- Pension scams – Guy Opperman gives evidence
- Pensions Regulator releases its (delayed) DC 2020 survey results – more schemes thinking about wind-up
- Should the information in part of your tax return be submitted by third parties?
- Status quo maintained on transfers to Gibraltar-based QROPS
- No change for the PPF levy ceiling or the compensation cap
- Scheme return season – no change to questions
- Pensions and the self-employed – DWP provides an update
Pension scams – Guy Opperman gives evidence
The Work and Pensions Committee’s inquiry into pension scams continues with oral evidence being given by pensions minister Guy Opperman on 27 January. Amongst the snippets from his evidence and that of his officials are the following:
- The Pension Scams Industry Group’s data sharing initiative to identify potential scams (see Pensions Bulletin 2020/06) has now been taken up by around 50 organisations – there is a desire that many more organisations should join in
- Regulations under powers set out in the Pension Schemes Bill that will limit the statutory right to take a transfer to another arrangement “will come in by probably about September or October”. They will be preceded by consultation on a draft “to ensure that the red flags are both understood and, of course, can be implemented by trustees”
- As part of the restrictions to come on the statutory right to transfer, any individual wishing to transfer their pension abroad will need to prove that they are resident in the country the money is going to
- The DWP is looking into the possibility of promoting a ‘mid-life MOT’, to help engender a greater understanding of an individual’s finances – it being thought that current policy interventions near to retirement are not sufficient
- HM Treasury is doing an evaluation of the take-up and effectiveness of the “pension advice allowance” – the limited withdrawal mechanism that DC schemes can make available to members to contribute towards their taking retirement financial advice. HMRC will be reporting back in 2021. There has been criticism that the amount that can be withdrawn (of up to £500 on each of no more than three occasions) is too low and that it is used too late in the day to influence an individual’s retirement financial planning
- There was criticism that HMRC is not being consistent in its approach to victims of pension scams who can face severe tax penalties after having lost the bulk of their pension savings to a scam
Concern was also expressed about the dominant market position enjoyed by one firm of professional trustees when it came to the Pensions Regulator appointing statutory trustees, usually after a pension scam was unearthed. The DWP intends to look into this issue.
Comment
The discussion of these and a number of other strands demonstrates that tackling pension scams in the ‘freedom and choice’ era is not straightforward with the threat presented constantly mutating. Whilst there will be plenty of meat for a potentially hard-hitting Select Committee report, the Government is fully aware of the issues and has plans to address at least some of them.
In the meantime we look forward to the consultation on the draft “red flags” regulations which we hope will empower trustees to block scams and are flexible enough to cover the mutant variations of scams which may emerge in future.
Pensions Regulator releases its (delayed) DC 2020 survey results – more schemes thinking about wind-up
The Pensions Regulator has released its latest annual DC scheme governance survey which covers several interesting areas.
The survey was carried out between January and March 2020, mainly before the Covid-19 pandemic and presumably because of that, only covers 216 trust-based schemes of differing size, including 16 master trusts, compared to the 2019 survey which covered 447 schemes (see Pensions Bulletin 2019/31). We presume the pandemic is also why publication has been delayed until now.
The 2020 survey covers several topics and some of the key findings are:
- Climate change: schemes that had 100+ members and/or were used for automatic enrolment were asked a number of questions about climate change. Overall, 43% of this group had considered climate change in their investment strategies, up from 21% in 2019. Together these schemes covered 95% of DC members. This topic is what the Regulator chose to lead on in its press release accompanying the survey, noting that it is concerned that 21% of surveyed schemes felt climate change was not relevant to them and that in the spring it will publish a strategy setting out how it will help trustees meet this challenge
- Winding up: 42% of schemes reported that they had considered winding up (compared to 19% in 2019). Large schemes were least likely to have considered this (17%). The primary reason given for considering winding up was the time and cost involved in running the scheme (31%). The main barriers to winding up were given as lack of time (20%), the decision still being under review (15%) and waiting for members to retire or leave the scheme (15%)
- Chair’s statements and scheme returns: 76% of schemes indicated that they had completed a scheme return in the previous 12 months, and 58% had provided a chair’s statement. Over a quarter (27%) of schemes that had produced a chair’s statement indicated that this had resulted in the trustees devoting more time to governance and administration. This proportion was lower for the scheme return (17%). There was little difference in reported impact of the scheme return by size of scheme. Larger schemes were more likely to state that the chair’s statement had led to increased time spent on governance and administration (56% of master trusts, 47% of large and 50% of medium vs. 18% of micro and 19% of small schemes). However, there was little difference by size of scheme when it came to reported impact of the scheme return
- CMA duties: 45% of schemes were aware of the new CMA duties around setting objectives for providers of investment consultancy services and tendering for fiduciary management services (see Pensions Bulletin 2020/48) and 29% had read the Regulator’s guides about these
- Cyber security: 32% of schemes had all ten of the recommended cyber security controls in place, and 78% had at least half of them – larger schemes tending to have more comprehensive measures in place than smaller schemes
Comment
Although the Regulator chose to highlight the vital topic of climate change, the statistic that caught our eye is that the proportion of schemes that have considered winding up has more than doubled since the 2019 survey to 42%. As consolidation and wind-up has been a continuing theme of Government policy for DC schemes for more than two years now (see Pensions Bulletin 2020/38), and for more than a year before the 2020 survey was carried out, policymakers are likely to find this encouraging.
