Will CPIH find new favour as a measure of inflation?
CPIH – the Consumer Prices Index (CPI) including owner-occupied housing (OOH) costs – was stripped of its National Statistics status in August 2014 after issues emerged relating to the processing of some of the administrative data sources used to estimate OOH costs.
In March 2016 the UK Statistics Authority (UKSA) concluded that this decision should stand, having in the meantime identified three main areas of concern – the quality of the private rents data sources CPIH uses; trends it has displayed that are not easy to explain; and some user disagreement about the concepts and methods used to measure OOH costs within it.
However, in his letter to the Chair of the UKSA following the March assessment report, the National Statistician John Pullinger expressed his desire for moving CPIH towards becoming the Office for National Statistics’ preferred measure of consumer price inflation and the focal point of ONS commentary in due course. The case for this switch was previously made by the Director of the Institute for Fiscal Studies Paul Johnson in his review of UK inflation measures published in January 2015 (see Pensions Bulletin 2015/02).
Now, the September 2016 statistical bulletin on UK consumer price inflation (released in October) notes that the actions taken in this regard were reported to the UKSA at the end of September (though the correspondence has not yet been made publicly available).
Comment
It would seem that CPIH is on its way back to becoming a “national statistic”. If and when it achieves this, it is possible that the Government will be minded to use CPIH instead of CPI to measure consumer price inflation – which would then feed into statutory pension indexation. As CPIH is basically CPI with an allowance for the cost of OOH (comprising about 10% of CPIH) added on, the impact of any change will depend on how OOH inflation compares with CPI inflation.
Of course, just as in 2010 when the preferred measure of price inflation switched from the RPI to the CPI, how any change to statutory pension increase legislation impacts on both individual schemes and state benefits will depend on the exact wording of scheme rules and legislation and any changes the Government is minded to make to the latter.
Pensions Regulator intervenes in a corporate restructuring
Members of the Database Group Ltd Retirement Benefit Scheme are celebrating their full pension benefits being bought out with an insurer after the Regulator rejected an initial proposal for the sponsoring employer to be freed from its pension obligations.
In 2015, Merkle Inc made an offer to buy the Database Group on condition that no company in the Group had a liability to the DB pension scheme at the point of purchase. The Group set out a four point plan to achieve this which amongst other things included “cash support” to the scheme of around £1.7m (compared to a buyout deficit of £7.7m). Companies within the Group applied to the Regulator for clearance.
However, the Regulator was not satisfied the £1.7m was sufficient to cover the covenant which had potentially already been lost as a result of a prior restructuring of the Group’s operations dating from 2010, and opened a moral hazard investigation. Having explored a number of options the Regulator concluded the only sum that would adequately protect members from the additional risks they would face as a result of the 2010 restructuring and 2015 sale was the full £7.7m.
Faced with a potential Financial Support Direction and/or Contribution Notice, the Group companies supplied the trustees with sufficient funds to fully buy out members’ benefits. The Regulator then granted clearance to the sale.
Comment
The Regulator states that this case demonstrates that it will use its anti-avoidance powers in respect of smaller schemes where appropriate. However, it also seems to illustrate a regulatory gap (eg in relation to the notifiable events legislation) as the Regulator was not made aware of the 2010 restructuring.
Thankfully in this case, once it became aware, five years later, it appears the Regulator barely had to show its teeth to secure full funding for the scheme. Members now retiring on full benefits will be delighted and the Regulator will also be pleased that the threat of regulatory action was enough to produce the desired response.
Lifetime ISA – draft regulations indicate it’s still on course
HMRC has published draft regulations that set out a lot of the details of the Lifetime ISA including the provision of the 25% Government bonus, the circumstances in which sums can be withdrawn without charge and the application of the 25% charge to other withdrawals. They also increase the overall ISA subscription limit to £20,000.
These regulations follow the publication of the enabling primary legislation in September (see Pensions Bulletin 2016/36) and the update of the HM Treasury technical note and policy paper last month (see Pensions Bulletin 2016/38).
The draft regulations, and accompanying draft explanatory memorandum, appear to be very much as expected, although some internal cross-references need to be tidied up before they are finalised.
Comment
We now believe that it is more likely than not that Lifetime ISAs will be launched in April 2017 as planned. This is despite speculation earlier in the summer that the change of Government could kill them off, as has happened to the secondary annuity market facilitation. If the Autumn Statement later this month passes without a reversal or change of policy then it would seem certain that Lifetime ISAs will become part of the savings market next year.
Despite this, there may be a limited market at the launch date and so we are interested to see how Lifetime ISAs are received.
Uber to take an expensive pensions journey?
Uber, the company that runs the taxi smartphone app, may have to provide pensions for its drivers after an employment tribunal concluded that the drivers are legally Uber “workers”. Through being classified as such, drivers would be entitled to the national living wage and holiday pay. They may also be eligible for pension scheme membership under the auto-enrolment legislation.
Uber was carefully set up with the intention that all the drivers are self-employed rather than Uber “workers”. The tribunal dismissed that notion, for reasons including:
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Whilst Uber sought to classify itself as purely a “platform” which provides the self-employed drivers with “leads”, the tribunal saw Uber as a supplier of transportation services
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As such, the drivers provide the skilled labour the business requires; and
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Uber interviews and recruits drivers, controls passenger information, sets the route and the fares (drivers cannot negotiate with passengers unless agreeing to a reduction) and imposes conditions on the drivers
The ruling is a first stage and may be appealed. The tribunal has asked for a written way forward to be supplied by Uber and the claimants by 2 December.
Comment
The changing structures of businesses do not necessarily lend themselves to a simple legislative definition of “workers” and as such we are likely to see more of this type of clarification, with implications for auto-enrolment, in the coming years.
The tribunal noted the “remarkable lengths to which Uber has gone in order to compel agreement with its (perhaps we should say its lawyers’) description of itself”. This appears to be a clear signal that legal jargon cannot be used to mask the true relationship between a company and those that work for it.
GAD advice note challenged in Parliament for material omission
Last week MPs debated an advice note issued by the Government Actuary’s Department in connection with the now failed AEA Technology Pension Scheme. The note, issued at the time of privatisation of the commercial arm of the UK Atomic Energy Authority in 1996, discussed the pros and cons of taking a special transfer from the existing Government-backed pension scheme to a newly set up DB scheme that did not have any Government guarantees. However, it appears that it did not point out the risk to an individual’s pension should the sponsor of the new scheme fail – which is precisely what has now happened.
Many individuals chose to transfer their benefits and, although these will now be replaced by compensation from the Pension Protection Fund, there will be significant reductions, especially as there will be little if any pension increases granted on the benefits that were transferred.
In the intervening years GAD has issued a statement of practice under which it is required to highlight the issue of benefit security when transfers are being offered from the public to the private sector. In the debate Richard Harrington came under pressure to concede that the Government should compensate those who transferred beyond that provided for under the PPF, but argued that the pension loss was not the Government’s fault and the GAD note was not designed to be advice – indeed members were encouraged to seek the advice of an independent financial adviser (although whether they were equipped to give what amounted to covenant advice is a moot point).
Comment
Times have moved on but if anything, this sorry tale is an illustration of the need to be very careful in member communications – as arguments that communications were misleading can come back many years later to haunt those who produced them.
Regulator issues public sector governance tool
The Pensions Regulator has issued a tool that sets out the key processes, tools and actions expected from a well-run public service pension scheme.
The Regulator expects all public service pension schemes to carry out a thorough review against legal requirements and the guidance in its code of practice. Recognising that this is a significant piece of work, the 10-15 minutes it should take to answer the questions in the tool are intended to be the start of that process. The tool then produces a plan to address any issues identified and to help achieve best practice.
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.
