PPF fine tunes its May 2014 levy proposals and announces a £60m reduction in the levy estimate
The Pension Protection Fund (PPF) has made minor changes to its proposals for the levy formula for 2015/16 to 2017/18, following its consultation in May (see Pensions Bulletin 2014/22). It has also announced a £60m reduction in the expected overall take from the pension protection levy (from £695m in 2014/15 to £635m in 2015/16) as it starts a new triennium for levy setting.
Details are set out in a combined Policy statement and Consultation document issued on 6 October. The PPF has at the same time published its 2015/16 draft determination along with related technical documents. Consultation closes on 13 November with the final determination expected before Christmas.
Comment
The focus, as always at this time of year, now switches to trustees and employers to first of all, assess the likely levy demand in respect of their schemes and secondly, to see whether action can be taken between now and 31 March 2015 to achieve material reductions in the levy they will be asked to pay next autumn. For further details of this important development see our News Alert.
“Your future, your pension” – new state pension awareness campaign to be launched along with calculation service
With 18 months to go until the new single tier state pension starts to be paid, the Department for Work and Pensions is raising awareness with a communications drive. An advertising campaign will be launched later this year under the tagline “Your future, your pension”, to broaden the public’s understanding of how the state pension will change from April 2016, and what the reforms will mean for their household.
A new service has also been launched which will enable individuals to apply for a personalised written estimate of what they can expect to receive under the new regime, based on their employment and national insurance contribution history to date. Initially available to the 2.5 million people who will reach state pension age in the first five years of the single tier state pension, the service will be expanded gradually over the next 18 months, eventually becoming available to all working age people.
Comment
This awareness campaign is entirely necessary as there has been a lot of confusion amongst the public as to what the reforms will mean for them individually. Part of the reason for this is that the single tier state pension, whilst it will ultimately be flat rate, is not going to be so for many decades. Also, its starting amount has yet to be announced. So the ability for those close to State Pension Age to obtain an estimate of their single tier pension is to be welcomed. But it can only be an estimate, because until the individual reaches State Pension Age all the ingredients that go into working out that individual’s single tier state pension will not be known.
A concern is that, to start with, the service is not computerised and relies on clerical operations. Will it be able to cope with the demand? There may also be some who are disappointed customers – expecting to receive at least £148.40 per week, but finding that in fact it will be much less, because of significant periods of contracted out service.
Is it time to ditch the concept of retirement?
A new report from the International Longevity Centre-UK (ILC-UK), a think tank which specialises in issues surrounding longevity and demographic change, argues that businesses need to respond to the challenges and opportunities of an ageing population or face a struggle to survive and grow.
The Age Audit: Delivering a business response to ageing makes the point that if the over 65s are unable to find employment, those who are in work will account for a diminishing proportion of the population and tax revenue from those in work may fail to keep up with demand for social security from an increasingly large proportion of people aged over 65 and out of work. Demographic change may mean that future economic growth is dependent on either substantially increasing the productivity of those in work or the numbers of people over 65 in work.
The Age Audit therefore proposes an eight point action plan as a blueprint for how businesses can respond to the challenges and opportunities around ageing. It also suggests that should businesses choose to make the right decisions to support increasing flexibility in the workplace, to raise the health and wellbeing of the workforce, to counteract ageism and to embrace continuous learning, then the concept of retirement as we think of it today will no longer have any use (although the strong cultural attachment to the term is likely to remain a key sticking point).
Comment
This is a theme that we are likely to return to again and again over the coming years. There are opportunities in many UK businesses to adjust their employment practices so as to retain, in some capacity, their ageing workforce. Where this short report fails is that it neglects to discuss the challenges that employers will face as they move away from a traditional pattern of employment.
Government would like to see the average retirement age rise by six months each year
The Department for Work and Pensions has published data showing that the average age at which men stop working is currently 64.7 and that for women is 63.1. But what has drawn attention to this report setting out “DWP business plan transparency measures” is the statement in section 12.3 that “an increase in the average age of withdrawal of more than around 0.5 years [with each passing year] would demonstrate an improvement”.
