Employee Benefits | Occupational Pension Schemes Final Draft

26 January 2015

Week ending 8 Feb: Final draft Occupational Pension Schemes Regulations 2015|Pension Tracing Service major expansion

Government publishes final governance and charges regulations for schemes with MP benefits

The final draft Occupational Pension Schemes (Charges and Governance) Regulations 2015 have been laid before Parliament. They aim to ensure value for money in occupational pension schemes providing money purchase benefits, through improved governance and measures to safeguard savers in qualifying schemes against high and unfair charges. The government’s response to the Better Workplace Pensions consultation has also been published.

Firms that provide workplace personal pensions are regulated by the Financial Conduct Authority (FCA). The FCA will be making corresponding rules to control charges and introduce Independent Governance Committees for workplace personal pension schemes from April 2015.

There are a number of areas where the government proposes to bring forward further measures or legislation to ensure full disclosure of costs and charges.

Enhanced transparency of costs and charges

A joint DWP/FCA call for evidence is planned for publication in Spring 2015. This will describe the research conducted to date in relation to the reporting of costs and charges, with particular reference to transaction costs, and will seek the views of stakeholders in relation to how costs and charges may be reported in a standardised, consistent and comparable format and what mechanisms may be suitable to enable this reporting to take place.

The DWP and FCA will use the information gathered as part of this exercise to inform the development of the policy and legislation during 2015, with a view to a consultation on how they propose to introduce additional charges and costs transparency. The FCA will also be consulting on similar new costs and charges transparency requirements in relation to workplace personal pensions.

Commission regulations

The government announced in March 2014 that all member-borne advisor commission payments will be banned in qualifying schemes used for automatic enrolment from April 2016. A recent FCA consultation included draft rules to ban these payments in workplace personal pension schemes, as well as consultancy charges (to be banned from April 2015).

During 2015, the DWP will consult on corresponding regulations for occupational schemes used as qualifying schemes for automatic enrolment. The DWP will also consider whether these regulations should be designed in such a way as to prevent the development of consultancy-style charges in occupational schemes in future.

Post-implementation review

In 2017, the government and regulators will conduct a post-implementation review of all the Better Workplace Pensions measures to assess their effectiveness in protecting savers from high and unfair charges, improving governance in members’ interests and increasing transparency of costs and charges throughout the value chain. In particular, the review will consider the level of the charge cap and whether this remains appropriate, or should be changed, and whether to include some or all transaction costs within the cap.

See:

Better workplace pensions: putting savers' interests first

Average earners could gain up to £100k in new pension charges reform

Final rules for independent governance committees

In Policy Statement (PS15/3) the FCA sets out its final rules for independent governance committees, described as a key part of the improvements in the governance of workplace pensions.

Firms that operate workplace personal pension schemes will be required to establish such a committee, with at least five members. The rules outline the minimum standard for the terms of reference, their scope which type of firms will need to set a committee up. The rules will come into force on 6 April 2015.

Firms will be expected to comply from that date and firms that already have such committees in place will need to ensure that they meet the rules. It is noted that there will be a review of the effectiveness of the new governance committees in 2017 and, following the review, FCA intends to consider extending the required remit of independent governance committees to scheme members in decumulation.

See

FCA confirms final rules for independent governance committees

Occupational Pension Schemes (Levies) (Amendment) Regulations 2015

From 1 April 2015, new amounts are substituted to be used in calculating the Pension Protection Fund (PPF) administration levy in each of the years 2015/16, 2016/17 and for 2017/18 and onwards.

The Pension Protection Fund administration levy rates are to rise by 15% in 2015/16, 2016/17 and 2017/18. This levy is paid by those pension schemes eligible for the protection provided by the PPF.

Pension Protection Fund and Occupational Pension Schemes (Levy Ceiling) Order

Under SI 2015/66, the levy ceiling used by the Pension Protection Fund (PPF) has been increased in line with the rise in average earnings. The ceiling applies in Great Britain and controls the maximum amount of levy the PPF Board can charge pension schemes.

The current levy celling stands at £941,958,542 and came into effect on 31 March 2014. It will increase to £947,610,293 from 1 April 2015 in line with a 0.6% rise in the level of earnings in Great Britain.

PPF issues briefing note on assessing guarantor strength

The Pension Protection Fund has issued a briefing note on assessing guarantor strength in relation to contingent assets. The note reflects the PPF's experience of the contingent asset review process in 2014/15 and takes into account the more stringent certification requirements that have been introduced for the 2015/16 levy year. Trustees must now certify a figure that each guarantor is good for in cash terms and the certification specifically refers to trustees having taken account of the likely impact of insolvency of the employer.

