HM Treasury and the FCA put forward proposals to reform the financial advice market
A blueprint to tackle barriers to consumers accessing advice has been published jointly by HM Treasury and the Financial Conduct Authority. This follows the call for evidence last October (see Pensions Bulletin 2015/44).
Delivering 28 recommendations, the report’s authors believe that taken together these have the potential to promote a real improvement in the affordability and accessibility of advice and guidance to people at all stages of their lives, whilst addressing concerns from advisers that the fear of future liabilities are preventing them from giving advice.
Amongst the recommendations of relevance to pensions are the following:
- The FCA and the Pensions Regulator should develop and promote a new factsheet to set out what help employers and trustees can provide on financial matters without being subject to regulation. This is in response to concerns that employers and trustees have of crossing the regulated advice boundary without being authorised to give advice. The factsheet would aim to provide some clarity and dispel some common myths about how current regulations apply to employers and trustees
- HM Treasury should explore ways to improve the existing £150 income tax and national insurance exemption for employer-arranged advice on pensions. In its present form this exemption is of limited practical use because if more than £150 is spent, the entire amount becomes taxable. The cliff edge could be removed and/or the £150 could be increased
- HM Treasury should explore options to allow consumers to access a small part of their pension pot before the normal minimum pension age, to redeem against the cost of pre-retirement advice. The report’s authors believe that there is real value in giving people a strong nudge to seek financial advice well before retirement and suggest that such a nudge could take place five to ten years before individuals reach their normal minimum pension age so that the individual has enough time to plan for, and if necessary, step up their savings rate, ahead of retirement
- HM Treasury should challenge the industry to make a “pensions dashboard” available to consumers by 2019, bringing together industry and consumer representatives to help them set direction and drive progress. The report suggests that the good work being undertaken by the pensions industry in developing a “pensions passport” (a single document containing information about an individual’s pensions savings that they receive six months before retirement) should now go to the next stage. The pensions dashboard would be a consumer-friendly digital interface allowing consumers to access their pensions savings data at any time. HM Treasury is asked to co-ordinate the Government’s involvement in the dashboard, to ensure that it provides appropriate legislative and administrative support as the project develops
The report concludes by setting out the anticipated timeframes for implementing each of the 28 recommendations, the last of which is that the two bodies jointly report on progress in 12 months and then review the outcomes of the work in three years’ time.
Comment
There are some good proposals in this readily accessible document. The factsheet could be helpful as would some improvement in the £150 exemption, but early access to some of the pension pot introduces yet further complexity for occupational schemes in particular. The report is also silent on how the costs of developing and maintaining a pensions dashboard could be met.
DWP delivers auto-enrolment easements
Following on from the short consultation that started at the end of January (see Pensions Bulletin 2016/03), the DWP has now published its response to regulations intended to simplify certain aspects of the auto-enrolment requirements and laid the finalised regulations before Parliament.
The Occupational and Personal Pension Schemes (Automatic Enrolment) (Miscellaneous Amendments) Regulations 2016 (SI 2016/311) come into force on 6 April 2016.
The main changes made as a result of the consultation are as follows:
Further exceptions to the employer duty to enrol employees
The DWP remains wedded to turning the auto-enrolment employer duty into a power that the employer can but does not have to exercise for workers with the new Fixed and Individual Protections 2016. However, it has not proved possible to add the necessary provision to the forthcoming Finance Act 2016, which would have allowed for backdating to 6 April 2016. The DWP now intends to introduce regulations at the earliest opportunity, but can only do so once the Finance Act 2016 becomes law.
In the meantime, the DWP has obtained agreement from HMRC to provide guidance in the Budget briefing on the steps individuals must take to protect their financial position in respect of their transitional protection rights. The Pensions Regulator will mirror this guidance on its website. HMRC will also ensure that its guidance is appropriately amended so that individuals are aware of the further exception under the new protections.
Some simplifications when bringing forward staging dates
The DWP has implemented its proposals to simplify the conditions an employer must satisfy when bringing its staging date forward, subject to certain refinements in the drafting of the regulations.
Transitional easement for schemes contracted-out on a salary-related basis on 5 April 2016
The DWP has modified the transitional easement proposed to the cost of accruals test under which for a limited period the test can be applied at scheme level even where there is a material difference in the cost of providing benefits between different groups.
The easement is now available where the scheme rules are amended on or after 6 April 2016, but in a way in which the reference scheme test would still have been satisfied had the scheme been able to continue to contract out. The period over which the easement applies ends at the earlier of the date that the actuary signs the first report after 5 April 2016 that breaks the cost of accruals down to benefit scale level and 5 April 2019.
The regulations have also been modified so that if a scheme’s definition of pensionable earnings doesn’t fit precisely with any of the five set out in regulations, then it is acceptable to undertake the cost of accruals test by reference to any of the five for which the scheme’s definition will always be at least as good as that in the regulations.
The DWP plans to issue guidance shortly on the alternative quality requirements for defined benefits pension schemes and the defined benefits elements of hybrid pension schemes.
Comment
These easements are welcome, particularly in relation to the cost of accruals test which many currently contracted-out defined benefit schemes will be using ahead of 6 April 2016 in order to demonstrate that from this date they remain of a sufficient quality to continue to be used for auto-enrolment purposes.
