Service-related PPF compensation cap delayed
You may be wondering what has happened to the service-related Pension Protection Fund (PPF) compensation cap that is set out in Schedule 20 to the Pensions Act 2014 but has not yet been commenced. When the measure was being introduced back in 2013, pensions minister Steve Webb said that his best estimate was that it was going to come in on 6 April 2015. But he said that before the big surprise in the 2014 Budget resulting in an unanticipated increase in his departmental workload.
In a debate in Westminster Hall on 18 March 2015 in relation to the AEA Technology Pension Scheme, Mr Webb said the following:
“…..we are now working on the secondary legislation necessary to get the cap lifted. It will rise by 3% per year for each year above 20 years of service, so long-serving employees will get a higher cap. We are working on the measure, and if we can get it done this year, we will. I suspect that realistically we are probably looking at this time next year”.
Comment
So the service-related cap will not be up and running on 6 April 2015. Right now it seems that 6 April 2016 is a more likely start date.
More information on the Lifetime Allowance cut now available
On Budget Day the Government announced the proposal to reduce the Lifetime Allowance from £1.25m to £1.0m on 6 April 2016 (see Pensions Bulletin 2015/12) and to provide transitional protections.
Since then, HM Treasury has circulated two documents to some of its stakeholders for sharing more widely to provide some further explanation. One is directed towards potentially affected individuals and the other to pension professionals. The notes remind how Individual and Fixed Protections worked for the 2014 reductions. The note to professionals indicates that “The transitional protection that will be provided this time is expected to be similar to these previous protection regimes and will have the same effect”; but it also asks for comments or ideas for “ensuring the process for opting for these transitional protections is proportionate and/or what could be improved from previous protection regimes” – suggesting that there may be some differences in the way they are put in place by way of how and when an individual applies for the protection.
The Association of Consulting Actuaries has made the notes available on its website together with an accompanying note to clarify the provenance of the notes.
Charge cap and governance regulations finalised
The regulations setting out the 0.75% charge cap applicable to the default funds in most money purchase auto-enrolment schemes along with the new trustee governance requirements (see Pensions Bulletin 2015/06) have been finalised following debate in Parliament. The Occupational Pension Schemes (Charges and Governance) Regulations 2015 (SI 2015/879) come into force on 6 April 2015.
Unfortunately, an error was found in the regulations as they were being debated which would have caused some AVC-only arrangements within a qualifying pension scheme to be unintentionally subject to the charge cap. A mini-consultation on regulations that correct this error started on 18 March, finished on 24 March, a response was published on 25 March and the changes are to be found in The Occupational Pension Schemes (Charges and Governance) (Amendment) Regulations 2015 (SI 2015/889) which also come into force on 6 April 2015.
As these regulations were being finalised the Labour Party pledged to cap charges on new products designed for people drawing down their money purchase pension savings after claims that the public could be charged excessive fees. The power to impose a cap on drawdown products is already available to the Government (see the LCP Guide to the Pensions Act 2014).
Pensions Tax Manual to replace the RPSM soon
HM Revenue & Customs has announced that the Registered Pension Schemes Manual (RPSM) will shortly be replaced with a new Pensions Tax Manual (PTM).
The focus is still to provide key detailed technical guidance – rather than the plain English short guidance that appears for the public elsewhere on the GOV.UK website. One definite change from the RPSM will be abandoning the structure of ”four different sections designed at levels for four different types of reader” which should reduce repetition.
The intention is that the draft PTM will be published in early spring 2015 with a finalised version being produced after a two month consultation period.
Comment
The RPSM is already a vast online document reflecting the huge complexity of the current pension taxation regime. The PTM will not only have to cover the wealth of important details already in the RPSM but also, overnight, cover the wide changes to pension tax law coming into force from April 2015 on money purchase flexibility and other changes to law to date not yet in the RPSM.
We know that HMRC appreciates what an important job it has undertaken in what it saw as a necessary rewrite. We hope that – as we and others have strongly lobbied for – the structure of the PTM has been carefully thought through so that important clarifications in the old RPSM are easy to find in the new PTM, and areas of no intended change in policy are easy to see. Otherwise a lot of extra work and uncertainty is going to be created for the pensions industry on old areas let alone the new 2015 ones.
DC schemes overhaul investment and communication strategies in light of Budget 2014
DC schemes are responding to the pension changes announced in Budget 2014, with 91% reviewing (or have already reviewed) their communication strategies to members as a result, according to a Post-Budget 2014 survey of Defined Contribution (DC) schemes carried out by LCP.
