Developments in Employee Benefits law and practice

23 November 2015

Week ending 22 Nov: DWP starts to issue ‘COPE’ statements| No duty to inform transferee about GARs|Women in danger of losing out in retirement and other news

Tapered AA changes enacted

The Finance Bill (Session 2015-16) received royal assent on 18 November 2015 as the Finance (No 2) Act 2015 (c 33).

The Bill includes reductions to the Annual Allowance for high earners (the tapered AA) and changes to the taxation of pension death benefits. A JLT Alert will follow.

DWP starts to issue ‘COPE’ statements

DWP has started to include Contracted-out Pension Equivalent (COPE) amounts within State Pension statements.

This estimated amount is being introduced to help customers, who’ve been contracted-out, see how National Insurance contributions paid before 6 April 2016 will contribute to their overall pension income.

Further information is included in the latest Countdown Bulletin, the main topics of which are

  • Pension forums to be held in December
  • GMP Service - testers required
  • Reconciling active membership records
  • Customer relationship team Inbox details 

Latest AE evaluation report

This report follows the DWP automatic enrolment evaluation reports for 2013 and 2014. It brings together the latest evidence to show what has happened since automatic enrolment began and updates the indicators the DWP will use to monitor progress throughout implementation. Key findings are:

Increasing the number of savers

  • Up to the end of September 2015, more than 5.47 million workers have been automatically enrolled by over 60,000 employers.
  • National Employment Savings Trust (NEST) membership, as of the end of March 2015, stands at 2 million members with around 14,000 employers.
  • Data, collected with reference to April 2014, shows that the number of eligible employees participating in a workplace pension rose to 13.9 million (70 per cent), an increase of 3.2 million since 2012.
  • In 2014, there was a rise in pension participation levels across all earnings bands with the largest increase (18 percentage points) amongst those earning between £10,000 and £20,000, which is just above the automatic enrolment earnings trigger.
  • Increases were also found across all age groups, with the largest being amongst the lower age groups, with participation amongst those aged 22 to 29 increasing by 19 percentage points to 60 per cent in 2014.

Increasing the amount of savings

  • In 2014, the annual total amount saved in workplace pensions was £80.3 billion, an increase of £2.7 billion from 2013. This was driven by the private sector, where saving increased by £3.1 billion to £42.9 billion, whereas in the public sector this fell slightly by £0.5 billion to £37.4 billion.
  • Across both sectors, contributions by employees accounted for 30 per cent of saving, with employer contributions accounting for 60 per cent and tax relief the remaining 10 per cent.

Opt out rates

Up to the end of August 2015, 10 per cent of automatically enrolled workers have opted out and a further 3 per cent of automatically enrolled workers have ceased active membership.

Employer awareness, understanding and activity

  • Surveys of employers two months before their staging date have consistently reported high levels of awareness and understanding, showing appropriate levels of preparation by these employers for automatic enrolment and complying with their duties.
  • There were significant increases in understanding of automatic enrolment since autumn 2014. Among small employers it rose by 9 percentage points to 59 per cent and among micro employers by 14 percentage points to 48 per cent.

Impact on employers

  • Across all employers that had staged up to August 2015, the total median cost of implementing automatic enrolment was £500. Employers tended to say that the most work came from communicating the reforms to workers, as well as ongoing administration of the pension scheme.
  • The majority of employers (86 per cent) enrolled eligible workers into Defined Contribution (DC) schemes, representing 88 per cent of those enrolled. Of these employers, around 50 per cent chose to use a multi-employer master trust, which equates to around 44 per cent of all employers and 47 per cent of all automatically enrolled workers.


FCA Asset management study

The FCA has published terms of reference for a market study and has invited responses, to be received by 18 December 2015. It is noted that, over the next year, the FCA will assess how asset managers compete to deliver value; whether asset managers are motivated and able to control costs along the value chain; and what effect investment consultants have on competition for institutional asset management. The FCA aims to publish interim findings in summer 2016 and a final report by early 2017.

Separately, the FSCS has published a report - Mind the gap: restoring trust in UK financial services – based on the views of 2,500 people. It found that consumers believe firms are capable of acting in consumers’ interests but choose instead to act in their own interests. The report urges firms to consider the remuneration of senior staff; to offer the same deals to both new and long term customers; advise customers when they would be better off with another product; and provide more information to consumers about FSCS protection.

