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Pensions Bulletin 2018/08

Our viewpoint

Pensions Regulator fines trustees for non-compliant Chair Statements

Pension schemes that have produced non-compliant Chair’s Statements have been named for the first time by the Pensions Regulator.  The first such list accompanying the Regulator’s latest compliance and enforcement quarterly bulletin, includes six pension schemes whose trustees have been fined for this offence.  The professional trustees of these schemes are also named.  A similar list names more than 30 schemes which did not produce a Chair’s Statement when required to do so during 1 October to 31 December 2017.

Broadly speaking the Chair’s Statement is a mandatory statement that trustees of defined contribution (DC) schemes are required to prepare annually, signed by the chair of trustees, within seven months of the end of each scheme year.  Last November the Regulator issued a “Quick Guide” (see Pensions Bulletin 2017/47) to the Chair’s Statement which was a clear shot across the bows at the quality of some Chair’s Statements that the Regulator had seen in the recent past.  The Regulator wants Statements to clearly explain how the trustees are meeting their governance duties and to offer comfort to pension savers that their money is safe.

Comment

This latest development is further evidence of how seriously the Regulator takes Chair’s Statements and its’ determination to drive up the quality of them.

Regulator and police investigate schemes with suspected cold-calling links

The Pensions Regulator has launched a joint investigation with the police leading to search warrants being executed at a number of homes and businesses in respect of poorly run pension schemes that are suspected of scamming pension holders.  The Regulator has also appointed an independent trustee to run the Alderley Wealth Management pension scheme in place of Confideo Pension Trustees Ltd as part of the same investigation.

The Regulator is concerned that pension holders have been contacted and persuaded to transfer their funds into what they thought were low risk funds, but which were actually high risk, illiquid investments overseas.  Although cold-calling is not yet illegal (but rapid progress on that will hopefully be made shortly – see Pensions Bulletin 2018/07), the Regulator is keen to pass on the message that no reputable companies do it and states that “a cold-call about your pension is an attempt to steal your savings”.

A man and woman are being questioned by police whilst another man was arrested and then released as the investigation continues.

Comment

Tough actions from the Regulator are accompanied by tough words for any businesses continuing to cold-call pension holders.  Equating cold-calling with attempted theft might be a bit of a jump, but it certainly gets pension holders in the right mindset when answering any unsolicited calls.

Scottish income tax and relief at source

Following the announcement in December that the Scottish Government intended to set different tax rates and bands in 2018/19 for non-savings and non-dividend income of Scottish taxpayers to those in the rest of the UK, HMRC has published a newsletter covering various issues that arise as a consequence (see Pensions Bulletin 2017/53).  The tax rates and bands for 2018/19 themselves are formally approved by the Scottish Parliament this week.

Firstly there is a comforting statement that members of pension schemes who get pension tax relief through the “net pay” mechanism (ie their pension contributions are deducted before income tax is applied to their pay, so they only pay tax on what’s left – this is the case for most occupational pension schemes) will continue to be given relief by default at their marginal rate of tax, including the new and newly increased Scottish rates.

Where pension schemes use the alternative relief at source mechanism scheme administrators will continue to claim tax relief at the rate of 20% for members who are Scottish taxpayers.  For pension scheme members who are Scottish taxpayers liable to income tax at no more than the Scottish starter rate of 19%, or who pay no tax, current tax rules will continue to apply.  This means that scheme administrators will continue to claim relief at 20% in respect of these individuals, and HMRC will not recover the difference between the Scottish starter and Scottish basic rate.  Pension scheme members who are Scottish taxpayers liable to income tax at the Scottish higher rate of 41% or Scottish top rate of 46% will continue to be entitled to claim the additional relief due through the self-assessment system, as will those who are liable to the income tax at the new intermediate rate of 21%.

These arrangements will apply for 2018/19 with HMRC stating that for tax years to follow they will “continue to explore the most appropriate way to cater for the new income tax rates and bands announced by the Scottish Government, as well as future changes by the devolved administrations”.

The Newsletter also announces a service starting in March which will allow scheme administrators to look up the residency status of members for relief at source.  Access will be in a controlled “private beta” environment in March before being made fully available for the 2018/19 tax year.  Scheme administrators who want access in March should contact HMRC as set out in the Newsletter.

