Freedom and Choice – The Government will shortly decide the shape of its “pension revolution”
The Government’s response to its landmark “Freedom and Choice in pensions” consultation launched on Budget Day (see Pensions Bulletin 2014/12) is expected imminently and possibly as early as Monday next week. We expect that the response will provide important further detail as to the shape of the pensions revolution ushered in by the Chancellor of the Exchequer, including the answer to the all-important question as to whether the greater flexibility being introduced for members of defined contribution schemes will also be extended to the deferred pensioners of private sector defined benefit schemes through their continuing to have the ability to transfer to a defined contribution scheme.
LCP will be producing a News Alert special to report on and analyse this important next step in providing greater pensions flexibility.
Consumer group calls on Government to ensure new retirement income flexibilities deliver
Consumer group Which? has published a report reflecting on the new flexibilities that the Government is introducing to retirement income. Working with the Pensions Institute, the group concludes that:
- The current retail lifetime annuity market is inefficient and ineffective, and lifetime annuity products may not be suitable for some 20% of annuitants, who are normally healthy individuals with adequate alternative sources of income
- Current alternatives to lifetime annuities are often rational in relation to their stated purpose, but do not meet the needs of the mass market due to the costs and investment risks
- Innovations should recognise that lifetime annuities will become suitable for most people later in life. Focus should therefore be on an appropriate deferment product for the mass market
The report goes on to set out a list of 16 recommendations, separated into those for the pensions industry, the regulators and the Government. These include:
- The pensions industry should work towards the replacement of a sales-driven retail annuity market with improved retirement income solutions under an institutional auto-enrolment model, characterised by a seamless transition between the accumulation and decumulation phases
- The Financial Conduct Authority (FCA), Prudential Regulation Authority and the Pensions Regulator should together ensure that the new flexible regime for drawdown is effective and efficient, monitors new regulated products coming onto the market, and ensures that consumers understand the risks involved
- The Government should oversee the smooth introduction of the new flexible decumulation market
Comment
This report is perfectly timed to feed into the FCA’s competition market study (see Pensions Bulletin 2014/24). It is not clear whether this is intentional or indeed whether this is a response to the FCA’s study at all. It remains to be seen if the FCA will use this in its market review.
Non-departmental public bodies publish their annual reports
Over the last week we have seen a flurry of publications of annual reports and accounts for the year ending 31 March 2014 by various non-departmental public bodies. Three of these may be of particular interest to followers of pension news.
The Pensions Regulator has published its latest annual report in which the highlight once again is the success of auto-enrolment, with medium-sized employers now going through the process. The report also reiterates the Regulator’s plan to adopt greater flexibility and an integrated approach to the increasingly complex pensions landscape, as set out in its Corporate Plan published in May (see Pensions Bulletin 2014/22).
For the first time this year, the Regulator has also published a summary report setting out areas of work over the past year, and highlighting its achievements in figures.
Secondly, the joint office of the Pensions Ombudsman and Pension Protection Fund Ombudsman, Tony King, has also published its report. Highlights include:
- There has been a significant increase in the number of complaints accepted by the office. There is no single reason for the increase
- Pension liberation cases are now becoming a well-established complaint topic, making up just under 5% of all cases accepted for investigation. Almost all of the complaints are about blocked transfers; all of these are against personal pension providers and none concerned transfers from occupational pension schemes. The Ombudsman intends to publish results of his findings in these cases once determined, to aid wider learning
- There are no complaints resulting directly from automatic enrolment
Lastly, the latest annual report of NEST Corporation and the NEST pension scheme shows the extent of the impact of auto-enrolment:
- NEST now has over a million members, compared with 80,000 at the same time last year, and is working with some 4,700 employers compared with 347 last year
- It has assets under management of £104 million, compared with just £3.8 million last time round
Comment
All three reports point to the increase in awareness of retirement savings in the general public, be it that more people are saving, more options are becoming available with the inevitable complexity that follows, or that more people are making complaints. It is comforting to know that the DWP is keeping an eye on how different regulatory bodies will need to work with each other in the near future to provide effective risk mitigation (see Pensions Bulletin 2014/02).