HMRC finalises 2015/16 annual allowance statement information requirements
Changes to the “2015/16 pension savings statement” information requirements have been finalised in the light of the special transitional annual allowance (AA) test applying for 2015/16 ahead of all pension input periods being aligned to a tax year basis.
News Alert 2015/01 has a reminder of what period is brought into the 2015/16 AA test and how AA usage (“pension input amount”) is split “pre and post alignment” in the test.
The requirements differ from those published for consultation last month (see Pensions Bulletin 2016/04). In summary, the 2015/16 requirements are:
- Scheme administrators will need to proactively provide a statement to a member for 2015/16 (by the usual 6 October 2016 deadline) and report the member to HMRC in the subsequent Event Report, if:
- a member’s pension input amount exceeds £80,000 for the 2015/16 tax year as a whole (ie in aggregate for all pension input periods ending in 2015/16) in the scheme; or
- a member’s aggregate pension input amount in the scheme for the “post-alignment” tax year exceeds £40,000
- The proactive statement for 2015/16 (and future tax years’ statements that include 2015/16 figures) should separately show the aggregate pension input amount for the pre-alignment tax year and for the post-alignment tax year. The statement does not need to state the actual AA for the 2015/16 tax year (technically £80,000 but rather misleadingly so)
The other usual provisions on pension savings statements apply, including the fact that a three year history must be provided, and as always, the above information should also be provided if a member requests it.
The 2015/16 pension savings statements are also the first ones that potentially need to reflect the £10,000 Money Purchase Annual Allowance measure for relevant members. The original definition of a relevant member was one for whom both of two conditions applied in 2015/16: that the scheme knew that the individual had had a money purchase flexible event that put him into this measure; and that the member’s 2015/16 money purchase pension input amount had exceeded £10,000 in the scheme. The regulations described above contain some modifications to allow for the interaction of this aspect and the transitional 2015/16 AA test – it is not clear that these work sensibly but hopefully for the few cases arising for 2015/16 it will be sufficient to act in the spirit of what was originally intended.
The draft regulations issued in February for consultation also made proposals for 2016/17 statements, centred on a trigger for providing proactive AA information if a member’s “pensionable earnings” exceed £110,000; but changes for 2016/17 statement requirements have not been put into law for now.
Comment
2015/16 pension savings statements may be requested from 6 April 2016, so we are pleased that the legislation is in place and that the requirement on scheme administrators for automatic provision has been eased and is better focussed than in the draft. We are also pleased that HMRC looks to be taking more time to consider the 2016/17 pension savings statement requirements, where there is a real challenge to design an approach that – as much as possible – targets affected members, does not disturb unaffected members, and does not disproportionately burden schemes.
Will there be an early state pension for women born in the 1950s?
Certain women born in the 1950s might be able to take a reduced State Pension early if the recommendations of a report by the Commons’ Work and Pensions Committee, published on 15 March 2016, are followed.
This second interim report, which follows an enquiry into the public understanding of the new State Pension (see Pensions Bulletin 2015/46), found severe failings in the Government communication of State Pension Age (SPA) increases. In particular, the communications before 2009 left many women unaware that, as a result of changes legislated for in 1995, their SPA was being equalised with that of men. As a result, many women only found out about their increased SPA a couple of years before they reached age 60 – the age they were expecting to retire.
The report accepts that a transitional easement involving a delay in SPA increases (as had been mooted – see Pensions Bulletin 2016/01) would cost the Exchequer a considerable amount of money. But the cost-neutral suggestion of allowing affected women to retire early on an actuarially reduced State Pension might help to alleviate the hardship of those who are not working, but are not yet eligible for a State Pension they thought they would receive at 60.
Comment
The report is right to acknowledge that “we are long past the stage where an ideal outcome … could be achieved”. And whilst the report gives suggestions for how additional funding could be spent to help those worst affected, it appears to realise those additional funds are unlikely to materialise.
So we’re left with allowing affected women to retire early on an actuarially reduced State Pension, which may well help unemployed women bridge the gap until their SPA. It will be interesting to see what the Government makes of this suggestion.
FRC publishes consistent fair value categorisations for pension scheme accounts
As planned, the Financial Reporting Council (FRC) has published amendments to FRS 102 affecting the accounts prepared by pension schemes. The amendments are in line with the exposure draft covered in Pensions Bulletin 2015/48, and affect how pension schemes are required to classify their assets according to a “fair value hierarchy”.
The amendments apply to accounting periods beginning on or after 1 January 2017, with early application permitted.
Comment
This is a welcome change to the rules removing an unnecessary inconsistency between UK and international standards. FRS 102 applies for accounting years beginning on or after 1 January 2015, so many pension schemes are now preparing their first sets of accounts under FRS 102, and may wish to take advantage of these amendments.
More legislation consequential to the ending of contracting out is made
Regulations have been laid before Parliament that amongst other things make adjustments to the legislation governing national insurance contributions consequential to the ending of contracting out.
For example, there will no longer be a need to distinguish between contracted-in and contracted-out rates as the latter are being abolished. The bands of earnings on which different rates of NICs are paid are reduced and the employer NIC reporting requirements are simplified.
The Social Security (Contributions) (Amendment) (No. 2) Regulations 2016 (SI 2016/352) come into force on 6 April 2016.
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.
