Employee Benefits | Pensions Flexibility & Housing Benefit

05 April 2015

Week ending 5 April: Pensions flexibility and Housing Benefit| Awareness of AE| Advice on undrawn pension entitlements for insolvency practitioners

The charge cap: guidance for trustees and managers of occupational schemes

This guidance is for trustees and managers of occupational pension schemes which are used for automatic enrolment. It explains how the charge cap works, with particular emphasis on identifying the default arrangement and how to assess charges.

Pensions flexibility and Housing Benefit

This circular gives further guidance on changes being introduced to non-state pensions which allow you to access your pension savings from age 55.

Guidance for administrators on pensions flexibility

HMRC has published Pension Schemes Newsletter 68, which includes more guidance for scheme administrators on pension flexibility – particularly on taxation.

Pension Tax Manual

The new Pensions Tax Manual (PTM) has been published. The manual incorporates guidance for the Taxation of Pensions Act 2014.

The PTM will replace the RPSM.

Regulator consults on the need for a basic automatic enrolment assessment tool

The Pensions Regulator has launched a consultation on whether to provide a basic automatic enrolment assessment tool for employers who use HMRC’s Basic PAYE Tool (BPT). Currently around 200,000 small and micro employers use the BPT, but it does not provide the required functionality to allow employers to meet their automatic enrolment duties and so the regulator is now consulting on whether to provide a basic assessment tool to assist this group. The consultation will be open until 19 May 2015 and the regulator intends to publish its response in the summer.

Awareness of automatic enrolment

New research published by the Pensions Regulator shows that while levels of awareness of automatic enrolment remain high among all employers, more than 20% of those due to stage between June and November this year had not yet drawn up plans to meet their duties. The Regulator has warned these small and micro employers they must start preparing for their automatic enrolment duties. Key findings from the employer survey:

  • Awareness remained very high among smaller medium employers (97%), high among small employers (86%) and lowest amongst micro employers (65%).
  • Among those staging between June and November 2015, 69% knew their staging date (an improvement from 43% in spring 2014).
  • Eight in ten employers staging between June and November 2015 have commenced preparation to meet their automatic enrolment duties.
  • Awareness increased significantly among those staging between June and November 2015 from 85% to 95%. A main cause of this is likely to be that all employers with these staging dates would have received at least one direct written communication from the regulator since the last survey wave informing them of their automatic enrolment duties.
  • Eight in ten smaller medium and small employers have consulted an adviser or will do so. 65% of micros will also consult an adviser, with IFAs and accountants the main types used.

Key findings from the adviser survey:

  • There was an almost universal level of awareness of the reforms among intermediaries, ranging from 95% among accountants to 100% among payroll administrators.
  • Most intermediaries also understood the key elements of the reforms, with IFAs (96%) and payroll administrators (95%) having the greatest level of understanding, while bookkeepers (70%) and accountants (77%) continued to have the lowest.

Regulator highlights need for better record-keeping

The Pensions Regulator has warned pension scheme trustees that forthcoming pension flexibilities, minimum governance standards for defined contribution schemes, and the end of contracting out for defined benefit schemes will make accurate record-keeping vital to deliver quality outcomes for savers.

The Regulator says it is vital that trustees work with their administrators and receive the right level of information from them, so they can be assured that their legal obligations are being met and that good outcomes for their members are not at risk from poor record-keeping practices.

PPF publishes revised actuarial factors to take effect from 1 April 2015

The Pension Protection Fund has published revised actuarial factors to take effect from 1 April 2015, and has also published the latest issue of its Technical News, which looks at total commutation of benefits and also contains an accounting update.

The PPF has also issued a revised note providing some general information on the calculation of the Commutation, Early and Late Retirement Factors.

The latest Technical News looks at Total Commutation of Benefits and also contains an accounting update.

Guidance issued on pension flexibilities and DWP benefits

Guidance on how defined contribution pension flexibilities from April 2015 could affect entitlement to income-related benefits has been published by the Department for Work and Pensions.

The guidance looks at the rules around how a person’s pension, and any money they take from it, will be treated in the calculation of their entitlement to the following income-related benefits:

  • Employment and Support Allowance (income-related)
  • Housing Benefit
  • Income Support
  • Jobseeker’s Allowance (income-based)
  • Pension Credit
  • Universal Credit

DWP publishes glossary of terms for new State Pension

A glossary explaining the meaning of words and terms used in guidance about the new State Pension has been published by the Department for Work and Pensions.

