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Pensions Bulletin 2019/06

Our viewpoint

Building a stronger Pensions Regulator – the Government responds

To attendant publicity of “we’re coming for you” from the Secretary of State, in relation to the proposed seven year prison sentence for “wilful or reckless behaviour in relation to a pension scheme”, the DWP has responded to its June 2018 consultation on proposals to strengthen the Pensions Regulator’s powers in relation to DB schemes (see Pensions Bulletin 2018/26).

The response itself is a little less exciting.  It tells us no more about what it might take to commit this offence.  It also shows that much of what was proposed last year across a range of measures designed to build a stronger Pensions Regulator is to go ahead, although the Government has rowed back on some proposals and a great deal of important detail on what is to go ahead has yet to emerge.

Please see our News Alert to see how the Government’s proposals have changed and what is likely to happen next.

DB transfer quotation activity continues to decline alongside further concerns regarding the quality of advice to members

LCP continues to monitor the pattern of transfer quotations for the DB schemes we administer.  In the latest quarter, quotation rates have fallen to the lowest rate we have seen for over two years, since Q3 2016.  Over the whole of 2018 transfer quotation rates fell to just more than 6% of deferred members, compared to almost 8% over 2017 – this is still nearly three times the rate in 2014 before the introduction of “freedom and choice” though.  Take-up rates have remained pretty stable at around 30%.

The FCA recently published the findings of its most recent review of the advice given to members considering transferring their DB benefits. Alarmingly, less than 50% of the advice reviewed was deemed suitable.  It also found that risk management controls in some firms were not keeping pace with the growth in pension transfer business and this often led to inappropriate advice and non-compliance going unnoticed.

In a separate review, Caroline Rookes (ex-CEO of the Money Advice Service) was asked by the Pensions Regulator to conduct an independent review of the support and communications offered to members of the British Steel Pension Scheme during the restructuring exercise in 2017/18.  One of her conclusions was that it would have been useful for the Scheme’s Trustees to have compiled a list of advisers willing and able to take on members’ cases.

Instead, some British Steel workers were “factory-gated” by unscrupulous introducers; others were directed to adviser directory Unbiased.co.uk, which Rookes described as “anything but unbiased”, and to the FCA’s website which she criticised for being difficult to use and for not making it clear if advisers could deal with DB transfers (the FCA website also included advisers under investigation).

One of the recommendations of the Rookes review was that trustees should be expected to provide appropriate support to members who are considering a pension transfer via tPR codes and guidance.

More details are available on our website.

Pensions dashboard – schemes will be compelled to contribute

Pensions minister Guy Opperman confirmed in Parliament last week what has already been set out in a consultation paper (see Pensions Bulletin 2018/49) – namely that pension schemes will be compelled to provide data to enable the pensions dashboard to operate.  But the dashboard timetable itself remains hazy and the data requirements have also yet to be set out.

Mr Opperman said that “There can be no doubt ... that compulsion is coming, and that the only issue is the timeline.  Certain providers could provide the data quite quickly.  By and large, they know who they are, because they are the modern master trust providers that are already up to speed.  Others will take longer.  There is a legitimate debate to be had in this House, as we introduce the Bill, about whether we put in place a specific time limit for data provision, or whether that is done in secondary legislation, and with merely indicative outlines”.

Comment

The consultation concluded on 28 January with a promise of a Government response by the end of April – now brought forward by the minister to “approximately mid-March”.  Hopefully by then it will become clearer how the dashboard is to operate and what will be asked of contributing schemes.

EMIR re-engineered

The EU Commission has issued a press release announcing that agreement has been reached with the European Parliament on a “targeted reform” of the much-troubled European Market Infrastructure Regulation (EMIR).

This is the EU Regulation that deals with over-the-counter derivatives, the reform of which was first presented by the EU Commission in 2017 (see Pensions Bulletin 2017/20).

Amongst other things the press release states that some more time is to be granted to developing solutions for pension schemes before they must start clearing derivatives with central counterparties.

Comment

It is likely that any reform to EMIR will be only of academic interest, but given Brexit uncertainty it is possible, if unlikely, that the Regulation could impact UK pension schemes.  We await the next steps in Brussels.

Welsh income tax rates law settled

An Order that addresses the consequential changes to tax law to allow for potential differences between the Welsh basic, higher and additional rates of income tax and the UK basic, higher and additional rates has been laid before Parliament.

In relation to pension savings the Devolved Income Tax Rates (Consequential Amendments) Order 2019 (SI 2019/201) operates as had been proposed when HMRC consulted on these provisions in October 2018 (see Pensions Bulletin 2018/42).

Comment

Although this Order enables the pensions tax system to have an added layer of complexity, this will not arise immediately as the Welsh Assembly has resolved not to diverge from England and Northern Ireland for the 2019/20 tax year.

Finance Act 2019

The Finance Bill that followed November’s Budget has now received Royal Assent.  As previously reported, the only item of relevance to pension schemes is a short clause relating to employer-paid premiums into life assurance products and employer contributions to provide retirement benefits through a Qualifying Recognised Overseas Pension Scheme.  Until 6 April 2019 such payments are only exempt from benefit-in-kind tax charges if the named beneficiary is the employee or a member of the employee's family or household.  From 6 April 2019 the named beneficiary can be any individual or registered charity.

The Finance Act 2019 also swaps over the income tax personal allowance uprating linkage from the national minimum wage (that had been intended to operate once the allowance reached £12,500 pa) to the Consumer Prices Index.

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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