Weekly update on new developments in the pension industry for week commencing 26 February 2018
Income Tax changes passed by Scottish Parliament
Following a final debate on the measures in the Scottish parliament, Finance Secretary Derek Mackay confirmed that the tax bands for Scottish tax payers will come into force for the 2018/19 tax year.
The changes will see Scotland introduce several new tax bands from 6 April with middle income earners set to pay an extra 1% in tax, with an intermediate rate of 21% introduced for the first time while top earners will also be hit.
Mackay said the new starter rate of income tax for Scottish taxpayers, combined with an increase in the personal allowance, will result in 70% of all income taxpayers paying less tax than they do this year on current incomes and raise additional revenue to support vital public services and investment in the economy.
The Scottish government’s use of the devolved income tax powers will ensure an additional £428m in 2018/19 to support a budget that:
- will protect public services that are free at the point of use, including free prescriptions, free personal care and free tuition;
- will increase the health budget by £400m; and
- will provide above-inflation investment in the police, in universities and colleges and in local government services.
The main tax measure will see the introduction of an intermediate rate for the first time in Scotland, for earners over £24,000 up to £43,450, creating a 21% tax band.
The higher rate will also increase to 41% for those earning £43,450 to £150,000, while the top rate goes up 1% to 46% for anyone earning over £150,000. Those earning more than £100,000 will see their personal allowance reduced by £1 for every £2 earned over £100,000.
The Scottish government has estimated that nearly two thirds (64%) of current basic rate taxpayers will pay less in Scotland than they will elsewhere in the UK in 2018-19.
Scottish income tax proposed rates and bands 2018-19
|Scottish income tax rates
| Starter rate
||Over £11,850 - £13,850
| Scottish basic rate
||Over £13,850 - £24,000
| Intermediate rate
||Over £24,000 - £43,430
||Over £43,430 - £150,000
| Top rate
Source: Scottish Government
Pension schemes relief at source for Scottish Income Tax newsletter
HMRC have published the Pension schemes relief at source for Scottish Income Tax newsletter (February 2018) containing updates and guidance on pension schemes.
The February 2018 edition includes the following:
- Scottish Budget 2017 - pension tax relief
- Completing the annual return of individual information for 2017-18
- Notification of residency status report - January 2018
a. Downloading the report
b. Notification of residency status filename
- Look up residency status for relief at source
a. Access to check residency status on GOV.UK
b. User research
c. Application Programming Interface (API) – changes to the technical information and controlled access
- Updates to GOV.UK guides and the RPSCOM100(Z) spreadsheet
- Relief at source regulations
- Appendix 1 - messages for members
- Appendix 2 - messages for payroll providers
- Appendix 3 - structured data for the annual return of individual information for 2017-18.
PLSA survey finds support for stronger checks on pension scams
The Pensions and Lifetime Savings Association (PLSA) has found 88% of pension savers would like stronger checks to help them avoid pension scams, as many have difficulty spotting them. The PLSA is now calling for an authorisation regime for pension schemes receiving transfers to help prevent fraud.
The PLSA found, among other things:
- 29% of the 2,000 people surveyed missed obvious pension scams when being provided with scenarios
- 79% of pension savers would like stricter rules and checks to ensure that pension pots are secured
- a small percentage (28%) felt these checks are unnecessary because people should be able to access their money easily as and when they want
- the majority of savers agreed that checks on pension providers and schemes are a good thing
The PLSA also found the most identifiable scam situation to be when an individual is contacted by someone trying to transfer their pension into an investment scheme. One of the least identifiable scams was identified as when an individual is advised to use their pension fund an investment causing them to pay a huge tax bill.
Of those surveyed:
- 17% have been contacted by a company—different to the one providing their pension—to discuss making changes or transferring their pension
- 11% have even been contacted multiple times.
New approach proposed for managing issues faced by DB schemes
A new report from the Pensions Institute, part of Cass Business School, has proposed a novel approach for managing the issues faced by the trustees and regulators of the UK’s 6,000 remaining defined benefit (DB) schemes. These issues focus on the strength of the sponsor covenant in the light of huge uncertainties concerning asset returns, interest rates, inflation, and life expectancy.