HMRC continues its countdown to the end of contracting-out
HM Revenue & Customs (HMRC) has published a second “Countdown Bulletin – ending of Contracting out” for the benefit of schemes and their advisers preparing for the abolition of salary-related contracting-out in April 2016.
The Bulletin contains the following significant points:
- Confirmation that the Scheme Reconciliation Service, under which GMPs for non-active members can be cross-checked with HMRC, is now live
- Confirmation of HMRC’s intention, starting from December 2018, to issue statements to individuals who are under State Pension Age with details of their contracted-out history – and therefore GMP reconciliation exercises need to be completed before then
- Any scheme that ceases to contract out before 6 April 2016 will not be able to make use of the statutory override that enables a scheme sponsor to amend scheme rules to recoup the additional national insurance contributions resulting from abolition; and
- Pension schemes must address the GMP equalisation issue, but it is understood that schemes are waiting for GMP conversion guidance which will be published when proposals have been developed that meet the Government’s objectives and address the concerns of stakeholders
It also announces the establishment of a Department for Work and Pensions State Pension Stakeholder Forum which, along with two working groups, will shape and inform the communications on the single tier State Pension and the ending of contracting out to all relevant audiences.
Public service pension boards guides published
The Pensions Regulator has published two “quick guides” to help support those who are going to be involved in governing and administering public service pension schemes.
The Regulator was given an expanded role in the Public Service Pensions Act 2013 in respect of the governance and administration of public service schemes. To this end it has previously published a draft code of practice and a draft regulatory strategy (see Pensions Bulletin 2013/51). The two new guides provide a short introduction to the legislative requirements and guidance for pension boards and their members:
- The “quick guide to pension boards” highlights the key areas of governance and administration that pension boards will be responsible for, information on board constitution and meetings, who the boards will work with, and what information needs to be published about the board
- The “quick guide for pension board members” covers board members’ roles and responsibilities, information on knowledge and understanding requirements, reporting breaches and conflicts of interest as well as an outline of the role of the scheme manager
These two quick guides form part of the Regulator’s strategic plan to build new web content to promote the effective governance and administration of public service schemes before its responsibilities come into force in April 2015, as set out in its Corporate Plan published in May. The web content will include dedicated tools as well as guidance on the code of practice and other matters.
New Business Champion for Older Workers appointed
Pensions minister Steve Webb has announced the appointment of Ros Altmann as the Government’s new Business Champion for Older Workers. Dr Altmann was most recently director general of Saga Group, which specialises in products aimed at the older generation, but she is best known for vociferously campaigning for pension reform and against injustices, playing a significant role in the campaigns to compensate those affected by the collapse of Equitable Life and to end compulsory annuitisation.
Dr Altmann’s role will be to make the case for older workers within the business community and challenge outdated perceptions. Last month, the Department for Work and Pensions published Fuller Working Lives: a framework for action which explained how working longer can benefit individuals, businesses, society and the economy.
Long running age discrimination lawsuit finally comes to an end?
It seems that we were too eager to call the Seldon litigation concluded when we reported the decision of the Employment Tribunal in Pensions Bulletin 2013/25. This ruling has now been upheld by the Employment Appeal Tribunal after a further appeal by Mr Seldon.
This latest ruling confirms that a compulsory retirement age of 65 may be a proportionate means of achieving a legitimate aim.
Comment
The Seldon case was one of the landmark employment law cases in which the (then) new age discrimination law (now incorporated in the Equality Act 2010) was developed about the limits of “objective justification” for employers who wish to operate a compulsory retirement age.
This litigation has been underway since 2006, when the age discrimination legislation came into force. One imagines that after eight years it is now safe to say that it has now concluded. But never say never in litigation.
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.
