Developments in Employee Benefits law and practice

18 January 2016

Week ending 17 Jan: Pensions Regulator issues draft prosecution policy| New National Insurance Contribution reporting requirements and more

Pensions Regulator issues draft prosecution policy

The Regulator says it recognises that the best way to support the regulated community to understand and fulfil its obligations is to provide appropriate guidance and tools. Where possible, the Regulator will provide support and advice if potential problems are identified.

Where non-compliance cannot be resolved by these means, the Regulator has a number of enforcement options available to it, including criminal proceedings.

The Regulator has now published a consultation document which contains a draft prosecution policy, and explains when and how the Regulator will use its powers.

The policy is of potential relevance to anyone who could be subject to criminal proceedings by the Regulator, and their representatives. The annex to the policy sets out the specific criminal offences created by workplace pensions legislation. These are aimed primarily at misconduct by employers, trustees and scheme managers, and their advisers.

Responses to the consultation should be submitted by 19 February 2016.

New National Insurance Contribution reporting requirements

Changes to reporting requirements for employers from 6 April 2016, following the abolition of all contracting-out, are set out in a tax information and impact note from HMRC. The changes affect National Insurance Contributions (NICs) rates for employees who have contracted out of the State Earnings-Related Pension. The abolition of contracted-out rebates from this date provides an opportunity for HMRC to simplify Real Time Information (RTI) returns by removing information it no longer requires. The change applies to the contributions paid in 2016/17 and future tax years.

Currently, the Social Security (Contributions) Regulations 2001, SI 2001/1004, specify that employers must report the following earnings information:

  • earning up to the Lower Earnings Limit
  • earnings between the Lower Earnings Limit and Primary Threshold
  • earnings between the Primary Threshold and Upper Accrual Point
  • earnings between the Upper Accrual Point and Upper Earnings Limit

Under HMRC’s proposed revisions, there is no longer a need for the Upper Accrual Point to cap the State Second Pension calculation. Employers will no longer need to report the earnings up to the Upper Accrual Point separately, but will still need to record earnings up to the Upper Earnings Limit, as earnings above this level do not count for contributory benefits and employees pay the additional rate of NICs at 2% above this point.

SI 2001/1004, Sch 4 and 4A, para 7(13), will be amended so that employers must report the following earnings information:

  • earning up to the Lower Earnings Limit
  • earnings between the Lower Earnings Limit and Primary Threshold
  • earnings between the Primary Threshold and Upper Earnings Limit

Changes are also being made to remove the need for employers to report the Scheme Contracted-out Number and Employers Contracted-out Number, which will no longer be needed once contracted-out contributions are abolished.

Consequential changes to SI 2001/1004 will remove references to contracted-out contributions and simplify the administrative rules for calculating whether someone has overpaid contributions, and the refund due when the person was contracted-out.

Source. Policy Paper: National Insurance contributions—Reporting requirements for employers on the abolition of the contracted-out rebate 

Latest Work and Pensions Select Committee (WPSC) Reports

The House of Commons WPSC has published its 6th report: Understanding the new state pension – interim report on pension statements.

The report concludes –

Our inquiry into Understanding the New State Pension is ongoing, but we are so concerned about misinterpretation attributable to confusing state pension statements that we are issuing this urgent interim report. The Government is right to want people to engage more with their pensions. Central to achieving this is making pensions more approachable. At a crucial time of reform to the state pension and the state pension age, DWP statements are insufficiently clear. This lack of clarity increases the chances that people misunderstand the value of their state pension or the age from which they will receive it. In turn, this increases the chances that they will not best plan for retirement.

State pension statements must be as simple and approachable as possible while enabling those who want more information about the detail or calculation of their entitlements to have it. We note that in their evidence to this inquiry, DWP has demonstrated a willingness to adjust statements in response to customer feedback.

In consequence, the WPSC recommends that the following changes are made to state pension statements immediately:

  • statements should be limited to one page in length;
  • key messages should be highlighted in boxes to ensure they stand out clearly;
  • statements should prioritise the current value of state pension built up, state pension age, the date that age will be reached, and how to build up additional benefits;
  • state pension age should be highlighted in a prominent position, especially for those whose pension age has changed;
  • means of getting further information, such as a full breakdown of NI history, details and calculations of NSP starting amounts, and calculations of deductions for period of contracting out should be clear and that information should be readily available;
  • the term ‘Contracted Out Pension Equivalent’ should be replaced by ‘contracting out deduction’; and
  • the contracting out deduction should be explained as such, making it clear that it is a reduced state pensions as a consequence of paying reduced NI contributions but may be compensated for by the individual’s private pension scheme.

The WPSC has also published its Fourth Special Report on pension freedom guidance and advice, which sets out the FCA’s replies to recommendations and concerns set out in the original report, including regulatory clarity in relation to advice, pensions data, scams and Pension Wise.

DWP research into new State pension

According to new DWP research, the introduction of the new State Pension in April 2016 will make millions of people better off. The main findings are:

  • Over 75% of women and over 70% of men will gain in the first 15 years of the new State Pension.
  • 90% of people who will pay NI at the standard rate from April, due to the end of contracting out, will receive enough extra State Pension over their retirement to offset the increase in these NI contributions.
  • The move to the new system will provide a boost to the State Pension for many women, with over 3 million women receiving an average of £11 more per week by 2030 as a result of the changes – helping to address the gender inequalities that have persisted under the old scheme.
  • Women reaching State Pension age over the next 5 years will receive, on average, approximately £190,000 of State Pension over the course of their retirement. The equivalent figure for men is approximately £170,000.

Anyone aged 55 or over can apply for a personalised State Pension Statement, which will give them an estimate of what they will get under the new system. This will be based on their work history and NI contributions to date, including information on their past contracting out record.

Loan to member by third party was unauthorised payment

In this case - Danvers v Revenue & Customs [2016] - a member of a self-invested personal pension lost his appeal against an unauthorised payments charge that was imposed on a loan made to him by a third party. The loan was advanced as part of an alleged pensions liberation arrangement.

The appellant argued that a loan by a third party, which was unconnected with the registered pension scheme, did not fall within the definition of “payment” under the Finance Act 2004. However, this was rejected by the First-tier Tribunal (Tax), which held that the loan was made in connection with an investment acquired using sums held for the purposes of a registered pension scheme. It therefore constituted an unauthorised payment.

Expected retirement incomes continue to rise

According to Prudential’s latest research into the financial plans and aspirations of people about to retire, those planning to retire in the coming 12 months expect to receive an annual income of £17,700. This is the third annual increase in a row. The research results also suggest that the new pension freedoms regime has led to an increase in confidence about the future among many retirees.

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