into the public domain would cause confusion. There would also be costs – estimated by EIOPA at £167 million per annum in the UK. We will continue to lobby to get this much watered-down plan blocked as well.

Joanne Segars

Chief Executive, Pensions and Lifetime Savings Association

Contact:

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

Julian Rowe, Head of Technical | Email: julian_rowe@jltgroup.com