Pensions Bulletin 2020/15

MPs to investigate impact of recent pension developments on auto-enrolment

The Work and Pensions Select Committee has launched a new inquiry into the roll-out of auto-enrolment.

The inquiry will focus on progress towards implementing auto-enrolment and the improvements in governance and best practice in workplace pensions recommended in the Committee’s 2013 report (see Pensions Bulletin 2013/19). It will also take into account the impact of the changes to retirement planning being prompted by the Budget 2014 changes to pension taxation – as well as the introduction of defined ambition and collective DC schemes through the Pension Schemes Bill, and the trend towards retiring later (or indeed not at all).

Government moves technical amendments to the Pension Schemes Bill

A number of amendments have been moved by the Government to the Pension Schemes Bill ahead of its Public Bill Committee stage which has yet to be scheduled but is expected to take place in mid-October, shortly after the politicians return from the party conference season on 13 October.

The most significant appears to be a new clause inserting a power to make regulations which may impose on managers of non-trust-based schemes a duty to act in members’ best interests when taking certain specified decisions. This duty may apply to shared-risk schemes and schemes providing collective benefits. A breach of this new duty may result in the same consequences for the manager as would apply to the breach of a fiduciary duty owed by the manager to the members.

Other amendments relate to revaluation rules for pension credits following divorce, transfer values where benefits are derived from pension sharing on divorce and extending certain same sex marriage provisions to Scotland. One amendment also allows occupational pension schemes to increase beyond 65 the age at which a pension shared on divorce can first be put into payment, where the scheme has a normal pension age above 65 in relation to that benefit.

Pensions Act 2014 provisions start to come into force

As we move into autumn, more aspects of the Pensions Act 2014 are being brought into force. They are listed in The Pensions Act 2014 (Commencement No. 2) Order 2014 (SI 2014/2377) and the most significant are as follows:

• Turning off the automatic re-enrolment requirement where the automatic re-enrolment date falls within either the three month waiting period or the deferral period for defined benefits and hybrid schemes ending on 30 September 2017

• Adjusting the conditions applying to the above deferral period, so that, in relation to hybrid schemes, it applies only to a “defined benefits member” of such schemes

• Enabling trustees to claim unpaid scheme contributions from the Secretary of State in certain circumstances following employer insolvency

• The suspension and prohibition of corporate trustees where a related individual has been prohibited from being a trustee by the Pensions Regulator; and

• Extending the maximum period between scheme returns from three to five years for micro schemes

All of these provisions came into force on 11 September 2014.

The Order also enables regulations to be made in a number of important areas, such as charge capping and the auto-enrolment alternative quality requirements for defined benefit schemes. We can now expect a number of regulations to emerge over the coming months.

For a briefing of the contents of the Pensions Act 2014 see the LCP guide published in May, shortly after Royal Assent.

First DC master trust gains independent assurance

The People's Pension has become the first occupational defined contribution (DC) master trust to obtain independent assurance under the voluntary assurance framework.

The framework, published in May by the Institute of Chartered Accountants of England and Wales (see Pensions Bulletin 2014/19), has been designed to evidence the key quality features set out in the Pensions Regulator’s code of practice for DC schemes It was developed in association with the Regulator to provide comfort to employers auto-enrolling their members into such arrangements and to help master trusts meet the Regulator’s expectations.

Latest pension taxation news from HMRC

HM Revenue & Customs (HMRC) has published Pension Schemes Newsletter 65, which reports that:

• All current HMRC pension schemes website content will only be available via the HMRC area of the GOV.UK website from the end of September 2014 – and this process appears to have started with newly posted collections of forms and associated guidance, information requirements guidance and relief at source annual information return guidance on the GOV.UK website

• Pension providers will soon be issuing annual allowance pension statements for the 2013/14 tax year to certain registered pension scheme members

Covid-19 emergency generates more pension announcements

Since last week’s Pensions Bulletin amongst the many announcements and posts in the world of pensions influenced by the Covid-19 health emergency are the following:

• On 31 March, in a “Dear CEO letter”, the Financial Conduct Authority announced that it had referred the 1 August 2020 implementation deadlines for its settled investment pathway rules (see Pensions Bulletin 2019/30) to the FCA Board for further consideration. It also said that its policy statement on DB pension transfer advice, including on contingent charging, had been delayed to Spring 2020 (see Pensions Bulletin 2019/30) and that it had paused the follow-up work on assessing the suitability of advice, which was focused on retirement income advice (see Pensions Bulletin 2020/03)

• Also on 31 March the Government put back the consultation response deadline on expanding the dormant assets scheme (see Pensions Bulletin 2020/08) from 16 April 2020 to 16 July 2020

• On 1 April, in what was clearly not an April Fool, the Pensions Regulator, along with the Financial Conduct Authority, supported by the Money and Pensions Service, exhorted pension savers to keep calm, look to the long-term and not take rash decisions now that they could come to regret later, especially if by so doing they fall into the clutches of those operating scams. This was backed up by a blog from David Fairs, Executive Director of Regulatory Policy, Analysis and Advice at the Regulator

• Also on 1 April HMRC issued a very brief Countdown Bulletin that put off until the end of April its promise to deliver by the end of March a timeline for the issue of “final data cuts” of HMRC’s GMP data records. These records are needed so that administrators can complete the GMP reconciliation exercise necessitated by the ending of contracting out over four years ago, before going on to rectify the member’s benefits if appropriate and, where necessary, equalise 1990-97 benefits for unequal GMPs. This is the latest in the long saga of delays by HMRC (see Pensions Bulletin 2020/02)