Finally, amongst other matters the Newsletter also includes two appendices containing messages for members and messages for payroll providers.  This sample wording may be a useful starting point for drafting appropriate communications.

2017 a record year for DB transfers - is this the new normal?

LCP is monitoring the pattern of transfer quotations and payments for the DB schemes we administer, and the practices adopted by trustees, to see how things are changing following the introduction of Freedom and Choice in April 2015.

Our findings include:

  • 2017 was a record year for DB transfer activity, though in many ways surprisingly stable after hitting new highs in the first quarter of the year. Nearly 2% of deferreds requested a quotation in Q1 2017, and this remained a steady rate throughout the year, nearly double the rate for the two previous years
  • Similarly take-up rates remained stable, with on average just under 30% of quotations now being accepted
  • Older members and those with larger pensions were much more likely both to request and then to take up quotations
    • Members over age 55 were twice as likely to request a quotation compared with younger members, and for those who did twice as likely to take up a transfer
    • 40% of quotations over £250,000 were taken up, compared with only 20% of quotations below this amount

More details, including charts and a look ahead to what may happen in 2018, are available on our website.

Government responds to Commission on Dormant Assets

The Government has published its response to the report of the Commission on Dormant Assets (see Pensions Bulletin 2017/10).

To briefly recap, the Dormant Bank and Building Society Accounts Act (the Act) was passed in 2008 to address the challenges and opportunities that dormancy presented to the banking sector.  Early expectations were that participating firms in a voluntary scheme set up as a consequence would transfer around £400m to Reclaim Fund Ltd (RFL) which could be used to support good causes.  The major UK high street banks and building societies are participating and in fact more than £1bn from dormant accounts has been identified and transferred into the scheme and the total made available to good causes is shortly expected to be well over half a billion pounds.

On the basis of this success, the Government established the independent Commission on Dormant Assets and asked it to provide advice on the potential to include a wider range of dormant assets within the scheme – this included insurance and pensions, amongst others.  The Commission started its work in 2016 and consulted widely with firms, RFL, trade associations and regulatory bodies, and in March 2017 reported its findings to the Government.

In its response the Government confirms its commitment to:

  • Support industry to expand the dormant assets scheme to include a wider range of financial assets, potentially including the insurance and pensions, investment and wealth management, and securities sectors
  • Appoint senior industry champions to drive forward this industry-led initiative, and to report to Government on the details of implementation
  • Retain the main principles of the scheme, including that the first priority of firms should be to trace and reunite customers with their assets, that customers should be able to reclaim dormant money at any time and that firms’ participation in the scheme should be voluntary
  • Ensure that, where appropriate, certain assets remain outside the scope of the scheme; and
  • Engage with Co-Operative Banking Group about the appropriate future governance structure for Reclaim Fund Ltd

The Government intends to undertake a preliminary assessment in 2018 of the legislative amendments required to enable an expanded dormant assets scheme and will make decisions about any potential legislative amendments after the industry champions (representing the banking, insurance and pensions, investment and wealth management, and securities sectors) have reported.

Specifically as far as insurance and pensions go, the response states that the Government “believes there is substantial potential for dormant insurance and pension products to be included in the scheme, and … encourages firms, led by the industry champion, to further consider how insurance and pension products could be included in an expanded scheme”.

However, as the Commission’s report noted in March 2017, the Government states it recognises the “complexities of including any assets that are held either in trust or collective structures.  These issues apply to differing degrees across different asset classes within the insurance and pensions, investment and wealth management, and securities sectors”.

Additionally, the Government states it agrees with the Commission’s recommendation that certain assets should remain outside the scope of the scheme, including credit unions, mutual insurance funds, industrial branch insurance policies and general insurance.

Comment

This is a fairly vague if well-intentioned response.  Future developments may become clearer when the “senior industry champions” are announced and start driving matters forward.

We said in March 2017 that occupational trust-based schemes holding assets on a collective basis will likely be exempt from the dormant assets scheme.  The language of the Government’s response does make us think this may be a little less certain than before – it will depend on how willing the Government is to tinker with fundamental trust law to achieve their inclusion.

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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