Employee Benefits Updates | Pension Pots Used to Pay Debts

05 September 2015

Week ending 6 September: Pension pots cashed in to pay off debts | Further updates to HMRC 'ROPS' list

Pension pots cashed in to pay off debts

According to Debt charity StepChange, thousands of retirees and older workers have cashed in their pension pots in the past few months in an effort to pay off what charities are calling a “worrying trend” of escalating debt in retirement.

StepChange says it saw about an 80% increase over the two years to 2014 in the number of over-60s contacting it with trouble paying off debt, with an average sum of £18,624.  Also, figures from Old Mutual suggest for some older people the debt problem is much more severe. The company’s Redefining Retirement report found 30% of over-65s were saddled with debt, with 19% recording debts of more than £50,000 and almost one in ten £100,000 or more in the red. 

Further updated to HMRC ‘ROPS’ list  

HMRC has posted the latest fortnightly update to the Recognised Overseas Pension Scheme (ROPS) list, at - https://www.gov.uk/government/publications/list-of-qualifying-recognised-overseas-pension-schemes-qrops/list-of-recognised-overseas-pension-schemes-notifications. According to HMRC, the list is -  “A list of schemes that have told HM Revenue and Customs (HMRC) they meet the conditions to be a Recognised Overseas Pension Scheme (ROPS)”. It doesn’t mean that they actually are a ROPS, or that they are meeting the additional requirements to be a QROPS.   The number of Australian schemes on the list has doubled from 1 to 2; up to 8 June it contained 1600.  It is understood that the Australian Treasury is still in discussions with HMRC.  The problem stems from two uncommon situations in which Australian law requires a superannuation fund to release funds to a member, even before age 55. 

Freedom and choice payments reach £2.5bn  

Almost £2.5 billion worth of payments has been made to customers in the first three months since the new pension freedoms came in, according to the Association of British Insurers. New ABI figures for April, May and June also show £2.3bn has been used to buy nearly 37,500 regular income products, either pension annuities or income drawdown products. The figures show, for pay outs:

  • £1.3bn has been paid out in cash lump sums, with an average payment size of just under £15,000.
  • £1.1bn has been paid out via 264,000 income drawdown payments, an average payment of nearly £4,200.
For funds being invested into drawdown products and annuities:
  • £1.3bn has been invested in 19,600 income drawdown products, an average fund size of almost £68,000.
  • £990m has been invested in around 17,800 annuities, making the average fund invested just over £55,600.
  • 45% of customers buying an annuity changed provider. For income drawdown purchases, this figure is 55%.
Breach of TV timescale not maladministration  

The Pensions Ombudsman, in a complaint against Capita, held that a pension scheme administrator’s breach of the statutory deadline for supplying a statement of entitlement in respect of a member transfer request was not maladministration where there was “valid reasons” for the delay. These could include completion of a GMP reconciliation exercise and obtaining legal advice, without which the administrator could not supply the correct TV figure. The administrator’s failure to keep the member updated on the reasons for the delay was maladministration but, on the facts, the member suffered no injustice as he would not have acted any differently.

FCA to analyse annuity sales  

According to the Telegraph, the Financial Conduct Authority has begun an analysis of annuity sales since 2008. The review could lead to compensation for pensioners found to have been sold inappropriate products. The article reports that more than 600,000 pensioners are believed to have been sold annuity contracts that failed to account for their health in the six-year period under review. Most were never told that conditions such as diabetes or high blood pressure could entitle them to an enhanced annuity because of their reduced life expectancy. Around 12 billion pounds' worth of annuities were sold in 2013, according to the Association of British Insurers. However, that figure was halved last year after the government’s ‘freedom and choice’ reforms.  

Section 89 report on Docklands pension scheme  

The Pensions Regulator has published details of its funding investigation into the Docklands Light Railway Pension Scheme, whose trustees and employer have now reached agreement on the scheme’s actuarial valuation. The regulator’s section 89 report sets out the action it took in the case and highlights how it will take action to protect member savings where defined benefit schemes have missed statutory deadlines to provide valuations. The trustees of the Docklands Light Railway Pension Scheme (the Scheme) and its employer, Serco Limited, were unable to reach agreement on the actuarial valuation with an effective date of 1 April 2009. Whilst the parties provisionally agreed most of the 2009 valuation assumptions, and agreed that the Scheme was in deficit, they were unable to reach agreement in respect of a recovery plan to clear the deficit and a schedule of contributions. Initially, the regulator facilitated discussions between the trustees and Serco Limited to explore whether they could agree. But as the negotiations were unsuccessful, the regulator reached the view that it was appropriate to consider exercising its funding powers under s231 of the Pensions Act 2004. In August 2012, the regulator issued a warning notice with a view to exercising its funding powers. The regulator suspended its regulatory action due to further negotiations between the parties. These negotiations led to the trustees and Serco Limited (as well as Docklands Light Railway Limited) reaching a settlement. Under this settlement, the Scheme’s funding deficit shown in the 1 April 2012 actuarial valuation (£36.1 million) will be cleared by January 2018, with over £20 million payable by January 2016. In total, there was an agreement to pay £37 million to the Scheme with £33 million coming from Serco Limited and £4 million from Docklands Light Railway Limited, the principal employer under the Scheme documentation. 

Section 89 report 

The regulator occasionally publishes reports under section 89 of the Pensions Act 2004 outlining its considerations in particular cases. It has now published a section 89 report setting out the action it took in this case. This is the first time a section 89 report has been issued relating to a scheme funding case.


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