PPF announces 2017/18 levy proposals
The Pension Protection Fund has published a consultation document containing its proposals for the 2017/18 pension protection levy along with a draft determination containing a multitude of technical documents. Consultation closes on 31 October 2016 and the final determination is expected in December.
Very little has changed from last year, to the extent that all the headline calculation methods and figures are the same as for 2016/17. Despite recent published increases in schemes’ aggregate PPF deficits, the PPF anticipates collecting the same amount (£615 million) as it expected to collect for 2016/17. This is a result of the five-year smoothing in the levy calculation, as well as levy mitigating actions taken by schemes.
The PPF is proposing some minor changes from its 2016/17 levy calculation, mainly to the calculation of Experian scores. Further reviews on its Experian model are expected as part of work on the levy for the next triennium – the PPF expects to set out its initial thinking on this around the end of the year.
With British Steel in mind, the PPF may also alter its approach to charging a levy to an eligible scheme which ceases to have a substantive sponsoring employer following a restructuring of its pension arrangements. The aim is to ensure that such a scheme’s levy reflects the true risk the scheme presents and not imply a cross-subsidy from other levy payers.
The proposed timetable for providing information to the PPF for the 2017/18 levy year is similar to last year, with certification of deficit-reduction contributions as at 28 April 2017, certification of full block transfers as at 30 June 2017 and the rest as at 31 March 2017.
Comment
In terms of immediate actions the main thing to focus on is whether any improvements can be made to a sponsoring employer’s Experian insolvency scores. Because the Experian model is focused primarily on accounting information, the most effective way to influence scores is to take action before the sponsoring employers’ accounts are finalised. This could sometimes be as simple as adjusting an accounting figure that had previously been rounded to £0 on the grounds of immateriality, and to include a full-time equivalent number of employees figure (where the number of part-time employees is material).
HMRC updates its annual allowance calculator
HMRC’s latest Pension Schemes Newsletter covers a variety of matters, but perhaps the most important is the launch of a beta version of HMRC’s new annual allowance (AA) calculator. HMRC describes this as a tool “to help pension scheme members work out how much annual allowance they have used and how much they can contribute to their pension schemes without facing an annual allowance charge. The new calculator includes the transitional annual allowance rules for 2015 to 2016 and will help your members to check whether they need to declare an annual allowance tax charge on their SA return for the 2015 to 2016 tax year (the deadline for submitting this is 31 January 2017). The new calculator also includes the current year”. The calculator has been launched as a beta version to enable HMRC “to review and improve” it in light of feedback from users.
Comment
As with the calculator it replaces, this calculator’s aim is to help individuals – once they have collected their AA usage figures from schemes or worked them out themselves – work through the old complications of carry forward and the new complications of not just the 2015/16 transition but the £10K Money Purchase AA – and planning ahead for the 2016/17 tapered AA. So, in principle, this is much needed and welcome.
Many individuals will receive 2015/16 Pension Savings Statements from schemes in the next few days, ahead of the statutory deadline of 5 October, which may explain the rush to the release of a system still in development. But a very short exploration of the system at the time of going to print shows worrying signs that it is a bit “too beta” to be public yet. For example, users cannot input 2012/13 AA usage – let alone older tax year information that may be relevant in some cases – so the output of the system could be very misleading.
And once HMRC has made sure the system does perform calculations correctly for all cases (or puts in warnings where it cannot be used), the not insignificant challenge will be how it can ensure users understand what to input, to avoid GIGO. We note that HMRC has also separately issued “plain English” guidance alongside its new modeller to try to help members work out Threshold and Adjusted Income and hence their tapered annual allowance.
We also note that the old calculator remains online, though it is not easy to spot.
Lifetime Allowance protections – the online system is being kept busy!
HMRC’s Pension Schemes Newsletter 81 also gives some updates on lifetime allowance protections and the online service made available to individuals since the end of July to register for these (see Pensions Bulletin 2016/30).
The Newsletter advises that the launch scheduled for October of a look-up service to enable pension scheme administrators to check a members’ protection status is now further delayed. HMRC does nevertheless still expect due diligence from schemes to ensure deduction of the correct lifetime allowance charge when processing a retirement – and some good news on this is that the protection summary page that the member can access will (newly) show the member’s name and national insurance number and can be printed out as a pdf, to make it more practical evidence for the member to give the scheme administrator ahead of the look-up service’s launch.