• On 1 April the deadline to respond to the DWP-sponsored climate change draft guidance (see Pensions Bulletin 2020/12) was put back from 7 May 2020 to 2 July 2020

• On 2 April the Regulator added to its Covid-19 microsite some guidance for trustees in their dealings with scheme administrators. This expanded on earlier guidance, asking for a focus on critical processes, with changes to existing processes as necessary. It also acknowledged that service level agreements may not be met and there could be legislative breaches in certain areas. The Regulator guidance also links to and supports PASA-produced Covid-19 guidance for administrators that was published on 30 March

• The Pensions Ombudsman announced that it had closed its shutters to new enquiries from an undated “today”, with its staff working from home, but only on existing cases. There is also a promise to take into account the latest guidance from the Regulator when reaching its decisions

• The Pensions Regulator put back by three months the closing date for responses to the consultation on its DB funding code proposals. Launched on 3 March 2020 (see Pensions Bulletin 2020/09), consultation will now close on 2 September 2020. This may put in doubt the Regulator’s plan to undertake the second stage of its consultation later this year.

• On 3 April the PASA Board Directors blogged a note on how pension scheme administrators are implementing their business continuity policies whilst working in isolation from home

• On 4 April HMRC updated its employer guidance on the coronavirus job retention scheme (see Pensions Bulletin 2020/14). There is now greater clarity on what constitutes an employee’s usual monthly wage that forms the basis of the furloughing arrangements. In particular, “benefits provided through salary sacrifice schemes (including pension contributions) that reduce an employee’s taxable pay should…not be included in the reference salary”. HMRC also goes on to say that Covid-19 counts as a “life event” that could warrant changes to salary sacrifice arrangements, if the relevant employment contract is updated accordingly

• On 7 April the FCA made an announcement covering a number of related areas. The 1 August 2020 implementation deadlines for the investment pathway rules mentioned right at the top of this article were put back by six months to 1 February 2021. The FCA also said that it would show some understanding if there was a short delay (until 31 May 2020) in implementing its rules published in January 2019 (see Pensions Bulletin 2019/04) relating to changes to the information that firms give consumers entering pension drawdown or taking an income for the first time (including uncrystallised fund pension lump sums) and the annual information given to these customers. These were due to come into force on 6 April 2020. Finally, the FCA published guidance for DC providers and DB transfer advisers to support their conversations with customers as the pandemic develops, and information explaining how firms can avoid straying into making personal recommendations when bringing out the implications for customers of realising their investments or cancelling life assurance

• Also on 7 April the FCA published its 2020/21 Business Plan acknowledging that it was very much a moving feast in the current climate. In particular, the FCA noted that it would be “Reviewing our work plans to delay activity which is not critical to protecting consumers and market integrity in the short-term, allowing firms to focus on supporting their customers during this time”

Simplifying and improving auto-enrolment

The Society of Pension Professionals has published a paper containing its ideas for simplifying and improving automatic enrolment. These ideas came out of internal discussions within the Society and a short survey of its membership. Eight key suggestions include:

• Removing the age criterion: the membership survey showed that four-fifths (80%) favoured removing the minimum age criterion while two-thirds believed automatic enrolment should be extended to all employees up to age 75

• Use pay in the previous pay period to determine eligibility for enrolment: more than four-fifths (85%) of survey respondents supported this proposal, under which eligible jobholders could be enrolled and start active membership based on prior period earnings if that works for an employer

• Opt-out window should be extendable by up to three months after enrolment: three fifths (63%) of respondents believe that employers should be allowed to accept opt-out elections up to three months after enrolment

• Increases to contribution requirements no later than the PLSA’s 2030 timetable: over four-fifths of respondents (84%) believe minimum employer contributions should increase over time from 3% to 6% of earnings. The SPP notes that a sudden increase will likely result in a backlash, but believes the current requirements are unlikely to generate satisfactory outcomes for many

HMRC makes its pension scheme accounting for tax return facility available online

On 1 April HMRC launched its Accounting for Tax (AFT) return on its Managing Pension Schemes service. Our understanding is that schemes signed up to this service will have to submit AFT returns via it starting with that for the quarter ending 30 June 2020.

Details of how to operate the AFT return facility and an updated timeline for the delivery of further functionality in this online service for pension scheme registration and administration is contained in the April edition of HMRC’s Managing Pension Schemes service newsletter.

MaPS to get pension guidance funding boost

The Financial Conduct Authority has published its regulated fees and levies proposals for 2020/21 showing it expects to collect £130m on behalf of the Money and Pensions Service (MaPS) in the coming year of which £41.1m is to fund pensions guidance – a significant increase from the £30.7m allocated to pensions guidance in 2019/20.

£7.2m of this £41.1m is allocated to the pensions dashboard project. The remaining money is intended to fund 230,000 pension freedoms guidance sessions, a more responsive customer appointments system and improved online services.

Auto-enrolment earnings parameters settled

The Automatic Enrolment (Earnings Trigger and Qualifying Earnings Band) Order 2020 (SI 2020/372), which gives effect to the 2020/21 earnings parameters announced in February (see Pensions Bulletin 2020/07), has completed its passage through Parliament.

The Order contains the annualised lower and upper limits of the qualifying earnings band (£6,240 and £50,000 respectively) and also tabulates them by reference to other pay reference periods. As the earnings trigger remains unchanged at £10,000 this annualised figure is not mentioned, but the rounded figures for other pay reference periods are included in the table noted above.