State pension age for women – will the Government retreat?
This is the question put into focus by the House of Commons which, on 7 January 2016, unanimously passed a non-binding resolution calling on the Government to “…immediately introduce transitional arrangements for those women negatively affected by [state pension age] equalisation”. This concluded a debate started by Mhairi Black, the youngest MP in the UK Parliament, who at 21 is the same age as the Pensions Act 1995.
This Act legislated for state pension age equalisation (ie for the female state pension age to rise from 60 to 65). The Pensions Act 2007 then introduced equalised state pension ages of 66 to 68 in stages. The Pensions Act 2011 brought forward the increase to 66 and in so doing accelerated the point at which equalisation at 65 occurred. The Pensions Act 2014 brought forward the increase to 67.
Insofar as the state pension age for women is concerned, after a long period since the passing of the Pensions Act 1995 when it remained at 60 for women becoming entitled to the state pension, it has since 2010, started its climb towards 65 and is currently a few months short of 63. Women born in 1953 are particularly hard hit as the age at which they can take their state pension varies by just under 2½ years. The effect of this is that those born on 1 January 1953 reached their state pension age last September, whilst those born on 31 December 1953 will need to wait until March 2019 before they can take their pension.
This rise in women’s state pension age has been made a lot worse by the fact that the women affected have either been told very late in the day about it, or else not told at all – hence the current campaign, which does seem to have widespread support.
Comment
It will be interesting to see whether the Government decides to make a tactical retreat and offer some relief to those adversely – in many cases very adversely – affected. While we are not holding our breath, given the costs involved, the case made that those involved should have been told in good time and were not might be a compelling one.
There is precedent for this. Those with long memories may recall that around the turn of the century the then Government postponed and then gradually introduced the reduction of “inherited SERPS” from 100% of the deceased’s pension to 50% having concluded that inadequate publicity had been given to what was going to be a cliff-edge measure.
MPs take DWP’s state pension statements to task
In an unusual interim report, the Work and Pensions Select Committee is calling on the Department for Work and Pensions to make urgent changes to the state pension statements it issues to individual enquirers. It argues that the DWP statements are insufficiently clear and that this lack of clarity increases the chances that people misunderstand the value of their state pension or the age from which they will receive it, which in turn, increases the chances that they will not best plan for retirement.
The report shows an example of the statements currently being issued by the DWP and a suggested alternative provided by the Women Against State Pension Inequality Campaign. The MPs conclude with seven specific changes that they believe need to be made to the state pension statement immediately in order that the former starts to look more like the latter.
Comment
One can’t help but have some sympathy with the DWP since it does at least have a system that is more or less up and running which efficiently despatches statements to individual enquirers. This in turn relies on behind the scenes crunching of numbers using complex formulae, both on the current state pension system and on that which is coming in in April, having regard to data collected over an individual’s working life. But the DWP would be well-advised to take on board the messages from the MPs and make significant improvements to the current statement. For example, the actual wording used in the Contracted Out Pension Equivalent part of the statement (included since November) is quite misleading.
FCA publishes latest retirement income market data
The Financial Conduct Authority has published a report on retirement income market data showing how pension scheme members are exercising the new DC freedoms. This is the second such report that the FCA has published and covers the period from July to September 2015. The first (see Pensions Bulletin 2015/40) covered April to June 2015.
The FCA has only surveyed the firms which it regulates and so the results mostly relate to personal pension scheme providers, although it will also cover some occupational pension schemes operated by the surveyed firms.
Of the 178,990 pension pots that were accessed by consumers (down from 204,581 in the previous quarter):
- 34% used uncrystallised fund pension lump sums (both partial and full withdrawals)
- 30% used income drawdown (both partial and full withdrawals)
- 13% were used to purchase an annuity; and
- 23% were full withdrawals using small pot lump sum payments (ie of less than £30,000)
All in all, 120,969 of these pension pots were fully cashed out (although this figure includes some existing customers possibly included in last quarter’s reporting), and of these 88% were worth less than £30,000.
Other statistics relating to these pensions include:
- 17% told their provider that they had used the Government’s Pension Wise service. This rose to 22% for those accessing small pots
- 58% of consumers going into drawdown stayed with their existing provider whilst 64% of consumers purchasing annuities stayed with their existing provider
- 68% of consumers accessing pensions with guaranteed annuity rates did not take them up
Comment
Officialdom will be worried at the low rate of take up for Pension Wise guidance and the low rate of shopping around for annuities hardly suggests a perfectly operating market.
Nevertheless, wider concerns expressed about pensioners running out of money may be misplaced. Rather, it seems that the new normal is that people will generally cash in their small pots rather than buy a very small annuity. This may not be in everyone’s best interests but that was always baked in from the moment the Chancellor stood up to deliver the 2014 Budget.
You have the right to remain silent – Pensions Regulator sets out its criminal prosecution policy
According to the Pensions Regulator there are 14 criminal offences specifically provided for in the Pensions Acts (above and beyond things like “theft”, “fraud”, “false accounting” and “money laundering” in other legislation). We cannot see that anybody has ever been criminally prosecuted for any of the pensions-specific offences, which include things like “delaying or obstructing an inspector”, “acting as an auditor or actuary of a trust scheme while ineligible”, “exceeding permitted level of employer-related investment” and “failing to comply with automatic enrolment duties”.
Nevertheless, the Pensions Regulator is invested with the powers of a prosecuting authority in these matters and feels the time is right to consult on a draft prosecution policy. This sets out the criteria which the Regulator would take into account when considering whether or not to prosecute someone for a criminally actionable breach of pensions law. The draft policy takes into account the Regulator’s own remit as well as the tests applied by other prosecuting authorities, principally that of the Crown Prosecution Service (see their code here). The key elements are that there should be sufficient evidence for there to be a realistic prospect of conviction in court and that the public interest be served by a prosecution.
