HMRC pragmatic (so far) on GMP-equalization tax issues

Her Majesty’s Revenue and Customs (HMRC) has published a first instalment of guidance on the tax issues arising from equalisation of pension rights for the discriminatory effects of guaranteed minimum pensions (‘GMP equalization’). Equalisation-driven increases will not be treated as ‘accrual’, and so will not need to be tested for annual allowance purposes, or cause loss of lifetime allowance protections. Nevertheless, there are complications to be managed, and issues—most glaringly concerning GMP conversion—that are yet to be addressed.

Future of Trusteeship & Governance: consultation outcome

The Pensions Regulator has announced its plans following on from the Future of Trusteeship and Governance consultation exercise that it conducted in 2019. The themes include trustee knowledge and understanding (TKU), scheme governance structures (board diversity, professional trustees, and sole trusteeship), and defined contribution (DC) scheme consolidation.

FCA statement – disclosing charges and costs in workplace pensions

The Financial Conduct Authority (FCA) has published a policy statement setting out the outcome of last year’s consultation exercise on disclosing costs and charges to defined contribution (DC) workplace pension scheme members. In broad terms, it replicates, for contract-based arrangements, the costs and charges disclosure obligations that were imposed on trustees of occupational defined contribution DC schemes in April 2018.

Since 2018, FCA rules have required asset managers to report costs and charges to the scheme operator, manager or trustee of contract-based workplace pension schemes. The new rules build on this and require contract-based workplace pension scheme governance bodies (e.g. independent governance committees) and their advisers to disclose costs and charges information to scheme members on an ongoing basis.

The new rules, coming into force on 1 April 2020, are being phased in and will apply to default funds first. Scheme governance bodies will have until 31 July 2021 to publish details relating to default fund cost and charges for the 2020 calendar year. In subsequent years, the costs and charges on all funds that members can select will need to be disclosed annually by 31 July, in respect of the previous calendar year.

In the short term, providers will only have to publish costs and charges information on default arrangements, rather than full fund ranges. With this, the FCA is focusing on the importance of charges to those who (generally) do not make an active decision where to invest their pension assets. This seems logical and will cover the vast majority of members in DC arrangements.

Auto-enrolment qualifying earnings & trigger

The Department for Work and Pensions (DWP) intends to keep the auto-enrolment qualifying earnings band (upon which minimum contributions and benefits are based) aligned with the National Insurance Contributions thresholds. From 6 April 2020 the qualifying earnings band will be from £6,240 to £50,000 per annum. The annual ‘earnings trigger’ above which jobholders must be enrolled automatically will continue to be £10,000, as it has been since 6 April 2014.

Government has said that it intends to remove the lower end of qualifying earnings band so that contributions are calculated from the first pound earned (as well as reduce the age threshold for auto-enrolment from age 22 to age 18) from the mid-2020s. There are no current proposals to reduce the earnings trigger, however, we expect that it will be a subject of discussion at this year’s statutory triennial auto-enrolment policy review.

PASA drafts DB transfer Code

The Pensions Administration Standards Association (PASA) has published a consultation-draft ‘Code of Good Practice’ for defined benefit (DB) transfers. The Code is intended to improve transparency and communication during the transfer process and strike a balance between protecting members and respecting the statutory right to transfer.

The PASA produced guidance for straightforward transfers last year. Rather than producing a second guidance note for non-standard transfers, as it had initially planned, it decided to create a Code that covers all DB transfers.

The draft Code’s objectives are to:

• facilitate faster, safer transfers to improve the overall member experience;
• improve member and stakeholder communications and transparency in the processing of transfers; and
• improve efficiency for administrators.

Depending on the complexity of the case, the draft Code suggests that it should take between seven and ten days from receiving a transfer request to issuing a guaranteed quote (with an extra five days if referral to an actuary is required).

The consultation period is 11 February to 30 April 2020.

Auto-enrolment evaluation report 2019

The Department for Work and Pensions (DWP) has published its annual report on the effect that auto-enrolment has had on the workforce. It is based on evidence published over the last 12 months as well as new analysis carried out for the report.

Some findings from the report include:

• more than 10.2 million workers have been automatically enrolled since 2012, with over 1.6 million employers meeting their duties under the auto-enrolment legislation;
• at the end of March 2019, NEST membership was 7.9 million members, with 720,000 employers participating (compared to 6.4 million members and 616,000 employers reported in the 2017/18 NEST annual report);
• 62 per cent of private sector employers have some form of workplace pension provision (up from 47 per cent in 2017); and
• the majority of individuals interviewed thought that auto-enrolment as a good thing for them personally and agreed that saving into a workplace pension was normal for them.

The DWP has confirmed that this will be the last evaluation report published by the DWP now that the implementation stage for auto-enrolment is over and the minimum level of contributions has been phased in.

Regulator’s Compliance and Enforcement Bulletin

The Pensions Regulator has published its latest Compliance and Enforcement Quarterly Bulletin (covering October to December 2019) which includes a case study relevant to a current 'regulatory initiative' on the fair balance between deficit-reduction contributions and company dividends.

The Bulletin notes that the Regulator has launched four ‘regulatory initiatives’ covering:

• fair treatment (pension scheme contributions versus dividend payments);
• lengthy recovery plans;
• investment governance; and
• record-keeping.

The ‘initiatives’ involve the Regulator directly contacting the trustees in writing, setting out its expectations and giving trustees a reasonable time to take action. An associated press release says that regulatory initiatives are prompting correspondence with 'hundreds' of trustees, with encouraging results so far.

One of the case studies notes that as a result of being contracted as part of the ‘fair treatment’ regulatory initiative, the trustees and employer in question agreed an additional £15 million lump sum for the scheme.

The Regulator also notes that in light of the plans to tackle poor scheme governance, which includes updating the Trustee Knowledge and Understanding Code of Practice and reviewing the Trustee Toolkit, it will ‘look to carry out a regulatory initiative to check levels of trustee knowledge and understanding, once these standards are in place’.

Statutory instrument round-up

• PPF levy ceiling and compensation cap
• Social Security
• GMP Increase Order

And Finally…

Is it just AF, or does the headline from Charles Counsell’s recent blog - '2020 Will Be A Year of Positive Change’ - make it seem like the Pensions Regulator is branching out into the tabloid horoscope business?

Expect to see the use of the Regulator’s power to inspect premises announced with ‘I see a tall, dark stranger in your future…’, and annual DB funding statements beginning with ‘With Saturn rising in Libra, your lucky number is 0 (£deficit)…’

DOWNLOAD FULL SUMMARY

JOIN OUR MAILING LIST