22 November 2018
ACA calls for radical simplification of DB pension rights
A new paper published by the Association of Consulting Actuaries and Royal London calls for the recasting of complex accrued DB pension rights into benefits of equivalent actuarial value that would be easier for members to understand, easier to transfer from one arrangement to another, and would cut the costs of administering schemes as well as removing barriers to major consolidation in the DB sector.
With publication of the DWP’s consultation paper on DB consolidation imminent, this paper describes the benefits of simplification, how it could operate, and some of the issues that would need to be considered. The paper suggests that a recasting of currently complex benefits into a simpler form would create a DB “pension pound” enabling pension rights to more easily be compared across the whole pensions landscape.
The paper notes that although current legislation does allow for some reshaping of pension benefits, if the ACA/Royal London idea is to find expression it will be necessary to create some additional legislation to ensure that members are treated fairly as their benefits are converted.
The DWP looked at DB simplification in its Green Paper, but reported in March that there would need to be a strong body of evidence to justify it bringing forward any legislative changes.
This paper pulls together in one place the arguments for DB simplification, along with the issues that need to be confronted and as such is a useful reference source for those interested in this subject. The forthcoming consultation on DB consolidation will be an opportunity for the DWP to consider the topic once more – depending on the strength of the consultation responses it receives.
Johnston Press saved – but should the PPF be picking up the pension pieces?
The entering into administration of Johnston Press on 16 November and its subsequent acquisition last weekend by JPI Media has made headlines and been the subject of Parliamentary debate – in no small part due to the proposed treatment of the company’s pension scheme.
In what is known as a “pre-pack” administration, the Johnston Press company was placed into administration, with JPI Media ready to purchase the insolvent business. The company becoming insolvent signals the start of an assessment period and can lead to the pension liabilities being “dumped” into the Pension Protection Fund whilst the new company continues to trade profitably. Previous cases, including that of Silentnight (see Pensions Bulletin 2017/03), have seen the Pensions Regulator use its moral hazard provisions to try to recoup money from the company that has carried on trading.
Amid reports that the PPF is concerned about the circumstances surrounding the pre-pack administration, Frank Field, Chair of the Work and Pensions Committee, has written to both the Pensions Regulator and the PPF for further information on the situation.
There have been concerns about pre-packs for some time but this is a particularly interesting case – the Government makes it clear in the parliamentary debate that it is minded to save numerous local and national press titles, but the question is whether the PPF, and by the nature of its funding levy payers and members of other failed schemes, should be the ones picking up the pensions tab.
New Secretary of State at DWP (again)
Following the resignation of Esther McVey last week, as a direct result of the publication of the UK/EU draft withdrawal agreement by the Prime Minister, Amber Rudd has been appointed as Secretary of State for Work and Pensions. She was previously appointed as Home Secretary when Theresa May formed her Government following the 2016 referendum and only earlier this year was forced to resign from the Government. Esther McVey was appointed Secretary of State for Work and Pensions in January 2018.
Ever since the Coalition days, the top political role at the DWP has become somewhat of a revolving door – with Amber Rudd being the fifth appointment in little more than 2½ years. How long she remains in this particular post will depend in no short measure on what is happening in the wider political landscape.
Pensions Regulator says that toughness is working – and promises more
Statistics published by the Pensions Regulator on 15 November suggest that the Regulator’s earlier engaging and tougher stance is resulting in “more trustees doing the right thing” including more trustees submitting DC scheme returns on time and a cut in the delays in DB trustees submitting recovery plans.
The statistics are set out in the Regulator’s latest compliance and enforcement quarterly bulletin, which also explains how the Regulator is increasingly using production orders in money laundering investigations to force banks, businesses or individuals to hand over financial records of suspects. The Regulator now also has a number of staff who are NCA-accredited financial investigators or financial intelligence officers, which has strengthened its ability to conduct financial investigations. It has also applied to the Home Office to be given powers to use communications data analysis to identify networks of criminals targeting members, which it hopes Parliament will grant it in February.
More evidence of the changes that are taking place at the Regulator and the impact this is having on the regulated community. The news about the resourcing going into the action against scammers is particularly noteworthy, although it may be quite some time before we are able to see that the tide has been turned.
EIOPA provides guidance and principles on the Pension Benefit Statement
A key aspect of the second European pensions directive, IORP II, is the provision of an annual pension benefit statement (PBS) to all members of occupational pension schemes across the European Union. EIOPA, the European insurance and pensions agency, has now produced an informative report in which it highlights aspects of current practice in a number of member states, drawing out some principles intended to assist national policymakers and regulators responsible for the implementation of the PBS requirements in their member states.
Five principles are set out for the design and content of the PBS:
- The design should be based on a behavioural approach to facilitate members’ decisions about their retirement savings
- Communication experts should be used by both member states and pension schemes
- Account should be taken of the characteristics of the pension scheme – so the design of a DB statement should look different to that for a DC scheme
- It should integrate and complement the communication tools that are in place within member states – such as the availability of an on-line pension dashboard or other pension communication channels; and
- At member state level the information contained in a PBS should be comparable to other PBSs, in order to facilitate financial planning
The report looks at three areas in particular – how to undertake and communicate projections, how costs should be analysed and presented and how a statement should be designed to ensure that it is actually read.
This report is an interesting read both as a review of member communications practice in other EU countries and how EIOPA thinks the PBS should be implemented by national regulators. In the UK context it is clear that there will need to be some adjustment to current practices, but so far (see Pensions Bulletin 2018/32) we wait to hear from the DWP on how the PBS requirement is to be implemented.
GMP inequalities – pension tax issues
Following the High Court judgment on 26 October (see our News Alert), a number of strands of thinking have been developing amongst the advisory community as to how schemes should respond. One issue is the pensions tax regime, which could adversely impact both in the short term as trustees decide what to do in relation to benefit payments and transfer out requests, as well as in the longer term as trustees implement inequality solutions.
The ACA has written to HMRC setting out its concerns and putting forward some initial ideas on solutions, specifically in the context of the uniqueness of the situation, and the likelihood that Parliament does not currently have spare resource to make helpful legislative measures.
The ACA makes clear that HMRC will need to engage on a number of levels with this tricky subject in order to have the right outcomes for members and avoid unnecessary uncertainty and work for schemes and HMRC itself. We hope that we will be able to report on progress shortly.
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.