Pensions Regulator finds number of active DC savers overtakes DB

According to the Pensions Regulator’s sixth annual statistics report on DC occupational pension schemes, automatic enrolment has led to active defined contribution (DC) memberships exceeding defined benefit (DB) memberships for the first time. Some of the key findings are:

The total number of DC memberships of occupational schemes with 12 or more members increased by 80 per cent (from 2.5 million to over 4.5 million).

Active membership increased by 140 per cent (from 1.3 million to over 3 million).

There are 300 DC trust schemes being used for automatic enrolment. Of the 70 master trusts, 20 are used for automatic enrolment and collectively hold more than 2 million members.

Reported assets in non-micro DC schemes increased by 11% (from £26 billion to £29 billion).

DC schemes received net transfers of £398 million (transfers in £591 million, transfers out £193 million). 60% (£365 million) of transfers in were to schemes with 5,000 or more members. Micro schemes (schemes with 2 to 11 members) and membership numbers in these schemes continued to reduce (by around 3% – schemes dropped from 35,600 to 34,400 and membership dropped from 102,000 to 99,000).

EIOPA publishes database for EU DC schemes

The European Insurance and Occupational Pensions Authority (EIOPA) has published a statistical database for DC pensions in the European Economic Area.

According to EIOPA, publication of this data allows the European regulator to monitor developments in the market and identify trends at an early stage, as well as potential risks and vulnerabilities.

At present, 21 EEA jurisdictions have provided information for the database.

See:

EIOPA - Financial Stability Crisis Prevention

The European Insurance and Occupational Pensions Authority (EIOPA) has also published a report on costs and charges of Institutions for Occupational Retirement Provisions (IORPs). EIOPA considers it would be beneficial if costs and charges in IORPs are disclosed transparently and comprehensively to the parties bearing them.

Pension Tracing Service undergoes major expansion

The free government service that helps people find lost pension cash is undergoing a major expansion, ahead of April’s ground-breaking pension freedoms.

The Newcastle-based Pension Tracing Service (PTS) will triple its number of staff – taking the total headcount to 49 – ahead of a rising number of calls from people seeking help to find lost pension pots.

Last year the service was contacted a record 145,000 times – double the amount in 2010 – and in an impressive 87% of cases, staff successfully managed to put customers back in touch with their lost pension provider. With 98% of enquiries from members of the public dealt with in just 4 days, the government is determined to continue its excellent track record and do everything it can to ensure people have access to all of their money.

PO update on pensions liberation determinations

The office of the Pensions Ombudsman has issued the following update:

“We have recently published decisions about complaints that providers had blocked transfers on the grounds that they were related to 'pension liberation'or 'pension scams'. We understand that in the light of those decisions people are considering bringing complaints that transfers were made, but should have been blocked. In particular those complaints may be about transfers to the Capita Oak Pension Scheme.

We are presently investigating one complaint of that kind. We expect to publish our decision in the first half of this year. It won’t be binding on anyone except the parties to it, but it will give a good indication of our general approach. That will help the transferring schemes and scheme members deal with other individual cases.

Before that case is published there is no need to make your own application to us about the same or similar issues. If you did we would have to 'park”'your case until the first case is decided – and then we would probably ask you and/or the transferring scheme to look at your case again in the light of our decision.

If it does become necessary for you to complain to us, the time from now until the first case is published will not count against you for the purpose of deciding whether your complaint has been made within our time limit. (That would usually be three years from when the transfer was made, but potentially longer than that where the delay was reasonable).

Although there is no need to bring these complaints to us now, if you need to in due course you must have fully used the transferring scheme’s complaint procedures before you do. So you may wish to consider writing to the scheme or pension provider that made the transfer – setting out what you consider they have done wrong and asking for the matter to be treated as a formal complaint. If the complaint is against an occupational scheme (usually a scheme connected to your job), you should ask for it to be considered under the internal dispute resolution procedure."

We will publish further updates as matters progress.

Preferred candidate for new Pensions Ombudsman named

The Department for Work and Pensions has announced that Anthony Arter is the preferred candidate for the role of Pensions Ombudsman/Pensions Protection Fund Ombudsman. His appointment is subject to a pre-appointment hearing by the Work and Pensions Select Committee and this will take place on Wednesday 11 February 2015.

Anthony Arter is a consultant at Eversheds LLP. He was head of Evershed’s Pension Group and London Senior Partner until April 2014 when he retired.

Contact:

John W Wilson LLB(Hons) FPMI ACII, Head of Technical, JLT Benefit Solutions|

Email: john_wilson@jltgroup.com