Should the information in part of your tax return be submitted by third parties?
The Office of Tax Simplification offers up this intriguing possibility in a call for evidence to assist in its review of ways to make tax easier for people through smarter use of third party data.
Possibilities include the following:
- Pension providers reporting directly to HMRC pension contributions made by an individual
- Charities reporting directly to HMRC donations made by an individual for which gift aid relief is available
- Investment and wealth management companies providing directly to HMRC details of potentially taxable income and gains on an individual’s investments
The OTS sets out a number of questions for individuals and their tax agents to consider and separately a set of questions directed at third parties who would supply this information. All are generic in nature.
Consultation closes on 9 April 2021.
Comment
Noone enjoys putting together their tax return so there may be merit in having some of these details pre-populated. However, it does rest on the premise that the information supplied by third parties is accurate. Quite what happens if the individual disputes such information is not clear.
From a pensions perspective many people paying 40% income tax fail to claim the higher rate tax relief to which they are entitled on personal contributions they make to a personal pension. Data sharing between pension providers and HMRC offers up the prospect of this relief being delivered, although it in turn could mean that more people will be asked to submit a tax return.
Quite how ambitious this project is remains to be seen. It is one thing for a DC pension provider to submit to HMRC a record of personal contributions made by an individual in a tax year; quite another for a DB scheme to submit the components of a potential annual allowance charge.
Status quo maintained on transfers to Gibraltar-based QROPS
Regulations have been laid before Parliament whose purpose is to maintain the exclusion from the 25% overseas transfer charge for recognised transfers of pension savings, and onward transfers of pension savings, to a qualifying recognised overseas pension scheme (QROPS) established in Gibraltar following the UK leaving the EU.
Since 9 March 2017 this tax charge has been deducted from transfers of UK pension savings to QROPS except in certain circumstances. One of these was that the individual and the pension scheme receiving the transfer are both in a country within the European Economic Area.
Changes have been made to this exception, both by these regulations and earlier Brexit legislation so that it now operates where the individual is in the UK or an EEA state and the receiving scheme is established in an EEA state or Gibraltar.
The Pension Schemes (Qualifying Recognised Overseas Pension Schemes) (Gibraltar) (Exclusion of Overseas Transfer Charge) Regulations 2021 (SI 2021/89) come into force on 18 February and are backdated so as to have effect from 31 December 2020. However, transfers made to Gibraltar-based QROPS between these dates should have the overseas transfer charge withheld and paid across only from 18 February.
These regulations are also mentioned in passing in HMRC’s latest pension schemes newsletter which also provides an update on HMRC’s managing pension scheme service, a reminder on relief at source returns and a link to the latest pension flexibility statistics.
Comment
This latest necessary piece of Brexit housekeeping ends the uncertainty over whether the tax charge applied to Gibraltar transfers. For now, the status quo is maintained on all QROPS transfers, which have become far less prevalent since the tax charge was imposed almost four years ago.
The suggestion that certain Gibraltar-bound transfers should have the overseas transfer charge temporarily withheld comes far too late in the day to be effective.
No change for the PPF levy ceiling or the compensation cap
The overall pension protection levy “ceiling” for 2021/22 will be £1,099,445,505 – as set out in the Pension Protection Fund and Occupational Pension Schemes (Levy Ceiling) Order 2021 (SI 2021/93) made by the DWP on 27 January 2021.
This is the same as that set for 2019/20 as a result of there being no growth in the level of earnings to July 2020 thanks to the pandemic. The actual maximum levy the PPF can take in 2021/22 is further constrained by other rules and is substantially less than the £1.1 billion permitted by this particular Order. The PPF is intending to raise £520m in 2020/21 (see Pensions Bulletin 2021/04).
In notes accompanying the Order the non-service-related cap on PPF compensation is also to remain frozen at its 2020/21 level – £41,461.07 – as there was no growth in the level of earnings to April 2020 either.
Comment
None of this is a surprise and is a further consequence of last year’s economic downturn caused by measures designed to tackle the pandemic.
Scheme return season – no change to questions
The Pensions Regulator has updated the information on DB and mixed benefit scheme returns on its website. Scheme return notices will now be issued from the middle of February instead of the end of January (see Pensions Bulletin 2020/50). The Regulator is also silent on the two additional questions that were to be asked – now stating that the 2021 scheme return questions will be the same as last year. Only a few days ago the Regulator was saying that schemes needed to prepare themselves to answer questions relating to the web address of the published statement of investment principles and the assessment of the employer covenant grade.
Schemes will have to complete and submit their returns by 31 March 2021.
Comment
Quite why the Regulator has rowed back is not clear, but at least schemes now know what they will need to submit and can use last year’s return as a guide to this year’s submission.
Pensions and the self-employed – DWP provides an update
In response to a question from a Conservative MP, Guy Opperman has reasserted the Government’s intention to increase retirement saving amongst the self-employed and provided an update on the trials and research signalled by the DWP in December 2018 (see Pensions Bulletin 2018/51).
These started in 2019/20 and will “build the evidence base” to find ways to make retirement saving easier for the self-employed. There is also mention of a research project to evaluate the impact of the pandemic on the savings and financial wellbeing and resilience of self-employed businesses. Further trials are scheduled from this summer.
Comment
This initiative is definitely in the slow lane, with more than three years having passed since the Government announced that it would carry out this work. It remains unclear what the outcomes will be.
