Developments in Employee Benefits law and practice

19 February 2018

Weekly update on new developments in the pension industry for week commencing 19 February 2018: TPR and FCA: Strategy for pensions | HMRC Guidance: Class 1A NICs and BiKs | HMRC: Overseas pensions – pension transfers (updated) | Government response to WPC report - Protecting pensions | One million employers enrol staff into a workplace pension | The Legal Differences between CIDC and CDC | WPC report on BSPS | FCA letter on pension transfer advice | Trustees fined and named for producing non-compliant documents | PASA: GMP reconciliation - trustee decision checklist

TPR and FCA: Strategy for pensions

The Financial Conduct Authority (FCA) and The Pensions Regulator (TPR) are working together on a pensions regulatory strategy, which will set out how they will work together to tackle the key risks facing the pensions sector in the next 5-10 years.

Engaging with stakeholders

FCA and TPR will hold a series of events with stakeholders in London, Edinburgh and Manchester in the spring. These will broadly focus on two discussion areas led by the FCA and TPR:

Their collective view of the current landscape of the sector and their respective regulatory remits

Their likely key areas of focus in the coming years

For those unable to attend, they will provide a webcast to facilitate further feedback.

This work will also be informed by the FCA’s research and TPR’s ongoing ‘TPR Future’ program, as well as other factors such as the outcome of the Work and Pensions Select Committee’s inquiry into the pension freedoms and the impact of the Department for Work and Pensions’ review of automatic enrolment.

The pensions landscape

The last 5 years have seen significant change in the sector.  For example, the introduction of the pension freedoms, which changed the way that people can access their retirement savings, and of automatic enrolment, which has seen more than 9 million people newly saving into workplace pension schemes.

Regulating the sector

For the FCA, this has meant making sure that their regulation provides the appropriate level of consumer protection and competition within this new landscape, whether this is through the establishment of Independent Governance Committees or ongoing work such as the Retirement Outcomes Review.

For TPR, the focus has been on protecting workplace pension savers through a drive to improve standards of governance in schemes, ensuring schemes are being treated fairly by sponsoring employers, and that workers are enrolled into the pensions they are entitled to by employers as part of automatic enrolment.

As part of FCA’s and TPR’s ongoing efforts to ensure the sector works well for consumers and workplace pension savers, they are working together on a pensions strategy which will look at how they will work together, and with stakeholders, in the coming years.

HMRC Guidance: Class 1A NICs and BiKs

HMRC have published the 2018-19 CWG5 Class 1A National Insurance contributions on benefits in kind.

Class 1A National Insurance contributions on benefits in kind (CWG5) explains what benefits and expenses to report on form P11D or substitute form for employers. This guide explains what employers need to know and do about Class 1A National Insurance contributions, when Class 1A NICs are due and how they are worked out, reported and paid.

HMRC: Overseas pensions – pension transfers (updated)

HMRC have updated guidance on the overseas pension schemes transfer charge and conditions that apply.

Overseas pensions: pension transfers explains how qualifying recognised overseas pension scheme (QROPS) managers report pension transfers and when tax needs to be paid. The guidance has been updated to add more information about the overseas transfers charge and the conditions that apply.

Government response to WPC report - Protecting pensions

The government response to the Work and Pensions Select Committee’s report Protecting pensions against scams: priorities for the Financial Guidance and Claims Bill has been published.

The government agrees with the committee about the need to:

address the threat posed by pension scams by cutting off scamming activity at the source to disrupt criminals and protect savers

ensure more people are able to make informed decisions about their personal finances and pension savings in particular.

The Government will continue to work swiftly to implement a cold calling ban by tabling a workable amendment to the Financial Guidance and Claims Bill, and then making regulations to introduce the ban.

One million employers enrol staff into a workplace pension

One million UK employers have enrolled staff into a workplace pension, helping more than 9 million employees save towards a more financially secure retirement.

The new figures, released by The Pensions Regulator, show that over 600,000 employers have complied with their duties in the past year alone.

