Developments in Employee Benefits law and practice

26 March 2018

Weekly update on new developments in the pension industry for week commencing 26 March 2018

DB Whitepaper published

On 19 March 2018, the Department for Work and Pensions (DWP) published its White Paper on “Protecting Defined Benefit Pension Schemes”. This follows the consultation on the Green Paper “Security and Sustainability in Defined Benefit Pension Schemes” published in February 2017.

The White Paper sets out DWP’s approach for the future of the DB system, including plans for enhanced powers for the Pensions Regulator; consulting on proposals for a legislative framework and authorisation regime within which new forms of consolidation vehicles could operate; and consulting on a new accreditation regime.

The paper can be viewed here. A JLT Alert summarises the main proposals is available.

A House of Commons library briefing considers issues discussed in DWP’s DB pension schemes White Paper.

Master Trust Regulations

Further to an earlier consultation, in January 2018, on the draft Occupational Pension Schemes (Master Trusts) Regulations 2018, a consultation response document has been published that provides a summary of the responses and the Government’s approach to drafting the regulations. Areas covered are - scope and application; authorisation process; authorisation criteria and controls and monitoring.

A-E earnings trigger and QE band

This statutory instrument, SI 2018/367, sets out revised amounts for the 2018/19 tax year for the upper and lower thresholds of the automatic enrolment qualifying earnings band, and rounded figures for the earnings trigger and qualifying earnings band. The changes come into force on 6 April 2018.

The order increases the minimum figure in respect of the qualifying earnings band from £5,876 to £6,032 and the upper limit from £45,000 to £46,350.

FCA/TPR - strategic approach to regulation

The Financial Conduct Authority (FCA) and The Pensions Regulator (TPR) have published a joint call for input which sets out how they will work together to tackle the key risks facing the pensions sector over the next five to ten years.

Specific areas covered include: the Regulators' collective view of the pensions and retirement income landscape; their respective remits and relationships with other bodies in the sector; areas of focus they would like to explore with stakeholders (access to pensions; effective governance and secure funding; charges/value for money and transparency) and drivers of opportunities and risks. 

The Regulators intend to publish information on their final strategic research in the autumn.

FCA data bulletin

The FCA has published the latest edition of its Data Bulletin, which includes :

  • findings from the Financial Lives Survey 2017 – pensions and retirement income sector; and
  • latest trends in the retirement income market.

Key findings are :

  • A third of people have no private pension provision and half of consumers with a pension have not reviewed how much it is worth in the last 12 months
  • Consumer knowledge, understanding and engagement with pensions is low
  • Around 300,000 pension pots have been accessed for the first time every six months since the pension freedoms were introduced
  • There is uncertainty among consumers about their retirement options
  • More than half of all pension pots accessed are full cash withdrawals, but only 17% of consumers who have accessed a pension pot report fully withdrawing their pension pot in the last two years
  • Since pension freedoms, twice as many pots have entered drawdown than annuities 

UK tax reliefs and the Scottish tax regime

HMRC has published a notice of how five UK tax reliefs will continue to work as they were intended when Scottish rate of income tax (SRIT) and bands change in April 2018.

From 6 April, those earning between £11,850 and £13,850 in Scotland will pay a starter rate of 19%. From £13,850 to £24,000, the rate is 20%, with a new intermediate rate of 21% from £24,000 to £43,430. The higher rate of 41% applied for earnings over £43,430 and up to £150,000, when the rate is 46%.

On pensions relief, HMRC says the UK government has confirmed that current processes will continue while it works with stakeholders to establish how this will work in the longer term. For 2018 to 2019, Scottish taxpayers who receive relief on their contributions at source will, therefore, continue to receive relief in their pension pot at 20%, with no adjustment for those taxed at a rate of less than 20%, and scope for those taxed at a rate higher than 20% to claim additional relief.

Overseas transfers regulations

Under SI 2018/372 - The Relevant Overseas Schemes (Transfer of Sums and Assets) Regulations 2018 - provision is made in relation to the transfer of sums and assets by relevant overseas pension schemes.

The provisions apply in relation to a relevant overseas transfer in respect of a scheme pension or drawdown pension to which a member of a relevant overseas scheme has become entitled (the original pension). After a transfer of sums or assets in respect of the original scheme pension from a relevant overseas scheme to another relevant overseas scheme or a registered pension scheme, where another scheme pension (the new pension) is provided, the new pension is to be treated as the original scheme for certain prescribed purposes. Relevant overseas transfers are prescribed to avoid an unauthorised payments charge on the transfer.

Under SI 2018/373 - The Pension Schemes (Application of UK Provisions to Relevant Non-UK Schemes) (Amendment) Regulations 2018 – amendments are made to SI 2006/207 in relation to the method of computing the amount to be charged to UK tax in respect of a payment by a relevant non-UK pension scheme which is referable to a member’s UK tax-relieved fund.

PPF strategic plan

The Pension Protection Fund has published its strategic plan setting out its vision for the period 2018-2021.

The PPF’s work focusses on three key strategic objectives:

  1. Meeting its funding target through prudent and effective management of its balance sheet. Although the operating environment over this period continues to pose significant uncertainties (particularly surrounding Brexit), the PPF confirms that it remains on track to meet its funding target.
  2. Delivering excellent customer services to members, levy payers and other stakeholders.
  3. Maintaining a high calibre framework of risk management. The PPF notes that there are opportunities to challenge corporate behaviour that increases risk to levy payers and to improve outcomes for schemes and employers in genuine distress, and will contribute to the debate on how the DB regulatory regime should evolve in the forthcoming White Paper

NEST technical changes

The National Employment Savings Trust (Amendment) Order 2018 was made on 14 March 2018 and will come into force on 6 April 2018. It will -

  • Allow employers to contractually enrol their workers in NEST.
  • Allow individuals to join NEST following a bulk transfer with consent. The amendments clarify that any amount received in relation to a member's employment will be applied to a member's account.
  • Allow NEST to close a member's account where the balance is zero, if certain conditions are met.
  • Require the NEST Corporation to conduct research about the scheme's administration and management with members, participating employers and their representatives in connection with the operation, development or amendment of the scheme. 

This new duty is intended to reflect the introduction of the General Data Protection Regulation ((EU) 2016/679) (GDPR) and provide NEST with a clear basis on which to lawfully process data going forward.

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