Weekly update on new developments in the pension industry for week commencing 6 March 2018
Government to introduce changes to regulations for bulk transfers from contracted-out schemes
The Department for Work and Pensions has published a Government Response to the draft Contracting-out (Transfer and Transfer Payment) (Amendment) Regulations 2018, which sought views on amendments to the Contracting-out (Transfer and Transfer Payment) Regulations 1991 (S.I. 1991/167) and the Occupational Pension Schemes (Schemes that were Contracted-out) (No.2) Regulations 2015 (S.I. 2015/1677)
The new Contracting-out (Transfer and Transfer Payment) (Amendment) Regulations 2018 (“the 2018 Regulations”) will enable transfers of contracted-out rights without the consent of members (whether active, deferred or pensioners) from a formerly contracted-out salary-related scheme to a newly established salary-related scheme that has never been contracted-out, under specific conditions (subject to the trustees receiving necessary actuarial certificate).
The conditions are that the rights to be provided by the receiving scheme should be broadly no less favourable than the rights which would have been provided under the transferring scheme. The 2018 Regulations will work in tandem with existing protections to members’ rights where benefits are transferred without consent in regulation 12(3) of, and Schedule 3 to, the Occupational Pension Schemes (Preservation of Benefit) Regulations 1991 (S.I. 1991/167).
The 2018 Regulations (S.I. 2018/234) have been made, laid and will be rel="noopener noreferrer" available shortly on the UK Legislation website:
The 2018 Regulations will come into force on 6 April 2018.
A number of responses to the consultation raised issues outside of the scope of this consultation, we propose to investigate these issues further with the industry, but any new proposals will not be included in the latest changes.
Improving disclosure of costs and charges in DC occupational pensions
The government has published its response to a consultation on its plans to improve the disclosure of pension costs, charges and investments in defined contribution rel="noopener noreferrer" occupational pension schemes.
The Occupational Pension Schemes (Administration and Disclosure) (Amendment) rel="noopener noreferrer" Regulations 2018 will come into force on 6 April 2018.
Guidance on cost and charge reporting for trustees and managers of certain occupational pension schemes offering money purchase benefits has been published by the Department for Work and Pensions.
Bulk transfer of DC benefits without consent
The government has published its response to a consultation on draft regulations intended to simplify the bulk transfer of defined contribution pensions without member consent. The Occupational Pension Schemes (Preservation of Benefit and Charges and Governance) (Amendment) Regulations 2018 (SI 2018/240) were laid before Parliament on 26 February 2018.
The consultation sought views on the draft Occupational Pension Schemes (Preservation of Benefits and Charges and Governance) (Amendment) Regulations 2018, and ran from 26 October 2017 until 30 November 2017.
The draft regulations removed the requirement to obtain an actuarial certificate for bulk transfers of occupational ‘pure’ defined contribution (DC) to DC pensions without member consent, and replaced it with an alternative test and new member protections. The regulations also proposed removing the scheme relationship condition for these transfers, and extending charge cap protections for those transferred without consent.
Consultation respondents were supportive of the proposals, but suggested a number of changes. The government response summarises the changes it plans to implement.
The Occupational Pension Schemes (Preservation of Benefit and Charges and Governance) (Amendment) Regulations 2018 (SI 2018/240) have been made and will come into force on 6 April 2018 (1 October 2019 for regulation 2(2)).
BoE rel="noopener noreferrer" paper on DB pension scheme deficits and expenditure decisions of UK firms
A Bank of England (BoE) staff working paper has examined the reasons behind the large deficits which have opened up on defined benefit pension schemes in the UK since 2007, along with lower investment expenditure. The paper investigates the effects of deficits and deficit recovery plans on UK companies’ dividends, investment, wages and cash holdings.
The paper’s authors use privileged access to a unique new dataset from the Pensions Regulator to consider whether UK firms have responded to deficits and having to make recovery contributions by cutting investment, dividend payout, or wages, and whether they held more cash in anticipation of having to make higher future recovery contributions.
The paper explores the relationship between growing deficits and the expenditure decisions of firms, then evaluates the macroeconomic consequences of these decisions.
Deficits and recovery
The analysis differentiates between responses to deficits—which are voluntary until a scheme undergoes a triennial valuation—and responses to deficit recovery contributions, which are mandatory payments to close deficits once a valuation has taken place.
The authors claim to show that larger pension deficits and recovery contributions in recent years have had large and economically important effects on firms’ spending decisions. However, they also find that, relative to the scale of the estimated positive benefits from the BoE’s quantitative easing policy, which is likely to have made some contribution towards these deficits, there was only a small dampening effect from larger deficits rel="noopener noreferrer" on the macroeconomy as a whole.
Pension scheme tax relief exceed 41bn
Pension scheme tax relief cost the government £41.4bn in 2016/17, latest HMRC statistics show. The figure is similar to last year’s.
HMRC calculates total reliefs on both occupational and personal pension schemes came to £38.6bn, while deductions for refunds and other payments amounted to £13.5bn.
This meant the total cost of tax reliefs was £25.2bn. The addition of £16.2bn billion in national insurance relief on employer contributions takes the total cost to £41.4bn.
Employer (s75) Debt - Consultation Response
The government has published its response to a consultation on draft regulations which will make changes to employer debt legislation for employers in non-segregated defined benefit multi-employer pension schemes. The Occupational Pension Schemes (Employer Debt and Miscellaneous Amendments) Regulations 2018 (SI 2018/237) will come into force on 6 April 2018.
The rel="noopener noreferrer" government’s response to the consultation describes the policy underpinning the changes being made to existing legislation.
The Occupational Pension Schemes (Employer Debt and Miscellaneous Amendments) Regulations 2018 (SI 2018/237) have been made and will come into force on 6 April 2018.
The regulations contain provisions about debts arising for employers under section 75 of the Pensions Act 1995 in respect of occupational pension schemes and also contain consequential amendments. In particular, the regulations introduce a new option for employers managing section 75 debt, namely the ‘deferred debt arrangement’ which permits employers in specified circumstances to defer payment of the section 75 debt provided certain conditions are met.
The regulations amend the Occupational Pension Schemes (Employer Debt) Regulations 2005 (SI 2005/678), and the Occupational Pension Schemes (Scheme Funding) Regulations 2005 (SI 2005/3377).
CMA market investigation: Working paper on information on fees and quality in relation to investigation into the UK investment consultants market published
On 1 March 2018, the CMA published a working paper concerning information on fees in relation to its phase 2 investigation into the supply and acquisition of investment consultancy and fiduciary management services in the UK. The working paper presents the CMA's analysis and emerging findings to date in respect of the information available to pension trustees on the fees and quality of investment consultants and fiduciary managers. It focuses primarily on whether trustees have access to the necessary information to assess (and subsequently monitor) their current and potential providers.
The CMA is looking primarily at whether:
- customers have trouble assessing, comparing and switching investment consultants, and whether this means investment consultants have little incentive to compete for customers
- conflicts of interest on the part of investment consultants reduce the quality or value for money of services provided to customers
- barriers to entry and expansion mean there are fewer challengers to put pressure on the established investment consultants to be competitive.
HoC: Financial Guidance and Claims Bill 2017-19
An updated House of Commons Library Briefing outlines the provisions of the Financial Guidance and Claims Bill 2017-19 and the debates on it in Parliament. Report stage and third reading are scheduled for 12 March 2018.