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Pensions Bulletin 2017/48

Our viewpoint

It’s no change for the charge cap for now

The Government has decided not to change the level or scope of the 0.75% charge cap.  This is the cap that applies to member-borne charges in default investment funds within most DC pension schemes used for automatic enrolment.

The announcement made in Parliament last Thursday, in the form of a written statement, was greeted with dismay by Alex Cunningham MP, the shadow pensions minister.

The decision was taken after seeking a range of industry and consumer views and consideration of the findings of a recent pension charges survey.

The Government promises to actively monitor charges, recognising that there is ongoing concern amongst consumers.  It will do this by means of the investment administration charges and transaction costs information which trustees of DC schemes will be required to publish from April 2018 (see Pensions Bulletin 2017/45), and which providers will publish in due course.

Retaining the status quo for now does appear to be a stay of execution as a review is also promised for 2020 of both the level and scope of the charge cap and permitted charging structures, to see whether a change is needed to protect scheme members.  The Government’s statement concludes that it expects to see a much clearer case for change by then.

Comment

The charge cap was one of the matters that was to be considered alongside the auto-enrolment review (see Pensions Bulletin 2017/06), on which the conclusions are expected in December.  The Government’s decision on the charge cap is unlikely to be popular with consumers.  It is not clear at this point whether we will see a bit more than this rather bald ministerial statement.

Finance Bill receives Royal Assent

The Finance Bill introduced in September to legislate for the various provisions that should have been in the Finance Act 2017, but were withdrawn in April due to time constraints imposed by the General Election has now received Royal Assent.

The Finance (No. 2) Act 2017 contains two pensions tax measures:

  • The drop in the money purchase annual allowance from £10,000 to £4,000; and
  • The increase in the income tax exemption for employer-provided pensions advice from £150 (provided the advice costs no more than this), to £500 with no cliff edge

Both these provisions have retrospective effect from the tax year 2017/18.

Comment

Due to the very nature of the money purchase annual allowance, the extent of retrospection goes back further than 6 April 2017 as anyone taking a flexible benefit from April 2015 is tested going forwards against this allowance.  Those who dipped into their retirement savings from then thinking that £10,000 was more than enough for any future annual contributions are likely to be justifiably upset that they now find that the tax-relieved limit is £4,000.

PPF bridging pension anomaly – time for a rethink

The DWP has decided not to proceed with its proposed approach to address the PPF bridging pension anomaly (see Pensions Bulletin 2017/37), but instead is to replicate the key elements of a scheme’s bridging pension design directly in PPF compensation.

This significant change of course is set out in a further consultation document on which views are requested by 3 December 2017.

The current anomaly arises because any pensioner in receipt of a bridging pension from their scheme continues to receive that additional pension as PPF compensation should their scheme go into the PPF.  But instead of it stopping around the member’s State Pension Age, it continues for the full life of the member.

The DWP had intended to address this by actuarially converting the bridging pension into a flat-rate lifetime equivalent amount.  However, a significant proportion of respondents expressed a preference for the alternative approach set out in the consultation – one based on the rules of the original scheme – and it is this approach that the DWP has now decided to take.

This latest technical consultation seeks to establish whether the draft regulations achieve the revised policy intent.  If they do, these changes to the PPF’s compensation rules will come into effect for PPF assessment periods from 24 February 2018, subject to Parliamentary procedures.

The DWP promises to respond to the other issues raised in the August consultation when it comes to respond to this latest consultation.

Comment

This is a good result.  Responses to the consultation, including that from the ACA, had pointed out that the actuarial equivalence approach could cause genuine financial hardship, defeating the original purpose of the failed scheme’s design that integrated its payments with that from the state scheme.

New VAT bill for insurers – HMRC puts off implementation

On 12 October we reported on HMRC’s unexpected change of policy concerning the VAT treatment of pension fund management services provided by insurance companies (see Pensions Bulletin 2017/42).

Since then we have been told that HMRC issued their Brief without any consultation with those directly affected, have since met representatives of the ABI and Investment Association and that there was every possibility of this policy change, which is due to take effect from 1 January 2018, being put off until 1 January 2019 at the earliest.

So we were far from surprised when on 20 November Revenue & Customs Brief 3 (2017) was adjusted.  Without any further explanation, the go live date is now 1 April 2019.

Comment

Quite extraordinary, but at least this gives time for HMRC to digest the representations made and potentially adjust its approach.  Who knows what HMRC’s position will be once we get to April 2019?

Statutory revaluation and indexation confirmed

The Order has now been made setting the statutory minimum revaluation of deferred pensions other than GMPs for those reaching normal pension age in 2018.  The same Order also sets, indirectly, the statutory minimum increases for pensions in payment in 2018.

The revaluation percentages within The Occupational Pensions (Revaluation) Order 2017 (SI 2017/1104) reflect the overall rise in the Consumer Prices Index from September 2010 to September 2017 and movements in the Retail Prices Index prior to this.

The one year Order for revaluations subject to the 5% cap is 3.0% and 2.5% for the 2.5% cap (the CPI rose by 3.0% in the twelve months to September 2017).  These one year Orders also form the basis for so-called Limited Price Indexation for pensions in payment and so the 5% LPI increase and the 2.5% LPI increase will also be 3.0% and 2.5% respectively.

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.

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