The checking system will be very welcome, as the Newsletter reports that since the online service went live two months ago, there have been nearly 17,500 applications of which nearly 5,000 were for Individual Protection 2016 (and this despite some reported problems in getting onto the system).
What else is in HMRC’s Newsletter 81?
In addition to discussing the new annual allowance calculator and developments with regard to lifetime allowance protections noted above, Newsletter 81 also:
- Asks for the reporting of serious ill-health lump sums paid to a member aged 75 or over to switch from the accounting for tax return to real-time information system following the change to the tax charge which took place on 16 September 2016 (see Pensions Bulletin 2016/37), although the RTI system will not be available until December (HMRC’s guidance to pension administrators on reporting has been updated for all this)
- Warns about the need for correct and timely submission of relief at source annual returns – the 2015/16 return must be submitted by 5 October 2016
- Announces a delay in delivering the RTI system for secondary annuities and seeks annuitants considering selling their annuity income to act as guinea pigs for the Pension Wise guidance service; and
- Covers a number of other LTA online service issues, including a delay in launching the facility for members to amend their protections details online
The newsletter also covers some administrative issues with regard to the Event Report and concludes with a reminder about where to get information about pension scams.
DWP consults on new deal for those seeking to give up their “safeguarded-flexible benefits”
The DWP is now delivering on its promise to resolve the treatment of benefits which accumulate on a money purchase or cash balance basis but which have valuable payment guarantees when members request to access them under pension freedoms introduced in April 2015 and in so doing lose potentially valuable guarantees.
Following its decision in March (see Pensions Bulletin 2016/09), the DWP is consulting on draft regulations that amend existing legislation to remove the uncertainty over the valuation process for determining who is above £30,000 and so is required to take financial advice, whilst putting in place new consumer protections for these newly dubbed “safeguarded-flexible benefits”.
The draft regulations propose that all safeguarded benefits (including safeguarded-flexible benefits) should be valued, for the purpose of the advice requirements, as the amount of the cash equivalent the member would be entitled to take in respect of the benefits, if he or she were exercising a statutory transfer right, whether or not the member in fact had such a right.
There is a transitional provision applicable to those who had been told they needed to take advice, but under the new rules will not need to do so.
However, the meat of the regulations is reserved for new consumer protections. Such “risk warnings” apply when a member with safeguarded-flexible benefits undertakes one of the actions that would trigger a notification to take advice, but regardless of whether the £30,000 threshold is breached.
The risk warnings must be sent to the member (and potentially also to a contingent survivor) not more than one month after the trigger point and potentially earlier. There is an exception where a trigger occurs that would require a risk warning to be sent within 12 months of a previous risk warning being sent.
The consultation sets out details of core narrative information which must be included in the risk warning. These include information about the existence and terms of the guarantees, and that the guarantees will be lost if the member takes certain actions.
Two income illustrations will also need to be provided, determined on a “like for like” basis, comparing the estimated annual income when the guarantees are taken up, and the estimated income the pot could purchase on the open market. These should be calculated in the same way as statutory money purchase illustrations (although the DWP is consulting on whether different assumptions could also be used).
The Government’s intention is that the draft regulations will be laid before Parliament and, subject to Parliamentary approval, come into effect, at the earliest reasonable opportunity. Transitional provisions may also be available from when the draft regulations are laid.
Comment
The fix to the valuation process is straightforward and will be welcomed. By contrast the risk warnings may need some further work to ensure that they are not too burdensome.
Occupational pension schemes survey exposes once more the DB DC divide
The 2015 occupational pension schemes survey, published last week by the Office for National Statistics, shows once more the stark difference between the level of contributions being made towards DB and DC schemes in the private sector.
For DB schemes the average total contribution rate was 21.2% of pensionable earnings, whilst for DC it was just 4.0%.
The survey also shows active membership of private sector DB schemes steady at 1.6 million over the last three years, whilst that of DC schemes rose from 3.2 million in 2014 to 3.9 million in 2015.
Total membership of occupational pension schemes in the UK was 33.5 million, the highest level ever recorded by the survey which began in 1953, representing an increase of 10% compared with 2014.
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.
