Developments in Employee Benefits law and practice

07 August 2017

Weekly update on new developments in the pension industry for week ending 7 August 2017: Court of Appeal finds for employers in two pension scheme changes cases | IFS research into SPA changes | £53m in charges from AA / TAA breaches | FCA Asset Management Market Study - timeline Pensions and ‘Financing growth in innovative firms’ |

Court of Appeal finds for employers in two pension scheme changes cases

The Court of Appeal has found in favour of the BBC in an appeal by Mr Bradbury, a member of the BBC Pension Scheme. The Court held that the BBC was entitled to impose a 1% cap on pensionable pay rises and that it had not breached its implied duties of trust and confidence to its employees in the manner in which the cap had been imposed.

Separately, in a case involving pension scheme restructuring by IBM, the Court of Appeal has allowed IBM’s appeal against the High Court’s ruling that it had breached its duty of trust and confidence in relation to a programme of pension changes known as ‘Project Waltz’. The pension changes included closure of a scheme to future accrual, preventing future pay increases from being pensionable, and an early retirement policy.

IFS research into SPA changes

Findings from new research from the Institute for Fiscal Studies (IFS), into the rise in the State pension age (SPA) for women, include –

  • Reduced state benefits (most importantly the state pension), increased employee national insurance contributions, and higher employment mean the increased state pension age from 60 to 63 boosts the public finances by £5.1 billion per year by 2015–16. The female state pension age is currently continuing to rise, reaching 65 in 2018 and (along with men) 66 in 2020. This public finance benefit will increase as the state pension age rises further.
  • Rates of income poverty among women are greater for those just below the state pension age than for those just above it. Before the reform income poverty among 57-59 year old women was 17.5% while that for 60-62 year old women was 14.8%. The increase in income poverty from increasing the state pension age is due to fact that the working age tax and benefit system is considerably less generous than that faced by those over the state pension age.
  • The higher rates of income poverty caused by the higher state pension age are not persistent in the sense that there is no impact of the reform on income poverty rates once women reach their, now higher, state pension age.
  • Even for poorer groups, such as single women, and renters, who might find it particularly difficult to adjust to a higher state pension age, we find no evidence of any increase in the proportion reporting being unable to afford a set of important material items.
  • The same reform increases the age that single men can claim Pension Credit from 60 to 63 over the same period. 25% of men at these ages are single, and are, on average, poorer than those men who are in couples. The reform reduces benefit incomes of single men aged 60 to 62 by an average of £21 per week (from a pre-reform average of £89), and increases their income poverty rates by 6.1 percentage points (from a pre-reform rate of 23.4%).

£53m in charges from AA / TAA breaches

In response to requests from New Model Adviser, HMRC has confirmed that pension savers paid £53 million in tax charges for breaching the Annual Allowance for tax relieved pension contributions in 2016/17 (when the Tapered Annual Allowance took effect).

According to HMRC: 2,400 individuals paid through ‘scheme pays’ (having their benefits reduced in return for their scheme administrator settling tax charges), rounded to the nearest 100. These individuals paid a total of £53 million to the nearest £1 million.

FCA Asset Management Market Study - timeline

The FCA has published a diagram setting out the remedies timeline for its Asset Management Market Study.

FCA Asset Mgmt Study timeline

Source: FCA

Pensions and ‘Financing growth in innovative firms’

A new consultation from HM Treasury considers investment in ‘patient capital’, which supports small firms to grow into large, world-leading businesses. The consultation identifies potential measures for both Defined Benefit (DB) and Defined Contribution (DC) pension investors. It also considers the requirement for experienced and talented fund managers in terms of successful investment in patient capital.

DB and DC pension schemes are identified as two large pools of potential investment, but several barriers are highlighted. The fragmentation of UK DB pension schemes is noted, but the consultation observes that the DWP is looking into this issue.

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