17 January 2019
Implementation date for the EU Pensions Directive passes
On Sunday 13 January, the two year deadline for member states to implement the second European Pensions Directive (IORP II) was reached – a deadline noted by Brussels in last Friday’s round-up of European Commission news, in which it said that “the Commission will carefully examine the legislation adopted by the different Member States to make sure that they fully deliver the new standards set at the EU level”.
However, as we have previously reported, implementation of the Directive in the UK has so far been limited to two sets of regulations that came into force on 13 January (see Pensions Bulletin 2018/42).
One set of regulations requires the Pensions Regulator to set out the detail of the IORP II governance requirements and some other provisions of the Directive in a Code of Practice. The other transposes the amended cross-border scheme requirements.
Clearly, more needs to be done in the UK to bring this Directive fully into force. We understand that, other than the amended cross-border requirements (that affect very few UK schemes), any changes to UK pension law and regulation to deliver other aspects of the Directive will be implemented with phasing or implementation periods which will allow sufficient time for familiarisation and planning.
Auto-enrolment – a three year deadline nears
This April will mark the third anniversary of the cessation of salary-related contracting out, with a potentially important compliance exercise for those DB schemes which are used for auto-enrolment likely to fall due by then.
Whilst such schemes remained contracted-out they automatically met the tests required to be suitable as an auto-enrolment vehicle, but when contracting out ceased they had to meet the then newly minted “cost of accruals” test or fall back on the long-standing “test scheme” standard, designed for contracted-in DB schemes.
In the run up to April 2016 many DB schemes used the cost of accruals test. Under this although there is no formal requirement for the test to be re-examined on a regular basis, this is likely to be done as part of the scheme’s valuation cycle, with the result set out in the scheme actuary’s valuation report.
Where the test scheme is used, DWP statutory guidance requires the following:
- Where non-actuarial methods have been used the scheme should be fully reviewed every three years as a minimum, but an earlier review should be undertaken if there are significant changes made to the scheme design
- Where actuarial methods have been used the actuary must review the scheme at the earlier of (a) being informed of changes to the scheme; (b) when the employer asks for a review of the scheme; and (c) the third anniversary of the effective date of the existing certificate or most recent review of that certificate
So, for many DB schemes using the test scheme route, a check may shortly fall due.
As with the cost of accruals test, it is likely that schemes using the test scheme method will have their position regularly reported by the scheme actuary via his or her valuation report, but given that April 2019 will soon be with us, it may be wise for trustees of such schemes to check with their actuary that their scheme remains compliant.
Lifetime allowance increase confirmed
Regulations have been laid before Parliament that confirm the standard lifetime allowance that will operate in the 2019/20 tax year.
The Finance Act 2004 (Standard Lifetime Allowance) Regulations 2019 (SI 2019/29) set the 2019/20 SLTA at £1,055,000.
The Finance Act 2016 provides for the SLTA to increase annually in line with the September to September rise in the CPI (rounded up to the next £100).
New “GMP equalisation” industry group set up
The remit for this group, which is being brought together by the Pensions Administration Standards Association (PASA), is to help develop and promote best practice on issues arising from the ruling, from how to address missing data through to dealing with transfer requests and rectifying underpayments.
Despite being billed as a group that is to advise on GMP equalisation and the Regulator stating that because of the Lloyds case affected schemes “will now have to amend their scheme rules and equalise GMPs between men and women”, GMPs cannot be equalised. Rather, schemes need to ensure that any inequality in benefits as a result of being contracted-out at some point between 17 May 1990 and 5 April 1997, is tackled.
Transparency of investment costs update
The Pensions and Lifetime Savings Association has announced the composition of the Board that is to take forward the cost transparency initiative, that was handed over to a partnership between the PLSA, the Investment Association, and the Local Government Pension Scheme Advisory Board and launched in November (see Pensions Bulletin 2018/46). The announcement also makes clear that the pilot phase to test the new cost transparency templates and supporting technical and communications materials will now run until March 2019 and a formal launch should take place in the spring.
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.