Employee Benefits Updates | TPR Alert on Pension Scams | JLT

26 July 2015

Week ending 26 July: Fresh TPR alert on pension scams| AE commentary and analysis 2015 | Contracting-Out Countdown Bulletin

PPF 2014/15 Annual Report & Accounts

The Pension Protection Fund (PPF) has marked its tenth anniversary with a strong financial performance thanks to impressive investment returns, which have helped increase its surplus to £3.6 billion and its funding ratio to 115.1 per cent. The PPF’s investment strategy delivered an overall investment return of 25.9 per cent for the financial year, with assets under management now £22.6 billion. Key highlights include:

  • New claims on the PPF were low relative to previous years, with 61 schemes bringing a combined deficit of £322.3 million compared to £618.5 million for 2013/14.
  • The PPF protected an additional 23,470 people, making a total of 222,597 deferred and pensioner members
  • 30,084 people were members of schemes that completed the PPF assessment period during the year
  • PPF announced the new PPF-specific levy model developed with Experian
  • PPF announced the first significant hybrid asset investment as part of innovative approach to investment.

TPR issues fresh alert on pension scams

In support of Scams Awareness Month, the Pensions Regulator has added new information on its website as part of its ongoing scorpion campaign - alerting retirement savers to the risks of pension scams.

TPR’s new infographic poster explains typical pension scammers tactics and ways in which members can scamproof their savings. A new video has been produced in which chief executive Lesley Titcomb talks about how members can help protect themselves, and how the Regulator is working with other government organisations to disrupt scamming activity.

In addition, guidance is available for pension scheme trustees, including a checklist of scam hallmarks, and the campaign signposts to a new code of good practice that sets out due diligence processes to combat pension scams. It calls on trustees to encourage members to contact Pension Wise, the new government service aimed at helping those approaching 55 to understand their options.

Guidance: New State Pension if you've been contracted-out of additional State Pension

The Department for Work and Pensions has issued a factsheet which explains the effect on the new State Pension of someone previously having been contracted-out of the state earnings related pension scheme (SERPS) or the state second pension (S2P).

Most people reaching State Pension age in the first couple of decades of the new State Pension, which starts on 6 April 2016, will have been contracted-out of the additional State Pension (SERPS or S2P) at some point. Over 80% of people would receive the full rate of new State Pension or more if their state pension is not adjusted to take account of contracting-out.

The Department for Work and Pensions has published a factsheet which describes:

  • how contracted-out amounts are treated in the transition from the current scheme to the new State Pension and how National Insurance records up to 2015/16 are valued to create a Starting Amount;
  • how contracted-out pensions are revalued from the point that someone leaves their contracted-out employment until they reach their State Pension age;
  • the effect that the ending of the current scheme has on the uprating of additional State Pension and the Contracted-out Deduction.

Registered Pension Schemes (Transfer of Sums and Assets) (Amendment No 2) Regulations 2015

Amendments (SI 2015/1454) are made to the Registered Pension Schemes (Transfer of Sums and Assets) Regulations 2006 to reflect the additional pension flexibilities in relation to annuities introduced by the Finance Act 2015. These changes have effect from 1 September 2015.

In more detail, these regulations specify the circumstances in which, following a transfer of sums or assets on the cessation of a nominees’ annuity, the new nominees’ annuity will be treated as if it were the original nominees ’annuity. In such a case, no unauthorised payment will have arisen. In any other case the transfer is treated as an unauthorised payment. Similar provision is made with respect to successors’ annuities.

Registered Pension Schemes (Provision of Information) (Amendment No 2) Regulations 2015

Amendments made to allow certain annuities paid after the death of a pension scheme member to be tax-free are introduced for the financial year 2015/16. New information requirements are placed on insurance companies in relation to transfer of pension funds from 6 April 2015.

Registered Pension Schemes (Audited Accounts) (Specified Persons) (Amendment) Regulations 2015

The Registered Pension Schemes (Audited Accounts) (Specified Persons) Regulations 2005, SI 2005/3456, is amended to partially remove the current prohibition on a sponsoring employer of a scheme being an auditor. This will apply to a scheme year for multi-employer schemes where either:

  • the scheme has at least 500 participating employers at the start of the scheme year
  • immediately precedes a scheme year in which the scheme has at least 500 participating employers at the start of the scheme year
  • The change will counter the difficulty faced by very large multi-employer schemes in finding a statutory auditor able to meet the independence requirements.