The deadline is approaching for the remaining 150,000 employers, including new businesses set up since the government scheme was launched, to enrol their staff by June 2018.

The Legal Differences between CIDC and CDC

The paper has been published by the Pensions Institute.

Abstract

Both Collective Defined Contribution (CDC) and Collective Individual Defined Contribution (CIDC) schemes place any risks on pension scheme members instead of an external risk-bearer. In CDC schemes, assets are pooled collectively, allowing for risks to be shared between pension scheme members. In Individual DC schemes (IDC), the scheme members bear such risks individually. But CDC’s collective nature leaves little room for individual risk management and the pension assets are allocated to scheme members via rules that are often complex and ambiguous. CIDC schemes strive to retain the desirable aspects of CDC and IDC schemes, while improving on some of the drawbacks.

The drawbacks of a CDC scheme are mitigated by the introduction of 1) individually quantifiable pension pots through individual accounts, 2) individual risk management and 3) a simplified scheme.

The drawbacks of an IDC scheme are mitigated by 1) mandatory participation, 2) collective management of assets, and 3) sharing of risks.

It therefore seems that CIDC schemes have a number of important advantages over CDC schemes. CIDC scheme members should be clearly informed of their legal position vis-à-vis their employer and pension provider, and the contract should clearly define the risks. Scheme members appear to benefit from individual risk management and individually identifiable pension pots, while employers and/or pension providers seem relieved from risks and enjoy the security of fixed pension contributions. The possibility to take out a lump sum seems contrary to the collective sharing of risks in both CIDC and CDC schemes.

WPC report on BSPS

The Work and Pensions Committee has published a report on British Steel Pension Schemes (BSPS). The Committee says another major mis-selling scandal is already erupting on defined benefit pension transfers, and calls on the responsible authorities to take urgent action.

Read the report summary

Read the conclusions and recommendations

Read the full report: British Steel Pension Scheme

FCA letter on pension transfer advice

The FCA has published the text of a letter sent in January 2018 to firms holding the pension transfer and opt out permission which sets out details of a number of recent documents highlighting FCA requirements. It notes particular concerns with commoditised business models and notes that it may review in the future any pension transfer advice relevant firms have given, or may give.

Trustees fined and named for producing non-compliant documents

Pension schemes that have produced non-compliant chair’s statements have been named for the first time in lists published by The Pensions Regulator (TPR) to accompany its quarterly compliance and enforcement bulletin. The lists include six pension schemes whose trustees have been fined for this offence, and the professional trustees of these schemes have also been named.
TPR’s quarterly compliance and enforcement bulletin also highlights the case of a business found to be wilfully non-compliant and avoiding its automatic enrolment responsibilities. TPR’s lists include 29 employers taken to court in the quarter for failing to pay escalating penalty notices imposed because they failed to meet their automatic enrolment duties. The fines total more than £240,000.

The bulletin also highlights:

Automatic enrolment

4,197 more compliance notices were issued to employers compared to the last quarter for failing to meet automatic enrolment duties.

1,956 more fixed penalty notices issued in the last three months to employers for failing to comply with a statutory notice or a specific duty, compared to the last quarter

A total of 28,446 cases of enforcement powers being used in automatic enrolment between October and December 2017.

Pension schemes

TPR used its powers to enforce governance and administration rules against schemes 235 times between October and December last year.

There were 130 trustees appointed by TPR to run schemes to ensure they were properly administered.

Enforcement action taken for the first time against trustees or scheme managers who failed to get their defined benefit scheme accounts audited within seven months of the end of the scheme year (read more).

PASA: GMP reconciliation - trustee decision checklist

To help support pension trustees and administrators through the process for correcting/reconciling GMP information on administration scheme databases and undertaking any rectification work required as a consequence, the Pensions Administration Standards Association (PASA) has produced a GMP Trustee Decision Checklist.

The checklist covers the issues that may need to be considered and the questions that will need to be answered in order to complete the rectification process.

 

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