Weekly update on new developments in the pension industry for week ending 18 December 2017: Automatic Enrolment review published | Income tax changes in Scottish Budget and issues for pensions tax relief | Consultation on standards for professional trustees of occupational pension schemes | DWP single departmental plan | EIOPA OPS stress test | Pension Schemes Act 2015 (Transitional Provisions and Appropriate Independent Advice) (Amendment No 2) Regulations 2017 | 43rd PLSA survey
Automatic Enrolment review published
As widely reported over the weekend, the Government review of automatic enrolment is to be published on 18 December. Key proposals are –
- Lowering the minimum age for automatic enrolment from 22 to 18
- Requiring minimum contribution to be paid from £1 instead of from the lower earnings limit
- Contribution levels to be reviewed after the 8% minimum contribution comes into effect in 2019
The following research has already been released by the DWP:
Automatic Enrolment Evaluation Strategy 2017
Automatic Enrolment Review 2017: analytical report
Income tax changes in Scottish Budget and issues for pensions tax relief
The Scottish Government has released its Budget 2017/18, which proposes various spending and taxation plans and includes increases in various tax rates. The changes include, among other things:
- ·new intermediate rate of 21p for those earning more than £24,000
- ·new starter rate of 19p in the pound will be introduced
- higher rate to increase 1p to 41p
- top rate to increase 1p to 46p
- freezing the basic rate at 20p
Payroll systems will need to be adapted for the changes in income tax bands and rates.
The implications for pension contributions are less clear.
Also, broadly speaking, the practical impact will be different for occupational pension schemes and personal pension arrangements (including group personal pensions). The reason for this is that the former usually operate a ‘net pay arrangement’ for individual pension contributions where contributions are deducted from gross pay before income tax is calculated. However, the latter use the relief at source (RAS) system where contributions are deducted net of basic rate tax from post-tax pay. The provider then ‘grosses up’ the contribution for basic rate tax and claims this back from HMRC. Higher and additional rate tax payers need to claim any additional relief through the self-assessment system.
So, if everyone will still get tax relief at marginal rates, the Budget changes have a much bigger impact on RAS schemes.
Assuming the proposals are passed in February, questions that now need to be answered include:
- Who will be most affected by the extra administration burden – HMRC, provider or tax-payer, and what, if any, transitional arrangements will apply?
- Will people paying 21% be brought into the self-assessment system?
- Will the changes affect minimum contributions for automatic enrolment?
MSPs will get the opportunity to vote on the proposals on 19 February 2018.
A JLT Client Alert on the Scottish Budget is available on request.
Consultation on standards for professional trustees of occupational pension schemes
The Professional Trustee Standards Working Group is consulting on draft standards for professional trustees of occupational pension schemes.
The draft standards have been produced by the PTSWG after consultation with the pensions industry. The consultation document contains a number of questions on the draft standards.
The PTSWG is particularly interested to hear from anyone meeting TPR’s description of a professional trustee as well as those who use professional trustee services and work with professional trustees of occupational pension schemes. It would also welcome the views of sponsoring employers, other trustees and managers (including scheme managers of public service schemes), service providers and other professional advisers.
The consultation document was published on 13 December 2017 and the closing date for responses is 2 March 2018.
DWP single departmental plan
The Department for Work rel="noopener noreferrer" and Pensions has published its single departmental plan setting out its objectives and how DWP will achieve them. Chapter 3 is concerned with increasing savings levels and financial security in later life.
EIOPA OPS rel="noopener noreferrer" stress test
EIOPA has published the results of its stress test, covering defined benefit, defined contribution and hybrid pension schemes. The results raise concerns that pension obligations could exert substantial pressure on the solvency and future profitability of companies with a potential impact on the real economy.
Pension Schemes Act 2015 (Transitional Provisions and Appropriate Independent Advice) (Amendment No 2) Regulations 2017
Under these regulations, SI 2017/1272, amendments are made to, among other things, substitute regulation 5 of the Pension Schemes Act 2015 (Transitional Provisions and Appropriate Independent Advice) Regulations 2015, which provides an exception to the requirement to obtain advice.
In more detail, SI 2015/742 is amended to make transitional provision in relation to cases where the exception in SI 2015/742, regulation 5, did not apply to a member or survivor prior to these amendments coming into force, but does apply as a result of the amendment to substitute SI 2015/742, reg 5.
If, between 1 October 2017 and 6 April 2018, the trustees or managers informed the member or survivor about the requirement to obtain appropriate independent advice, then within 20 days after the coming into force of these amendments they must inform the person that the requirement no longer applies. However there is an exception if the trustees or managers provided specified information to the member or survivor in advance of the amendment coming into force.
43rd PLSA survey
The Pensions rel="noopener noreferrer" and Lifetime Savings Association has released the findings of their 43rd Annual Survey. Key findings outlined in the executive summary include:
- DC schemes reported that 88% of their main DC active members remain in their default funds. However, as in 2016, choice remains high, with schemes reporting a median number of 14 funds available. Although the number does vary between trust and contract based schemes, with trust based schemes offering on average 12 different funds compared to 55 in contract based schemes
- Mean running costs reported by DB schemes increased from £546 (2016) to £612 (2017) with costs driven by increase to levies, governance and trustee training as well as administration, record keeping and communications
- For DB schemes, the overall contribution rate rose slightly to 33.6%. This is mainly due to a slightly higher employer contribution rate 28.0% (2017) compared to 24.2% in 2016. The mean employee contribution rate continued to be around 6.0% at 5.6%
- The share of DB assets invested in equities continued to fall from 33% (2015) to 28% (2016) to 23% (2017). The share of assets in fixed income and other assets increased to 47% (45% - 2016) and 30% (28% - 2016) respectively
- Just over a third (34%) of DC respondents described their investment strategy for the growth phase of their main scheme’s default fund as passive tracker. This was followed by multi-asset fund (26%), diversified growth fund (25%) and bespoke solution (21%).