Advice on undrawn pension entitlements for insolvency practitioners

Official receivers should continue to challenge payments made into a pension scheme if any payments are to the detriment of creditors, according the Insolvency Service. The advice forms part of guidance issued to official receivers and debt relief order (DRO) intermediaries on how to deal with undrawn pension entitlements in light of the recent Horton v Henry case.

Key points to note are:

  • official receivers must not include an undrawn pension fund in any calculation for an income payments order/income payments agreement
  • intermediaries in DRO proceedings should not consider an undrawn pension fund, which might be drawn as the debtor is 55 or over, in the calculation of income
  • in bankruptcy the official receiver will consider whether it would be appropriate to seek an annulment of the order
  • official receivers should continue to challenge payments made into a pension scheme if any payments are to the detriment of creditors

In addition, if a bankruptcy order was made on a petition presented before 29 May 2000, pension arrangements will continue to be vested in the trustee of the bankruptcy estate. If the official receiver is the trustee, steps will be taken to realise the maximum amounts available for creditors through changes to the pension rules on 1 April 2015.

Most pension savers positive about pension freedoms

82% of pension savers aged 55-70 are positive about pension freedoms but many are worried about the risks, with 63% worried people will run out of money before they die, 47% worried people will be mis-sold unsuitable retirement products and 44% worried people may make bad financial decisions and lose their money. These are finding from research undertaken by the National Association of Pension Funds on what pension savers plan to do with their retirement income in light of pensions flexibility.

Pension savers were asked what they are most likely to do with their defined contribution (DC) pension savings:

  • 49% will either wait to see how things work out nearer retirement or are not yet sure what they will do;
  • 18% said they will leave it all invested and draw a regular income;
  • 5% will buy an annuity;
  • 4% will take it all as cash; and
  • 24% of people said they will use a combination of these options.

Overall, 74% of respondents who expressed a preference on how they intend to access their savings were planning to leave a proportion of their savings invested and draw a regular income. However, they may not have the complete picture of what drawdown will, or will not, offer them.

50% of people who have a plan for their savings intend to take as cash some of their taxable pension savings. 27% of these people said they would spend it on a one-off purchase such as a holiday or a car. But the majority (67%) think they will save and invest it, only spending it gradually.

25% of savers who have a plan for their savings intend to buy an annuity with all or part of their taxable pension savings. For 79% of these people the appeal was the security of a long-term guaranteed income. 21% of people who plan to buy an annuity thought they would be able to sell their annuity if they changed their mind.

77% had heard of Pension Wise. However, 23% had not heard of Pension Wise at all. Of those who had heard of Pension Wise, 55% were not exactly sure of the services it offers and 22% said they understood exactly what it is.

51% of respondents were very or quite likely to use Pension Wise and 35% were not very likely or not likely at all to use Pension Wise.

The NAPF asked all respondents to say how they would use Pension Wise, assuming they did use it. 34% said they would like to receive support from Pension Wise via the website and 40% said they would like to receive support via a combination of the website, a face-to-face meeting and a telephone discussion.

75% of respondents with a defined benefit (DB) pension were planning to leave their pension savings in their current DB scheme. Only 3% of those with DB pensions were planning to move their DB pension savings to a DC scheme. 20% did not know what they planned to do.

Implied contract between a service company and the recipient of its seconded employees included an indemnity for any section 75 debt

In Re MF Global UK Ltd (in special administration), the issue on an application by the administrators of MFG UK was whether a service company, Services, which employed staff within a group and seconded most of them to the principal operating company, MFG UK, was entitled to an indemnity from that company against a liability under s 75 of the Pensions Act 1995. The indemnity arose as a result of both companies going into administration.

The Companies Court granted a declaration that MFG UK was so obliged to indemnify Services in respect of its s 75 debt.

PPF long-service cap delay

Pensions Minister Steve Webb has confirmed that it is unlikely that changes to the PPF compensation cap which will apply to long-service members will be brought into force on 6 April 2015. The current compensation cap is set at £36,401.19 for 2015/16. But only a member who has reached his scheme's normal pension age by the relevant assessment date will receive 100% of that amount. The changes for long-service members will mean that the compensation cap will be increased by three per cent for every full year of service above 20 years, with a maximum of double the standard cap. The changes were included in the Pensions Act 2014 but have not been brought into force.

Steve Webb said, as part of a debate in Parliament, that “We are working on the measure, and if we can get it done this year, we will. I suspect that realistically we are probably looking at this time next year”.


John W Wilson LLB(Hons) FPMI ACII, Head of Technical, JLT Benefit Solutions| Email: john_wilson@jltgroup.com