Pensions minister Steve Webb admitted in the Telegraph that such a target was ambitious, but also noted: “We are living longer but the labour market and people’s retirement age has not been keeping up. I have fought against a vague target of trying to get people to work longer to have something more specific”.
Comment
So far this desire to extend working lives by six months is just a statement, with no change to Government policy in order to bring it about. The published statistics show that there would need to be a significant uptick in order for the ambition to be fulfilled. Over the last three years the average age at which men and women stop working has increased by only 0 2 and 0.4 years respectively.
Pension protection registration: ignorance may be a reasonable excuse in principle – but not in practice
The First-tier Tribunal (Tax) has concluded that ignorance of the law “can be a reasonable excuse in some circumstances” in principle but decided that in the case of a late application for Enhanced Protection (EP) in Hargrove v HMRC the passive behaviour of the financially literate Appellant not to appoint an adviser to act on his behalf or carry out extensive investigation himself “was not a reasonable excuse for his failure” to register in time for EP.
The facts of the case were that Mr Hargrove worked for Citibank and NatWest Markets, reaching a senior position, before effectively retiring in 1998 at the age of 35, and was a deferred pensioner in schemes of both of these employers. Mr Hargrove always prepared his own tax returns, did not use an accountant or lawyer and read and retained communications from his pension schemes. The Tribunal concluded “he is an intelligent person with an open and enquiring mind who is likely to be able to understand complex issues if he decides to investigate them”.
Despite this and partly because he was a deferred pensioner and not actively accruing benefits, Mr Hargrove did not realise that the “A-Day” changes to pension scheme taxation were likely to affect him. Consequently, he did not register for EP before the deadline of 5 April 2009, but made a late application in 2012 as soon as possible after he became aware of the issue. Regulations permit a late notification of intention to rely on EP if there is a “reasonable excuse” for the lateness and the notification is made without unreasonable delay. HMRC rejected Mr Hargrove’s late submission on the grounds that ignorance of EP was not a “reasonable excuse”. Mr Hargrove appealed to the Tribunal.
The Tribunal ruling discusses at some lengths the past cases of Scurfield, Platt and Irby which dealt with similar issues. Significantly, the Tribunal stated that it was not persuaded that an individual “who had an existing scheme when changes were made to the way in which it would be taxed and who was unaware of the nuances” of the A-Day changes “should be unable to claim that he had a reasonable excuse for his ignorance”.
The Tribunal accepted that Mr Hargrove did not know about the need to register by the due date but decided that it, by itself, was not enough to show he had a “reasonable excuse”. The Tribunal concluded that “a reasonable taxpayer in [Mr Hargrove’s] position would have either contacted the scheme administrators or a professional or would have searched the HMRC websites extensively to satisfy himself how the changes would apply to him and whether he needed to do anything. A reasonable taxpayer in his position would not have passively assumed the changes had nothing to do with him”. On this basis the Tribunal rejected Mr Hargrove’s appeal.
Comment
On the face of it registration for EP should have been all wrapped up four years ago, but we are still finding cases where late applications for EP need to be made. So this Tribunal decision has some interesting points to draw out.
Firstly, although the Tribunal said that “ignorance can be a reasonable excuse in some circumstances”, by then rejecting Mr Hargrove’s appeal due to the particular facts of the case, it appears to be setting quite a high bar for ignorance to actually be a reasonable excuse.
Secondly, this ruling – as indeed did the ruling in Platt before it – puts the onus on taxpayers to be proactive in managing their tax affairs, or else appoint an adviser, rather than assuming that their pension scheme will do everything for them (in the case of Irby, the Appellant won because he had appointed an adviser who failed to register protection for Mr Irby in time).
Finally, this case highlights the difficulty for a layperson in keeping up with the changes in pension taxation and of using the HMRC website to find relevant information about these changes. One does feel distinct sympathy for Mr Hargrove in this matter. These difficulties in finding information are particularly relevant today given our concerns about the transition of HMRC material onto the GOV.UK website (see Pensions Bulletin 2014/40).
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.
