Pensions Bulletin 2014/14

Pensions Regulator publishes findings of its record-keeping review

The Pensions Regulator has published a report setting out the main findings of its thematic review of record-keeping practices as part of its ongoing mission to raise standards (see Pensions Bulletin 2013/51).

The Regulator reviewed a sample of 237 defined benefit, defined contribution and hybrid schemes, and has identified through this process that whilst there is some good practice across a range of different schemes, there are a number of common areas where trustees, administrators and providers fall short of the existing record-keeping guidance and standards.

Particular areas of concern include:

• Lack of action on record-keeping until prompted by the Regulator
• Insufficient focus on conditional data
• Record-keeping activities being limited to measuring and addressing the presence of data (and not its accuracy)
• Lack of clear roles and responsibilities between the trustees and administrators; and
• Insufficient steps being taken to address data issues where a key event has occurred

As a result of this review the Regulator will be monitoring the progress of schemes through the annual record-keeping survey, and particularly for conditional data, evidence that record-keeping is embedded in the everyday running of schemes. Some of the schemes reviewed will be required to make and demonstrate improvements highlighted by the Regulator. A further direct consequence of the review is the detailed investigations into the record-keeping of seven schemes, which may lead to enforcement action.

Pension sharing on divorce remains little used

The number of pension sharing orders of any kind is low and remains well below Government predictions, according to a report from the Cardiff Law School (see here for a key findings leaflet). This is the main result from what is the first detailed study into pension sharing on divorce since its introduction in England and Wales in 2000.

The study included a survey of 369 randomly selected divorce court files, and further legal and pension expert opinions.

Other findings include the following:

• Pension orders were more likely to be made between older parties from longer marriages, with more capital and pension wealth than those with no pension orders

• Pension orders were significantly more likely to be made when both parties were legally represented

• Practitioners and judges saw pension sharing as a positive addition to financial remedies on divorce, but offsetting pensions against non-pension assets remains the most common approach to pensions and was said to be popular with the parties themselves, sometimes against legal advice

• The strong drive towards clean break settlements resulted in very little use of pensions earmarking orders

• Of the 51 pension orders made in the cases surveyed, only two were in favour of the husband

• Only about half of the cases which disclosed any relevant pensions contained unambiguous pension valuations for all pensions – with the project expert assessing two thirds as inadequate or unclear

• The project expert questioned, or was unable to assess, the economic rationality of the approach to pensions in over half of the cases and the fairness of the pension settlement quantum in nearly two thirds of the cases which he looked at

• The time, cost and fees associated with pension disclosure, expert reports and implementation of pension orders acted as deterrents to the making of pension orders

The authors of the study went on to make the following recommendations:

• Greater transparency and rigour in relation to pension disclosure, together with a requirement to spell out the intended effect of final orders, might reveal, and thus help to redress, some of the gender imbalance

• Tighter regulation of fees and time limits for the provision of pension valuations and implementation of pension orders would make pension orders a more affordable remedy for a wider section of the divorcing public

• More training for practitioners and judges on financial remedies and pensions, and better working relationships between practitioners and pension experts, would improve understanding and the quality of outcomes

• More judicial guidance on pension issues would assist all concerned

According to judicial statistics, there were around 120,000 decrees absolute in England and Wales in 2011, but fewer than 10,000 pension orders of any kind in the same period.

Further details announced on Class 3A contributions

The Department for Work and Pensions has announced further details of the new class of voluntary national insurance contributions whose purpose is to allow those who have reached State Pension Age or will have by 5 April 2016, to top up their State pension.

Accompanying this is an online calculator which illustrates the required contribution (by age) to deliver a given increase in State pension.

Minor extension to Financial Assistance Scheme eligibility confirmed

Parliament has passed the Financial Assistance Scheme (Qualifying Pension Scheme Amendments) Regulations 2014 (SI 2014/837) (see Pensions Bulletin 2014/05) which extend the definition of a qualifying pension scheme to cover a defined benefit scheme if:

• It began to wind up between 23 December 2008 and 27 March 2014

• It wound up underfunded due to an insolvency event which occurred before 6 April 2005

• There was not a qualifying insolvency event that could lead to an entry to the Pension Protection Fund (PPF); and

• The relevant employer ceased to be an employer in relation to the scheme prior to 10 June 2011

These schemes were previously ineligible for both the Financial Assistance Scheme (FAS) and the PPF because of a technical defect in the scope of the FAS.

Pensions language guide updated

The Department for Work and Pensions has published an updated guide to the language of automatic enrolment and pensions in general. Its purpose is to help pensions practitioners provide simple, consistent language in communications to individuals. The latest update includes changes to pension rates from 1 April 2014.

This Pensions Bulletin does not constitute advice, nor should it be taken as an authoritative statement of the law. For further help, please contact David Everett at our London office or the partner who normally advises you.