The Pensions Regulator urges employers having trouble meeting their auto-enrolment duties to get in touch
Employers struggling to fulfil their automatic enrolment duties have been served a timely reminder by the Pensions Regulator that it would be better to seek help sooner rather than wait for it to use its powers.
In the case highlighted by the Regulator in its first automatic enrolment section 89 report, Dunelm Soft Furnishings Limited (who had a staging date of 1 April 2013) failed to meet its registration deadline of 31 July 2013. The Regulator therefore issued a Compliance Notice and, although Dunelm duly completed registration on 15 August 2013, the Regulator subsequently discovered information which suggested that Dunelm had not completed its employer duties and that breaches of the Pensions Act 2008 may also have occurred.
Following a statutory inspection, the Regulator found that Dunelm had failed to enrol members of its four weekly payroll on time (they were enrolled a month late), had failed to enrol certain members of its monthly payroll on time (they were instead enrolled three months late) and had not, as a consequence, paid across to its pension provider a significant level of contributions due.
The Regulator worked with Dunelm and its third party partners supplying payroll and pension services to ensure Dunelm became compliant as soon as practicable. Although the outstanding contributions for the four weekly payroll were paid over following the Regulator’s inspection, in order to protect monthly payroll members’ benefits the Regulator then served an Unpaid Contributions Notice for £83,000 on Dunelm, who ultimately paid over some £108,000 in outstanding pension contributions.
Comment
The message from the Regulator’s report is that that its overall approach is to “educate and enable employers to comply” and that employers experiencing “challenges” in meeting their duties can and should get in touch for help. However, it makes it clear that where an employer chooses to ignore its legal duties, the Regulator will use its powers to force compliance. In particular the report stresses that in order to comply with their legal duties, employers should ensure that smooth handover and consistency are maintained in the event of key personnel changes and that payroll systems should be tested well ahead of the staging date.
HMRC extends its Budget easements – DC savers taking lump sums after 27 March 2014 may also benefit
HM Revenue & Customs (HMRC) has made a significant extension to its recently announced easements for those with defined contribution (DC) funds that had received their tax-free lump sum on or before 27 March 2014 (see Pensions Bulletin 2014/16). The easement now potentially applies to those taking their lump sum after this date but before the new April 2015 regime is in place and as a result could be of much wider application.
Comment
This could be good news for DC flexibility during this interim period. It suggests that individuals can take their lump sum now and delay, beyond the usual six months, turning into a pension benefit (annuity or drawdown) the DC funds that “justify” taking that lump sum.
Such a delay could be until the April 2015 regime is in place, so that they can consider using some of the new flexibilities (subject to the scheme involved permitting this). But no draft legislation has been issued or formally put into law so the actual use of this (eg by trustees of defined benefit schemes for members with DC AVCs) may be problematic.
Dealing with member requests for IP 2014 registration numbers – the ABI’s suggestions
Ahead of the reduction in the Lifetime Allowance on 6 April 2014, individuals with large pension savings may have been pondering whether they might qualify for Individual Protection 2014 (IP 2014). Bearing in mind that one must have savings worth over £1.25m (HMRC value method) when looking at benefit entitlements as at 5 April 2014, these individuals will now be trying to pin down the right numbers to register with HMRC when the window opens for this in August after the appropriate legislation is in place (see Pensions Bulletin 2014/06 and Pensions Bulletin 2013/51).
The valuations will both determine whether the member qualifies for IP 2014 and the exact level of the individual’s protected Lifetime Allowance.
HMRC has provided guidance on the calculation, based on the draft legislation as at 7 February 2014. When it comes to the value to include for uncrystallised DC funds (technically known in tax law as “other money purchase” (OMP) benefits), the guidance (section 3.4) simply quotes the legislation to use “the value of any cash held under the arrangement and the market value of the other assets such as property and shares held by the arrangement. Any loans or other indebtedness should be included in the calculation”.
As it did in 2006, the Association of British Insurers (ABI) has now published a guidance note, agreed with HMRC, to help insurers decide how to respond to requests for quotations from individuals with insured DC funds not yet “crystallised” to provide benefits. The ABI particularly focuses on the treatment of guaranteed annuity rates, with profit funds and related matters such as termination charges, loyalty and final bonuses and market value reductions. While it suggests approaches it notes that each insurer will need to make decisions on their approach. It stresses the need to consider consistency between the approach used for 5 April 2014 values and what will be used for eventual retirement values.
Comment
HMRC expects exact numbers to be registered and members will be looking to get these from schemes. Providing numbers is not a legal requirement on providers and trustees but they may want to do so, on request, so that members are more likely to register the correct figure meaning that schemes’ eventual processing of retirements is correct.
IP 2014 has pitfalls for the unwary. The ABI note shows some for the seemingly simple case of DC benefits (with the possibility that the appropriate valuation to include is different for some insured funds for valuations quoted for other purposes). HMRC’s guidance shows there are even more pitfalls for uncrystallised DB benefits, benefits that are already “benefit crystallisation events”, benefits drawn before 6 April 2006 and the other components potentially involved.
The ABI note is a helpful reminder that schemes might want to bank 5 April 2014 DC valuation data now before it is lost or forgotten: members’ information requests may continue up to 5 April 2017, the end of the IP 2014 registration window.
And of course the value to register for IP 2014 for a benefit as at 5 April 2014 may be very different from the Lifetime Allowance it eventually uses up even if the individual makes no new savings (examples for DC will be because of investment returns or adjustments on early drawing, DB reasons are more complex) – a point individuals will want to get to grips with in planning how to draw benefits.
PPF updates its strategic plan
The Pension Protection Fund (PPF) has published its strategic plan for 2014-17. It describes how the PPF expects to continue to develop in size, scale and complexity.
In it the PPF also says that it remains on course toward its 2030 self-sufficiency funding target (at which point the PPF levy will cease to be significant), and that in the coming year it will review its models for investment, risk and finance operations to ensure they remain appropriate for its growing size and scale. The PPF also intends to continue to work towards bringing its member services in-house by 31 December 2014 and completing the assessment of 75% of schemes within two years.
DWP adjusts auto-enrolment certification guidance
The Department for Work and Pensions (DWP) has updated all three sets of its statutory guidance that employers and actuaries must use when certifying pension schemes as being suitable for use as automatic enrolment vehicles.
The changes from the versions issued last autumn (see Pensions Bulletin 2013/41) are relatively minor.
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.