Consultation closes on 19 February 2016.
Comment
We assume that the Regulator is contemplating bringing charges against employers who are wilfully ignoring their auto-enrolment duties and has realised that it had better have a policy if such charges are to stick. How effective such prosecutions would be “pour encourages les autres” remains to be seen.
Do seafarers have to be auto-enrolled?
This is a complicated question addressed in a statement published by the Pensions Regulator on 12 January 2016 on the outcome of judicial review proceedings regarding whether or not the crews of cruise ships are within the territorial scope of the auto-enrolment legislation. The Fleet Maritime case will be of interest to employers of peripatetic employees who perform some of their duties outside the UK.
Fleet Maritime Services (Bermuda) Limited, a subsidiary of UK cruise line operator Carnival plc (best known for the P&O and Cunard brands), is the employer of the crews of cruise ships. Carnival owns most of the ships while Fleet Maritime employs the crews. Most of the ships are registered in Bermuda while Fleet Maritime uses a Guernsey based company for payroll and administrative services. Fleet Maritime has no place of business in the UK.
As many of the crews are UK resident the question arose as to whether Fleet Maritime is subject to the employer duties to auto-enrol them into a pension scheme. The Pensions Regulator was of the opinion that they mostly were. Fleet Maritime disagreed and instituted judicial review proceedings to challenge the Regulator’s view.
For an employee to be within the scope of the employer duty to auto-enrol under the Pensions Act 2008 they must be a “worker” who “is working or ordinarily works in Great Britain under the worker’s contract”. Given that the employees typically live on board the cruise ships to which they are assigned, mostly outside UK territorial waters, on tours of duty from 12 weeks to six months the question of whether they are, or are not, “working or ordinarily working in Great Britain” is vital to determine whether or not Fleet Maritime is required to auto-enrol them.
The Regulator’s view was that there are three categories of worker:
- Those living in the UK who work on a British or foreign registered vessel spending several weeks away working in foreign waters who join and leave that vessel from a port within the UK, even though most of their tour of duty might be spent outside the UK
- Those living in the UK who begin and end their tour of duty outside the UK and work under a permanent contract of employment and there is evidence in relation to travel and other arrangements at the beginning and end of a tour of duty to support the view that their work begins and ends in the UK. Typically, such workers will fly out to the Caribbean or wherever to join their ships
- Those who live in the UK, begin and end their tours of duty outside the UK, work under a fixed term contract and there is not sufficient evidence to support the view that their work begins and ends in the UK and therefore they are not ordinarily working in the UK
The Regulator thinks that the first two categories are “working or ordinarily working in Great Britain”, despite performing most of their duties outside UK territory. It accepts that the third are outside the territorial scope of the auto-enrolment legislation.
The Regulator backed up its view with a “compliance notice”, a form of regulatory action against Fleet Maritime.
There are a number of judicial authorities on the question of the territorial scope of UK employment law as it relates to peripatetic workers such as seafarers and airline staff, mostly concerning employment protection rights. The phrasing of the auto-enrolment legislation somewhat follows that in the employment legislation and so Leggatt J reviewed these authorities. He held that:
- The Regulator was right about the status of the first category of workers whose tours of duty begin and end in the UK (although this may not apply to workers who only work a single tour of duty)
- The Regulator was wrong about the status of the second category of workers whose tours of duty begin and end outside the UK, regardless of whether or not Fleet Maritime paid for their plane tickets or did not treat the time as a form of leave. Such time is to be regarded as commuting, not working
Consequently, the Regulator’s decision is quashed and they have to pay their own costs.
Comment
So, it looks like this cruise line operator will have to auto-enrol those of its crew who embark from Southampton, but not those who do so from St Lucia or Venice. Something of a complication but no doubt a significant mitigation of their pension costs compared to had the decision gone the other way. Moreover, the case will make interesting reading for other employers, such as airlines, with peripatetic employees working overseas.
We do wonder why the Regulator put out a statement claiming a win here, when the judge himself said that, in terms of a result, it was “too close to call”. It does not look like a win to us.
There is another nugget in here as well. There is a widespread view, which many of us here share, that Regulator guidance, whilst sometimes comforting, is more “interesting” than binding. The judge said the Regulator’s opinions, including those in published guidance, have no “special status” about how legislation is to be interpreted. Whether this is helpful for pension practitioners and their clients in their day to day work is unclear but it is worth knowing.
NICs and the end of contracting out
HMRC has published draft regulations that make consequential changes arising from the abolition of contracting out from April 2016. Amongst other things, they remove references to contracted-out contributions from the principal regulations and adjust the employer NIC reporting requirements.
More detail on the latter is given in a separate HMRC policy paper that explains that from 6 April 2016 employers will be required to report earnings up to the Lower Earnings Limit, earnings between the Lower Earnings Limit and Primary Threshold and earnings between the Primary Threshold and Upper Earnings Limit.
Unsurprisingly, employers will not need to report the Scheme Contracted-out Number and Employers Contracted-out Number as they will no longer be needed once contracted-out contributions are abolished.
Comment
This is all to the good, but there is still no news on the promised adjustments to the contracting out guidance on which DWP and HMRC are working, so as of now, it is not clear whether there will be an HMRC requirement for employers to notify affected employees of the ending of contracting out (given the impact it will have on their pay packets), nor is it clear whether there will be a mechanism through which HMRC confirms that contracting out has ended, whose purpose is to validate the switching of NICs from contracted-out to contracted-in.
New shadow pensions minister appointed
Following completion of the opposition front bench re-shuffle Angela Rayner MP has become shadow minister for work and pensions. She is the third person in that role since the May 2015 General Election.
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.
