It’s no change to NEST for now
In publishing the results of its consultation from last year (see Pensions Bulletin 2016/28) the DWP has concluded that now is not the right time for substantive changes to be made to NEST’s offering.
Four main proposals were made last July and only one is to go ahead – allowing employers to contractually enrol workers into NEST.
The most significant proposal was to allow NEST to further develop and roll out its decumulation offering. The Government has said yes to the first aspect, but no to the second, on the premise that sufficient reassurances have been received from providers that they are developing appropriate products for the market segment serviced by NEST. But if this does not come to pass, the Government reserves the right to consider enabling NEST to offer a fuller range of retirement income solutions than the limited ones currently at its disposal.
The other two proposals that were turned down are: opening up access to individuals who don’t have either a direct employment relationship with an employer choosing to use NEST, or are self-employed; and accepting transfers from non-members, including bulk transfers from other schemes, and individuals close to retirement.
Separately, in a ministerial statement Richard Harrington has said in relation to individual transfers-in, which will be permissible from this April, that he expects the NEST Trustee to set a contribution charge at less than 1.8% and the Trustee will also be able to set a minimum transfer value it is willing to accept. In the case of bulk transfers-in, also available from this April, the Trustee will have the option of recovering the costs of administering the transfer from the employer. So far, the NEST Trustee has announced that it will not set a charge for transfers out, but that transfer must be at least £50.
Comment
Opinion was split as to whether NEST should be able to extend its services in the manner proposed, with one of the aspects apparently counting against NEST being that it has yet to become financially self-sufficient in relation to its current offering. But this does appear to be a decision deferred rather than taken. With nearly 4.5 million members and close to 300,000 participating employers, NEST will need to be allowed to respond to the needs of its members in the decumulation phase, especially as their pot sizes grow. It is now for providers to get on with delivering retirement income products that are appropriate for the market that NEST serves.
Should schemes sign up to the Pensions Advice Allowance?
From this April pension schemes can allow members with DC funds to use up to £1,500 on a tax-free basis (up to £500 on each occasion) to help meet the cost of regulated retirement financial advice, with no additional reporting duties on the scheme or sponsoring employer. But should they allow members to access their funds in this way and what are the issues they need to consider? Please see our News Alert for details.
Comment
In principle it seems that schemes should seriously consider offering the Pensions Advice Allowance to members in order to help them get to their best retirement income outcome. But balancing this will be the need to get the right procedures in place in a cost-effective manner, to ensure that the allowance is not abused or open to scams.
Dormant Assets Commission sets out its recommendations for pension products
Occupational trust-based pension schemes are likely to be exempt from an expanded dormant assets scheme if the Government follows the Commission on Dormant Assets recent report.
“Tackling dormant assets” sets out the Commission’s recommendations on expanding the management of dormant assets beyond simple bank and building society accounts to the full spectrum of potentially dormant financial and non-financial assets.
The Government first took legislative action in this area with the Dormant Bank and Building Society Accounts Act 2008 whose purpose was to encourage banks and building societies to identify dormant assets and to make reasonable efforts to reunite them with their owners. If those efforts failed, the Act provided a mechanism under which these assets could be transferred to an independent body, formed specifically to fund future customer reclaims and to distribute any surplus for the benefit of good causes throughout the UK.
Following the success of this the Commission was set up in December 2015 to identify new pools of dormant assets and encourage their contribution to good causes. It looked at the banking, insurance and pensions, and investment and wealth management industries, as well as a range of assets from non-financial services sectors. Having reviewed these, it decided to concentrate on the financial services sector, because it believed this to hold the greatest value and most readily accessible pool of potentially dormant assets.
So the Commission’s report and recommendations cover many areas of financial services. However, insofar as pensions are concerned the Commission is suggesting various definitions of dormancy for pension policies depending on whether they have a contractual ending date or trigger point for crystallisation of benefits.
The Commission also discusses pension policies held under trust, noting that as trustees have a fiduciary duty to deal with any policy proceeds for the benefit of beneficiaries, any failure to discharge those duties potentially leaves them open to legal action. In particular, any attempt by trustees to divert monies to an expanded scheme would not discharge their fiduciary duty (unless the terms of the trust specifically provided for dormant assets to be passed to an expanded scheme) because it would not be for the sole benefit of nominated beneficiaries.
The Commission goes on to say that without a change in this aspect of trust law individual or group trusts cannot be considered for inclusion in an expanded scheme. Accordingly, the Commission makes recommendations to change trust law so that:
- Where within a particular trust it is possible to identify a sole individual who should ordinarily benefit from specific assets within the trust – for example where there is only one trust beneficiary – those assets should be considered as within scope of an expanded dormant assets scheme; but
- Where it is not possible to identify sole specific individuals who would ordinarily be expected to benefit from specific assets – for example group trusts – those assets will be exempt from inclusion within an expanded scheme
The report concludes by saying that a legislative framework is unlikely to be introduced before 2018 and that it will take a period of time thereafter, which may extend to years, before new dormant assets start to flow into an expanded scheme.
Comment
This is an interesting (but lengthy) report in general, not just about pensions. However, if the Government adopts the Commission’s recommendations then it seems that occupational trust-based schemes which hold assets on a collective basis will be exempt from the dormant assets scheme.
FCA publishes its finalised Lifetime ISA rules
The Financial Conduct Authority has published its response to the consultation exercise it ran last autumn (see Pensions Bulletin 2016/46) along with its finalised rules just ahead of the 6 April 2017 go live date.
The FCA is largely implementing its proposals unaltered although it is adding two further risk warnings that should be given to potential investors. These are:
- The risk that investors may also lose out on employer’s pension contributions where they have a personal pension and there is an employer matching contribution structure in place. (The FCA had already proposed a similar warning about losing employer contributions to a workplace pension so this is basically just extending the scope of that warning.)
- The risk that investors may not consider the impact of taking out a Lifetime ISA on means- tested state benefits as opposed to saving in a pension
Comment
We welcome these additional risk warnings, particularly the first, because we believe that there are real risks that savers could choose a Lifetime ISA over a pension linked to their employment in some manner and therefore lose out on employer contributions.
Lock v British Gas Trading – commission must be included in holiday pay calculation
We reported on this case, which has had implications for the administration of pension scheme benefits last year (see Pensions Bulletin 2016/41).
In Lock v British Gas Trading it was held that a salesperson’s holiday pay cannot be limited to their basic salary and that where such a worker is paid commission calculated on the basis of the sales that they make, that commission must also be included in the calculation of holiday pay.
It is now being reported that British Gas has been refused leave to appeal to the Supreme Court and so the Court of Appeal judgment stands as the authority for the proposition that in these circumstances holiday pay cannot be restricted to basic pay.
PPF outlines pension scheme restructuring on insolvency options
The Pension Protection Fund has produced a useful Media Factsheet on restructuring and insolvency, highlighting its involvement in company insolvencies.
Although intended to give general information to journalists, the factsheet provides a useful summary of the key features of (and the PPF’s role in) regulated apportionment arrangements, pre-pack administration arrangements and company voluntary arrangements.
Comment
With these arrangements becoming more and more common this light, accessible read will help anyone worried that their pension scheme sponsor might be heading towards insolvency.
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.