The new approach seeks to emulate the constant evaluation of mistakes make by certain sectors – most notably the aviation industry – where data from “black box” flight recorders in aircraft are used to identify and understand the cause of both major accidents and near misses, and, in turn, to drive constant improvement in the safety of the sector as a whole. In 2017, through the consistent application of this “open loop” approach, there was not a single passenger jet crash for the major airlines anywhere in the world. The Black Box Thinking framework was developed by Matthew Syed, author and broadcaster.
Applying this approach to pension schemes, the report has sought to address three key questions:
- What mistakes are being made by DB trustee boards today? What are the errors that emerge in strategy setting that Black Box Thinking can be applied to?
- How do boards evaluate errors? Do boards have a culture of recognising and measuring errors and are they able to learn from their mistakes to improve future decision making?
- Ways to improve. Based on the analysis, what can schemes do?
In assessing errors, with the exception of quantitative information on fund deficits, there are few, if any, yardsticks that can be used to measure mistakes in DB pension schemes in the same way that mortality is used in aviation. The pensions industry is currently characterised by a lack of measurement and hence an absence of the data to make an informed judgement.
Professor David Blake, Director of the Pensions Institute, and one of the authors of the report, said: “It is clear from our research that too many pension schemes are making the same mistakes again and again. As an industry, trustees are not good at evaluating their failures, learning from them and sharing this knowledge. If we can emulate the open-loop ‘Black Box Thinking’ approach that the airline industry uses to such great effect, we might actually be able to address many of the issues facing DB pension schemes in the UK at the moment. Examples include using post-mortems with lessons learned where things go wrong, and using pre-mortems as mechanisms for avoiding future mistakes, such as considering a new investment idea, a move in liability-driven investing, or a forthcoming valuation or enhanced transfer value exercise. There is also an important role for the regulator to play as a clearing house for post-mortems of failed schemes and the lessons that can be learned.”
FA 2004 Lifetime Allowance Regulations
Under this statutory instrument, SI 2018/206, the standard lifetime allowance for the tax year 2018/19 in the UK has been set.
The standard lifetime allowance for the tax year 2018/19 is £1,030,000.
HMRC guidance updates
CWG2: Further guide to PAYE and National Insurance contributions explains about detailed Pay As You Earn (PAYE) and National Insurance contributions (NICs) for current and previous years for employers. The guide has been updated for the tax year 2018- 19 for use from 6 April 2018.
Rates and thresholds for employers: 2018 to 2019 has also been updated and sets out the rates and thresholds that employers must use when operating payroll or providing expenses and benefits to employees. The guidance has been amended to update Scottish income tax rates following Parliamentary approval.
Guidance P9X: Tax codes has been updated too.
480: Expenses and benefits - a tax guide explains about tax law relating to expenses payments and benefits received by directors and employees. The guide has been updated for the 2018-19 tax year.
PPI and Investment Market Volatility
The Pensions Policy Institute (PPI) has published a report which analyses the impact of investment market performance upon the retirement outcomes for savers in defined contribution pension schemes. The Trades Union Congress commissioned the PPI to undertake the analysis.
Chapter one of the PPI’s report looks at the impact of historical investment returns upon member outcomes. Using a standardised contribution pattern, it assesses the impact variations have on the accumulation of a pension pot.
Chapter two explores the uncertainty which is caused by unknown future investment returns.
Financial Assistance Scheme (Increased Cap for Long Service) Regulations 2018
Under this statutory instrument, SI 2018/207, the Financial Assistance Scheme (FAS) may pay a higher amount of assistance to capped FAS members who have long service in a single pension scheme. This amends provisions in the Financial Assistance Scheme Regulations 2005 which imposed a cap on the amount of financial assistance payable to FAS members.
Progress update on investment consultants market investigation
The Competition and Markets Authority (CMA) has published a progress update and administrative timetable for its market investigation into the supply and acquisition of investment consultancy services and fiduciary management services to and by institutional investors and employers in the UK.