Government’s Response to the consultation on draft regulations (The Occupational Pension Schemes (Schemes that were Contracted-out) Regulations)

The final version of the above Regulations and other supporting legislation have been laid before Parliament. This is an important milestone in the implementation of the new State Pension and the abolition of contracting-out.

Most respondents to the consultation welcomed the regulations and thought that the Department’s approach would protect accrued rights. The Regulations set out the rules which schemes that were contracted-out will need to comply with following the abolition of contracting-out. They ensure that members’ entitlements resulting from contracted-out employment will be preserved. A number of provisions are designed to ensure a smooth end to contracting-out for schemes. The regulations come into force 6 April 2016

Under the Regulations, the majority of the Occupational Pension Schemes (Contracting Out) Regulations (1996/1172) is revoked and replaced with new rules on powers to amend schemes. Parts of SI 1996/1172 will remain in force until 6 April 2019.

The rules which contracted-out schemes must comply with following DB contracting-out’s abolition are set out. Other provisions made include:

  • an imposition of limitations on the alteration of scheme rules
  • details of the circumstances in which scheme rules may be altered in relation to rights and regulations, as well as circumstances in which such rights may be forfeited
  • specification of limitations on the alteration of scheme rules in relation to guaranteed minimum pensions, and a carrying-forward of requirements for the payment of lump sums and commutation of benefits
  • a replication of provisions relating to contributions equivalent premiums for Northern Ireland
Provisions in SI 1996/1172 regarding the issue, variation and surrender of contracting-out certificates will remain in force to enable HMRC Commissioners to issue certificates on periods before the abolition date, and to deal with variation or surrender of such certificates which must take effect prior to the specified date.

Provisions relating to schemes which have ceased to contract-out before 6 April 2016 also remain in force.

HMRC is working on providing guidance for pension scheme administrators of salary-related contracted-out occupational pension schemes, with the intention to publish it in early 2016.

The government also said it was intending to make further consequential amendments to legislation including the contracting-out transfer provisions, to take account of the ending of contracting-out, and to publish another consultation later in 2015.

Contracting-Out Countdown Bulletin

The July edition of the Countdown Bulletin - ending of contracting out is now available on GOV.UK. It can be found at - https://www.gov.uk/government/publications/countdown-bulletin-9-july-2015 - and includes updates on:

  • Scheme Cessation
  • Shared Workspace
  • GMP Micro Service update

HMRC Newsletter 70

HMRC pension schemes newsletter 70 has been published, covering:

  • Summer Budget 2015
  • Changes to contracting out records
  • Certificates of residence
  • Pension flexibility - forms for claiming repayment of tax
  • Contacting Pension Schemes Services (PSS)
  • Routine changes to Pension Schemes Online

It also mentions that “HMRC are considering options around removing the deadlines for applying for these [Lifetime Allowance] protections. We will be discussing this informally with stakeholders over the next few weeks so that we can publish full details later this summer.”

Workplace pension saving at ten year high

According to latest ONS figures, workplace pension participation has risen to its highest level in a decade with young people and those in lower paid jobs among the biggest winners. Overall, 70% of eligible employees –13.9 million people – paid into a workplace pension in 2014, a 15 percentage point increase in just 2 years.

Young people in the private sector in particular have enjoyed a remarkable boost to their future retirement prospects, with more than half now saving.

The 54% of 22 to 29-year-olds who made regular contributions in 2014 is more than double the 2012 figure of 24%. 

Regulator publishes guidance to help small employers choose a pension scheme

The Pensions Regulator has stepped up its support for the 1.3 million small and micro businesses preparing for automatic enrolment by publishing guidance to help them find a good quality pension scheme. This includes, for the first time, a list of ‘master trust’ pension schemes open to employers of all sizes, and which have been independently reviewed to prove they are administered to a high standard. In addition, a quick guide for small and micro employers on what to look out for when choosing a scheme suited to their needs, and updates to website pages for IFAs and accountants, have been published.

The regulator’s communications material will continue to signpost employers to NEST, the scheme established by the government with a public service obligation to accept all employers, the National Association of Pension Funds’ PQM READY site and the Association of British Insurers’ list of automatic enrolment providers.

Automatic enrolment commentary and analysis 2015

Half a million more small businesses and micro employers will have auto-enrolment duties than previously thought, according to latest figures from the Pensions Regulator (TPR).

The announcement is made as part of its third annual automatic enrolment commentary and analysis.


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