What has happened to the Pension Schemes Bill?
Parliament came back from its elongated Easter recess on 21 April. One month on and there is no sign of progress on the Pension Schemes Bill, last seen at Committee stage in the House of Lords on 4 March (see Pensions Bulletin 2020/14). The next point in the Bill’s journey through Parliament is Report Stage followed by Third Reading. And only then can it start its passage through the House of Commons.
Comment
Our fear that the Bill is not being given sufficient airtime is being borne out. It now seems most unlikely that it will reach the statute book by the summer, which in turn will push back when other work, such as that on regulations, can commence in earnest, and so when the Bill’s provisions can come into force. It is time surely for the DWP to set out a clear timeline.
Pensions Regulator gets new powers to obtain telecommunications data
Draft regulations have been laid before Parliament that name the Pensions Regulator as one of five Government bodies to be given new powers to obtain data from telecommunications operators.
The Investigatory Powers (Communications Data) (Relevant Public Authorities and Designated Senior Officers) Regulations 2020 will give the Regulator power to obtain “communications data”, where it is wholly or partly “events data”, for the purpose of preventing or detecting serious crime, and in any other case, for the purpose of preventing or detecting crime or of preventing disorder.
The draft explanatory memorandum states that “communications data” is the ‘who’, ‘where’, ‘when’, ‘how’ and ‘with whom’ of a telecommunication, but not what was written or said within it. The Investigatory Powers Act 2016 under which these regulations have been made makes clear that phone calls, e-mails and other forms of electronic communication are covered.
For their part, telecommunications operators have to retain certain types of data where it is necessary and proportionate to do so for up to 12 months.
Comment
There was no public consultation before these regulations were made. Instead the Government consulted the Investigatory Powers Commissioner and the five Government bodies to get these new powers.
Clearly, these new powers will potentially assist the Regulator when investigating scam activity which the Regulator has cause to believe constitutes a criminal offence. These powers could also be used in future when investigating whether any of the new crimes set out in the Pension Schemes Bill have been committed, such as avoidance of employer debt and conduct risking accrued benefits.
Pensions Regulator provides update on the new DB funding code
The 2 September deadline to respond to the Regulator’s outline proposals on its new approach to DB funding (see Pensions Bulletin 2020/15) may be put back. And the important discount rate for the low dependency funding basis (gilts plus 0.25% to 0.5%) and the timing point for reaching this target will be reviewed in light of the change in market conditions since the consultation was issued on 3 March.
So says David Fairs, Executive Director of Regulatory Policy, Analysis and Advice, in a blog whose main purpose is to pour cold water on the idea put forward by some in the pensions industry that the Regulator should rethink or abandon its consultation as it was written in different, more benign, economic conditions and it is now out of place.
Mr Fairs argues that this first consultation is seeking views on what the principles for a sound, resilient funding framework should look like and what they should be seeking to achieve. He believes that the principles under consultation still stand and in fact are even more important and relevant in the light of Covid-19.
Comment
This is fast turning into a very unlucky consultation. First held up thanks to the Brexit crisis delaying the publication of the Pension Schemes Bill, it is now having to contend with the pandemic and the economic aftershocks. Covid-19 has certainly given the Regulator a stress scenario to test whatever parameters it has in mind for fast track but has yet to put out for consultation. We have known since 30 April that this second consultation will not be launched until next year and it surely has to wait until the economy settles into a new normal.
Tax relief denied in respect of “in specie” contributions to registered pension scheme
In a highly significant judgment, the Upper Tribunal has quashed an earlier finding supporting the view that “in specie” member contributions to registered pension schemes can attract tax relief in the same way as if contributions had been paid in monetary form.
In March 2018 in SIPPChoice vs HMRC, the First Tier Tribunal decided to allow an appeal by SIPPChoice against HMRC’s denial of a claim for relief in respect of four scheme members who had contracted to make contributions by means of the transfer of certain unquoted shares to the scheme. The Tribunal referred to HMRC’s pensions tax manual, in particular that part of PTM042100, in which it is set out how one can give effect to a cash contribution by means of a transfer of assets, but more importantly appeared to reach its decision in favour of SIPPChoice using arguments that would support tax relief being given on the transfer in specie of any asset.
HMRC appealed this finding and on 12 May 2020, the Upper Tribunal agreed with HMRC that the First Tier Tribunal had “erred in law”. Leaving aside the separate matter of the transfer of certain eligible shares arising from a SAYE share option scheme, tax relief is only available in respect of monetary payments and not for transfers of assets even if such an asset is transferred in satisfaction of a money debt. Moreover, there was no such debt in this case.
Unfortunately, HMRC’s pension tax manual was quite clear that the arrangement that HMRC itself was challenging could be a valid means of making tax relievable contributions. But the judge said that “Statements in HMRC’s manuals are merely HMRC’s interpretation of the law in their internal guidance and they do not have the force of law. We must interpret the legislation in accordance with the principles of construction … and if we conclude, as we have, that the legislation bears a different meaning to that found in the HMRC manual, the legislation must be preferred”.
Comment
This ruling will be a complete shock to those who can see quite clearly that the HMRC guidance enables in specie contributions to be tax-relievable so long as a well understood process is followed. Over the years a number of pension savers will have relied on this guidance, particularly when making contributions to self-invested personal pensions. They will now be worrying that HMRC will seek to recover the tax relief they have granted.
More widely, this judgment is a reminder that HMRC’s guidance does not have the force of law – something to bear in mind in other areas, such as its useful interpretation of certain GMP equalisation issues (see Pensions Bulletin 2020/08).
Covid-19 pension-related announcements
Since last week’s Pensions Bulletin, announcements and posts influenced by the Covid-19 health emergency in the world of pensions include the following:
- On 13 May the Pensions Regulator updated its Covid-19 microsite with some additional material in its now named “DC scheme management and investment” guidance. The new material relates to transfers from DC schemes, where under the new heading of “Member transfers”, the Regulator asks for transfer requests to be processed as usual given that transfers are a common way for savers aged over 55 to access their DC benefits. Such transfers should take place within a reasonable timeframe to reduce the likelihood that the member’s investments fall in value during that period, making sure that due diligence has been carried out, particularly given the greater likelihood of scam activity taking place
- Following the 1 May announcement of a temporary reduction, from 25% to 20%, in the charge on unauthorised withdrawals from Lifetime ISAs, on 14 May HMRC published a tax information and impact note about the reduction and on the same day regulations were laid before Parliament. The 20% rate applies in respect of withdrawals taking place between 6 March 2020 and 5 April 2021
- On 20 May the Office for National Statistics reported a sharp fall in inflation in April, with the CPI falling to its lowest since August 2016 as the economic fallout of the first month of the Covid-19 lockdown hits prices. The 12-month increase in the CPI fell from 1.5% in March to 0.8% in April, whilst that for the RPI fell from 2.6% to 1.5%. The ONS also reported that a number of items, whose prices are collected in order to construct the price indices, were unavailable to consumers. This is the first month of the pandemic in which the ONS has had to publish inflation figures using its workarounds whose details were published earlier this month (see Pensions Bulletin 2020/19)
And finally, that date with destiny
If last Sunday you could have transported yourself back in time precisely 30 years and for good measure found you were outside the European Court of Justice, you would have been just in time to hear that all important judgment in the case of a certain Douglas Harvey Barber, a former employee of the Guardian Royal Exchange Assurance Group.
Who would have thought that 30 years on, the effects of that judgment are still being felt in the pensions world, and with little prospect of that last part of the equalisation jigsaw, GMP equalisation, being resolved any time soon?