The survey also found that 88% of those who are changing their default investment strategy will include strategies targeted at each of the three main retirement options – annuitisation, cash out and drawdown. However, 55% of schemes are still undecided as to whether they will change their default investment strategy.
Comment
With pension changes coming thick and fast it is good to see DC trustees trying to keep on top of them, reviewing member communications and default investment strategies. But this is no time to be resting on their laurels – it will be interesting to see how members use the new flexibilities from April 2015.
New web guide to help small and micro employers plan for auto-enrolment
The Pensions Regulator has published a new web guidance tool to help small and micro-sized employers prepare for their auto-enrolment duties.
The step-by-step online guide has been written specifically for employers with between one and 50 staff. It explains how to complete key tasks such as knowing when to be ready, checking who needs to be enrolled and creating a plan of action.
The 11-step guide walks employers through their legal requirements and also contains essential information tailored for the needs of employers of carers and also director-only companies.
In addition to the updated online information, all 1.5 million small and micro businesses are to receive letters from the Regulator in the coming months as part of a UK-wide campaign to alert employers to their duties. The Regulator will also be launching a new online business adviser hub to give advisers all the information they need to help their clients.
Comment
The guide seems straightforward and should be a useful tool for small businesses trying to implement auto-enrolment. It still won’t be easy for them – many employers will struggle to find the “day or so” recommended for creating an auto-enrolment action plan and another “day or so” to work out costs. That’s two whole days not involved in the business without actually implementing any auto-enrolment processes.
Pensions Regulator may offer software tool to help small and micro employers carry out auto-enrolment calculations
The Pensions Regulator has launched a consultation on a proposal for mitigating the risk that small and micro employers, who use HM Revenue & Customs’ free Basic PAYE Tools (BPT) software to comply with income tax and national insurance requirements will not have access to adequate software to be able to carry out their automatic enrolment duties.
Many small employers use this software, but HMRC has no plans to update it to include auto-enrolment functionality.
To mitigate this risk the Pensions Regulator proposes to publish on its website a range of options an employer typically has when considering how to carry out the assessment and contribution calculation processes as part of its auto-enrolment duties. In addition to pointing to commercial payroll software/services and using a third party (non-payroll) provider, the Regulator suggests that it could develop a tool to help employers with up to nine employees comply with the auto-enrolment requirements.
The Pensions Regulator’s plans for 2015-18
The Pensions Regulator has published a new corporate plan for the next three years (see Pensions Bulletin 2014/22 for the previous one). The Corporate plan 2015-18 sets out the Regulator’s business plan for the forthcoming year and its strategic plan for the next three years.
The Regulator believes the primary risks emerging over the next three years will relate to automatic enrolment, pension flexibilities and evolving pension scams. As such, the Regulator commits to:
- Give guidance to over a million small and micro employers as they prepare for auto-enrolment
- Embed the regulatory framework around the defined contribution (DC) flexibilities coming into force from April 2015
- Disrupt the evolving pension scams models
- Establish and run a regulatory regime for public service pension schemes
- Regulate the defined benefit (DB) market; and
- Engage with developing policy initiatives such as defined ambition and automatic transfers, as well as in Europe with EIOPA
The Regulator is anticipating its costs almost doubling over the next three years, from £76m in 2015/16 to £137m in 2017/18 primarily as a result of small and micro-employers starting to auto-enrol.
Pension Wise telephone booking line open
A telephone booking line is now available for Pension Wise. Those close to or over 55 with a “defined contribution pension” will now be able to book a telephone or face-to-face appointment with a relevant pension specialist. Call 030 0330 1001 between 8am and 10pm, Monday to Sunday, to make an appointment.
As new pension freedoms arrive be ScamSmart
Following last week’s deluge of scam-related information (see Pensions Bulletin 2015/13), the Financial Conduct Authority (FCA) is launching the next wave of its ScamSmart campaign.
The FCA wants would-be investors to reject cold calls, check the FCA Warning List and get impartial advice.
State Pension top up guidance available
The Department for Work and Pensions has published guidance for both pension advisers and individuals on how those who will not benefit from the single tier state pension being introduced from April 2016 can use the State Pension top up scheme to provide additional guaranteed pension income for life.
The top up scheme is available from 12 October 2015 to those who have reached State Pension Age before 6 April 2016 who are eligible for a UK State Pension. An additional pension of up to £25 per week can be bought.
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.