PPF issues guidance on legal actions by IPs

The Pensions Protection Fund (PPF) has issued guidance on its approach to potential legal actions considered insolvency practitioners (IPs), and how it will view a defence to legal action. The PPF said it expects to be consulted, when it is a significant stakeholder in the outcome of an insolvency, in relation to IPs continuing with any litigation commenced before the company entered into the insolvency process, or where the IP wishes to commence proceedings (for example to challenge antecedent transactions).

The guidance - PPF Restructuring and Insolvency Team: Potential legal actions contemplated by insolvency practitioners – is available on the PPF website.

EIOPA survey on pan-European PP product

The European Insurance and Occupational Pensions Authority is seeking input from the insurance and pensions sectors on the attractiveness of a pan-European personal pension product by means of a short online survey.

EIOPA's ambition is to create a simple, trustworthy, standardised and fully transparent PEPP in the format of a long-term retirement savings product.

Risk sharing in hybrid schemes can create ‘virtuous cycle’

Research from the 300 Club - The Third Way: A hybrid model for pensions – has found that hybrid pension model, which had been tried and tested in the US state Wisconsin for three decades, creates a “better balance of risk between the employer and the employee”, compared to conventional DB / DC pension scheme designs.

The paper is written by 300 Club member David Villa, who argues that the hybrid model is preferable to employees because it reduces the amount of risk they must assume versus defined contribution models and also reduces the volatility in their pension provision versus defined benefit schemes in exchange for assuming some of the risk.

Villa notes that both the DB and DC models lack the “countervailing force” provided by risk sharing.

TTG trustees fail to have PPF decision on interest overturned

In this determination (PPFO-6880), the PPF Ombudsman rejected a referral by the trustees of the TT Group Pension Scheme against the PPF's decision to charge interest on late payment of the scheme's risk-based levy for the 2011/12 levy year.

The Ombudsman found that the PPF had reached its decision with regard to waiving interest for late payment of the risk-based levy in a proper manner. Amongst other things, the Ombudsman did not agree that there was an absolute deadline of 28 days to respond to a review application.

No duty to inform transferee about GARs

In Sayer (PO-563), the Pensions Ombudsman dismissed a complaint by a member of a DC occupational pension scheme that the scheme provider and administrator both failed to inform him that a guaranteed annuity rate applied to his individual policy before he transferred out in 2002. Mr Sayer contended that he lost out on around £120,000. However, the Ombudsman held that neither respondent was advising on the transfer and, in the absence of a request for information, neither had any legal duty to volunteer information. Also, on the evidence, the member had good reason to transfer and may have done so even if he had known about the GAR.

DC FAQs updated by TPR

The Pensions Regulator has updated its frequently asked questions on the new DC duties effective from April. The new FAQs cover the application of and exemptions from charge controls and governance requirements. Also, there is further guidance on what the chair’s statement is required to cover.

One year increase in life expectancy would cost DB schemes £60bn

According to the Institute and Faculty of Actuaries’ latest Longevity Bulletin on mortality, defined benefit private sector pension schemes would have a further £60bn added to their liabilities in the event of pensioners living on average one year longer than assumed.

The Longevity Bulletin discusses some potential drivers of longevity trends and considers aspects of longevity modelling.

Women in danger of losing out in retirement

According to Scottish Widows’ latest Women and Retirement report, whilst 26% of women and 30% of men in their 20s think they are preparing adequately or more than adequately for retirement, this gap increases in the 30s. By this point, 48% of men believe they are saving adequately, compared to just 31% of women.

Additionally, while the number of women expecting a big shortfall in retirement shoots up by 10 percentage points between their 20s and 40s, the proportion of men expecting a shortfall rises by just 3% over the same period. This is a reversal of the trends seen during their 20s, when men are more worried than women about their retirement income failing to meet their needs.

The levels of optimism shown by women in early adult years are mirrored by their saving habits, as women pay more into workplace schemes than men in their 20s. Of those paying into a workplace pension scheme, men are putting away an average of £93.26, whilst women are saving around £180.36 at this age. However, despite positive signs of early engagement, saving levels then drop as women get older, whilst men put away more.


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

Julian Rowe, Head of Technical | Email: