Pensions Bulletin 2017/12

Finishing touches made to the PPF service-related compensation cap

The DWP has laid all the necessary secondary legislation in order to bring into being the service-related cap to PPF compensation from 6 April 2017.

Currently, when a scheme is assessed for PPF entry, the initial amount of the PPF pension for those who are below normal pension age is capped at a fixed amount. But going forward, this cap will increase, by 3% for every full year of pensionable service above 20 years the member has in the scheme, to a maximum of twice the cap that initially applied to them. Although all those affected will have their PPF compensation recalculated at the original point of assessment as if the service-related cap had always been in existence, they will not receive any back payments.

In order to make this happen:

• The draft regulations on which the DWP consulted last September (see Pensions Bulletin 2016/38) have been finalised. The Pension Protection Fund (Modification) (Amendment) Regulations 2017 (SI 2017/324) come into force from 6 April 2017 and are little altered, as the response to the consultation makes clear
• Further regulations provide for any capped PPF compensation that has been subject to a pension share following divorce, to be recalculated going forwards. The Pensions Act 2014 (Pension Protection Fund: Increased Compensation Cap for Long Service) (Pension Compensation Sharing on Divorce) (Transitional Provision) Order 2017 (SI 2017/301) comes into force on 6 April 2017
• The Pensions Act 2014 (Commencement No.10) Order 2017 (SI 2017/297) brings the substantive changes to the compensation cap, as set out in Schedule 20 of the Pensions Act 2014, into force also from 6 April 2017

There is no further news on the Government’s plans to introduce an equivalent cap for the Financial Assistance Scheme from April 2018.

DWP responds on various contracting out issues

The Department for Work and Pensions has responded to its consultation paper issued last November (see Pensions Bulletin 2016/48) on three separate topics with a contracting-out theme.

Changes to the salary-related contracting-out legislation

Most of the changes being proposed are going forward and have now been set out in regulations. However, the proposal to strengthen the legislation that restricts amendments to Section 9(2B) rights has been put on hold, in order that there can be further reflection on what, if any, additional provision is required. If there are to be changes, there will be further consultation, with no changes to legislation before autumn 2017. Separately, the fixed rate of GMP revaluation for those who leave pensionable service before pensionable age on or after 6 April 2017 is set as 3.5%, rather than the 4% that had been proposed – the DWP agreeing with respondents that a 0.5% premium for fixing the rate is no longer appropriate.

The Occupational Pension Schemes and Social Security (Schemes that were Contracted-out and Graduated Retirement Benefit) (Miscellaneous Amendments) Regulations 2017 (SI 2017/354) come into force on 6 April 2017.

Reviews of certain contracting-out legislation

The response document further reports on the three areas of contracting-out where the DWP has committed to review legislation. The timescale has slipped on the vexed question of facilitating bulk transfers without consent that involve contracted-out rights where the receiving scheme has never been contracted-out. Whereas in November we were told that any changes would be unlikely before autumn 2017, the DWP now says that it hopes to be in a position to consult on any proposed changes by autumn 2017, implying that any change is not going to happen until April 2018.

Equalising pensions for the effect of inequalities caused by GMPs

The DWP gives a high level response to the consultation on the proposals put forward by the industry working group. It reports that there was broad agreement by most respondents that the proposed methodology was a distinct improvement on the 2012 proposal, but several did question the requirement to equalise given the UK’s decision to leave the EU.

The response goes on to list a number of issues raised by respondents and in nearly all cases says that it will take the issue back to the working group. Given this, the DWP is unable to set out a timeline for the completion of work, but promises to notify interested parties as soon as it is in a position to do so.

Changes to auto-enrolment legislation for new employers finalised

The Department for Work and Pensions has responded to last month’s consultation in relation to employers that are due to become subject to the auto-enrolment duties from 1 April 2017 (see Pensions Bulletin 2017/07) and laid regulations that are little changed from those proposed then.

The Employers’ Duties (Implementation) (Amendment) Regulations 2017 (SI 2017/347) provide for such employers to become subject to the auto-enrolment duties on the day that their first worker begins to be employed, but for them to be able to defer automatic enrolment by three months. The regulations come into force on 1 April 2017.

Pensions Regulator promotes voluntary master trust assurance scheme

In announcing that eight more master trusts have obtained master trust assurance under the Pensions Regulator’s voluntary regime, it is now becoming clear that the Regulator regards this as a very useful stepping stone to the compulsory regime which is being legislated for through the Pension Schemes Bill 2017 and expected to be in force in 2018-19.

Although details of authorisation under the compulsory regime need to await Royal Assent, it is apparently to have “a focus on systems and processes”.

Employer-provided pensions advice – NIC exemption regulation laid

Regulations have been laid before Parliament that, amongst other things, provide for a new Class 1 NICs disregard for payments and reimbursements by an employer of the costs of pensions advice.

This aspect of the regulations is consequential to the draft clauses of the Finance Bill 2017 (see Pensions Bulletin 2016/49) that set out a new income tax exemption to cover the first £500 worth of pensions advice provided to an employee (including former and prospective employees) in a tax year, whether the employer pays for or reimburses the employee for the cost of advice.

As with the income tax provisions, the regulations limit the disregard to £500 of costs per employment or former employment in a tax year. The payment or reimbursement must also be made under a scheme that is open either to an employer’s employees generally, generally to its employees at a particular location or to such employees from either of those groups who satisfy a qualifying age or ill-health condition.

The Social Security (Miscellaneous Amendments) Regulations 2017 (SI 2017/307) come into force on 6 April 2017.

Regulator provides more help for trustees and savers in the fight against pension scams

The Pensions Regulator has added several features to its scorpion campaign (see Pensions Bulletin 2016/13) to help prevent savers from falling victim to pension scams. These include:

• New videos for trustees and savers – alerting them to typical scammer tactics and the devastating consequences for scam victims

• An online scam-spotting tool for savers considering investing their pension pot

• A quick five-step guide to help savers protect themselves with practical tips and questions to consider

• A downloadable poster for providers and employers; and

• A checklist for trustees – helping them work through the due diligence they have to do when looking at transfer requests

CPIH to lead the pack

The Office for National Statistics has published an article detailing changes it will shortly make to consumer price inflation reporting as the CPIH moves closer to becoming a national statistic (see Pensions Bulletin 2016/45).

Most visibly, the content and structure of the Consumer Price Inflation statistical bulletin and data tables will change with effect from the edition due to be published on 21 March, with CPIH being put first in both the bulletin and the tables. A full revised series for CPIH incorporating council tax and revised weights for owner occupiers’ housing costs and its components has also been made available to download.

As previously indicated the CPI will continue to be produced to international standards and published at the same level of detail as before. The RPIJ will no longer be published and an estimate of the formula effect on the RPI will be made available.

Time running out for GMP revaluation override

When contracting-out ended on 6 April 2016, schemes with continuing active members that had incorporated into their rules that cessation of contracted-out service resulted in fixed rate revaluation applying to their GMPs were placed in some difficulty. This was because the new legislation provided for GMP revaluation to continue to be linked to the rise in national average earnings until the member left pensionable service.

However, the threat of an unwelcome GMP revaluation underpin was mitigated by the DWP laying regulations delivering a statutory modification power in relation to this issue.

The only problem is that this power, which has retrospective effect and for consultation with members not to be required, must be exercised by 6 April 2017.

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.