Developments in Employee Benefits law and practice

30 July 2018

Treasury Committee calls for State pension and tax relief reforms

A new report from the House of Commons Treasury Committee (Household finances: income, saving and debt) includes recommendations on State pensions and pension tax reliefs.

On State pensions, the Committee says that the State pension triple lock should be replaced by an “earnings-uprating”.

The Committee also believes that tax relief is not an effective incentive for vulnerable households and that a flat rate of tax relief should be introduced. The Committee also recommends replacing the lifetime allowance with a lower annual allowance.

https://publications.parliament.uk/pa/cm201719/cmselect/cmtreasy/565/565.pdf

No-deal Brexit could make expat pensions illegal

According to The Independent, 25 July 2018, a no-deal Brexit could make paying private pensions to retired British expats ‘illegal’. The article follows comments to MPs from the Association of British Insurers (ABI).

Huw Evans, ABI’s director general, also said that tourists could be forced to pay more for health insurance as they would lose cross-EU insurance cards.

On the threat to insurance-based pensions, Evans said he wanted to avoid panic by noting it would not be a consequence of no deal in every EU country. He said, however, that the UK would ‘end up as rule takers’, adding that ‘that is inherent in the approach the government has decided to take in its negotiating position.’

PASA Governance Guidance for DC

The Pensions Administration Standards Association (PASA), the only independent body dedicated to driving up standards in pensions administration, has published its DC Administration Governance Guidance for administrators, employers and trustees. The guidance will support people in managing responsibilities in the five core areas - Data, Transitions, Decumulation, Reporting and Controls rel="noopener noreferrer" & Procedures.

http://www.pasa-uk.com/system/files/PASA%20DC%20Governance%20Guidance%20FINAL%20270718.pdf

TPR consultation on mater trusts supervision

The Pensions Regulator (TPR) has outlined how authorised master trusts will be supervised, in a draft policy published for consultation.

Master trust authorisation launches in October this year, when schemes will have six months to apply to TPR to continue to operate in the market.

Schemes which achieve authorisation will then be supervised by TPR on an ongoing basis, to ensure that they continue to meet the authorisation criteria as well as other relevant legislation and codes of practice.

The Master Trust Supervision and Enforcement Policy published for consultation today outlines how TPR will supervise all schemes as well as more intensively scrutinise higher risk master trusts.

The document also details how TPR may use its powers to enforce against master trusts if problems arise or legislation is breached, and ultimately withdraw authorisation if a master trust no longer meets the authorisation criteria or other obligations.

The supervision of master trusts aligns with TPR’s new risk-based approach of proactively overseeing all types of pension schemes, which is being developed rel="noopener noreferrer" as part of the TPR Future change programme.

http://www.thepensionsregulator.gov.uk/doc-library/master-trust-supervision-and-enforcement-policy-consultation.aspx

FRC and audits of pension obligations

According to a new report from the Financial Reporting Council (FRC) - ‘The audit of defined benefit pension obligations’ - there is room for improvement in the audit of pension balances and disclosures in company accounts.

The FRC focussed on the quality of audit of pension balances and related disclosures in 51 of its audit inspections in 2017/18 and found that in almost half, improvement was required in at least one aspect of the audit work, as well as identifying areas of good practice. In many cases the existence of multiple pension arrangements and/or financial and risk management transactions, such as liability-driven investment strategies, partial buy-outs and longevity swaps, have made valuation judgements and their audit complex.

Auditors can bring about improvement by:

  • assessing the sensitivity of the valuation to changes in assumptions,
  • clearly evidencing the work done by actuarial experts and the rationale for conclusions reached,
  • considering whether the source data used to calculate the valuation of the defined benefit obligation is materially accurate and complete,
  • identifying different categories of investment assets and obtaining sufficient audit evidence to support the valuation of each,
  • paying attention to evidence to support the allocation of the defined benefit obligation and pension scheme assets in multi-employer schemes,
  • focussing on the completeness and accuracy of the pensions related disclosures; not just the valuation; and
  • considering whether given the material nature and risks, the audit work rel="noopener noreferrer" on pensions should be explained in the auditor’s report.

https://www.frc.org.uk/news/july-2018/frc-highlights-good-practice-and-scope-for-improve

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