Pensions dashboard – the Government responds

On 4 April 2019, the Department for Work and Pensions responded to its December consultation (see Pensions Bulletin 2018/49) with an overall message that the much-delayed dashboard is to go ahead, but in a phased manner.

The project that initially rested with HMRC, before being passed to the DWP has now been passed on once more, this time to the newly launched Money & Pensions Service (the Single Financial Guidance Body as was).  As proposed back in December, it is this body that will lead on the next phase of delivery, bringing together a delivery group made up of stakeholders from across the industry, consumer groups, regulators and government.

Unsurprisingly, the DWP will legislate to compel schemes to submit data, but there is vagueness on when this will be done and what precisely is to be demanded of schemes.  It is possible that no schemes will be exempt from whatever the requirement is to be.

“Phasing” is used repeatedly in the consultation response – larger schemes will be asked to submit data ahead of smaller schemes, the actual data to be submitted (on which there continues to be no detail), will initially be “simple”, increasing to “more complex” as an understanding develops as to how consumers interact with dashboards, and functionality will initially be a simple “find and view” enabling users to locate their pensions and view them in one place.  It is still not clear what consumers will be viewing.

The DWP tasks the delivery group (once it has been established) to do the following in 2019:

• Create a clear and comprehensive roadmap for delivering the digital architecture for dashboards
• Work with the industry on setting data standards to both provide clarity to schemes and to feed the results of the user testing into the creation of standards which allow consumer facing dashboards to work
• Design a robust governance and security framework to enable information to be supplied by schemes to consumers via dashboards; and
• Work with the industry on its readiness to provide data via dashboards

And on this last point, the DWP says that schemes need to prepare their data to be ready within a three to four year timeframe from the introduction of the first public facing dashboards – but again, right now, scheme are none the wiser as to what they need to supply.

The Government also reaffirms that the State Pension should be part of the dashboard service and it “will work to make this happen as soon as possible”.

Comment

It is hard not to be cynical at the length of time this is taking, with this response seeming to do little more than passing the project on to yet another body, with some key questions unresolved.  Although the publicity surrounding the consultation response gives the clear indication that things will now move on apace, further slippage has to be a possibility, with perhaps the dashboard not fully delivering for consumers until the mid-2020s.

Master trust authorisation – the dust begins to clear

The Pensions Regulator’s latest snapshot of the master trust market is noteworthy as it sets out the situation now that the window for applying for authorisation (see Pensions Bulletin 2018/39) has formally closed.

At the 31 March 2019 deadline:

• Just 30 applications were received in total (of which it is known that three have already been approved)
• 10 schemes have been granted an extension of up to six weeks to submit their application (this means nine further schemes applied for an extension in March, up from the one scheme which did in February – see Pensions Bulletin 2019/10); and
• 9 schemes have already exited, 34 have triggered their exit and the Regulator knows of one more intending to do so, making 44 schemes known to be leaving the market

This indicates that a maximum of 40 master trusts will be authorised if all remaining current and potential applications are successful (which is not certain).  As the number of known master trusts before the authorisation window opened stood at between 80-90 that’s currently a reduction of around 50%.

Comment

The Pensions Regulator always said it expected authorisation to drive consolidation in the master trust market.  The number of remaining schemes is at the top end of the range of predictions that were made when the authorisation process started last October but could decrease further.

If in the end we have between 30 and 40 authorised schemes that would seem to strike a good balance between healthy competition and removing some of the less sustainable master trusts from the market.

Gold Standard code for pension transfers launched

The Pensions Advice Taskforce set up last summer by the Personal Finance Society (see Pensions Bulletin 2018/27) has launched a voluntary code of good practice for safeguarded and defined benefit pension transfer advice, based around nine principles.

These cover areas such as helping clients understand when advice is appropriate, ensuring client understanding and acceptance of all charges, ensuring the most appropriate and updated technical skills are applied, helping clients to understand the cost of transferring benefits, avoiding unregulated investments and introducers, and ensuring that the advice processes and outcomes are transparent.

Of particular note is the suggestion that clients are given a single page document showing the apparent cost being paid (ie Transfer value offered less the FCA’s Transfer Value Comparator figure) in order to access the perceived benefit of being in the flexible pension regime.

A number of documents accompany the launch, including a practitioner’s guide and a consumer guide – the latter leading to further consumer material in PDF format.

The intention is that advisory firms adopt and promote this standard and principles, so consumers can better understand and find good advice, and be confident they are dealing with a firm that is going beyond the FCA’s minimum requirements when giving financial advice.  Any financial advice firm can adopt the Gold Standard, regardless of which accredited body they are a member of, and the sign-up page contains detailed information about how to register and the criteria firms need to meet.

Comment

This well thought through guidance helps to fill in a number of important behavioural gaps left by the FCA when it finalised its regulatory requirements back in 2018.  We welcome this initiative to raise standards of transfer advice and communication and hope it leads to a significant reduction in advisory scandals such as that which accompanied the British Steel Pension Scheme restructuring (see Pensions Bulletin 2019/09).

PPF strategic plan signals desire to innovate on service whilst continuing to deliver sustainable funding

This year’s three-year look forward from the Pension Protection Fund focuses on the pension lifeboat’s need to transform its services to take advantage of all that the latest advances in digital technology can offer, whilst offering reassurance that the PPF will continue to remain prudent in relation to its funding strategy and investment approach and so continue to deliver for those who are forced to rely on it (the plan notes the PPF now has over £30bn of assets and over 236,000 members).

Amongst the points covered by the 2019-22 plan are the following:

• A promise that 70% of member transactions will be undertaken online by March 2022
• The PPF remaining on track to meet its self-sufficiency funding target in 2030, despite expecting to raise significantly less through the pension protection levy over the next three years than it will pay out in claims; and
• A promise that the 2021/22 plan will provide more details on what the PPF will do to give it the best chance of reaching its self-sufficiency funding target with neither too little nor too much reserves

The PPF is also switching its insolvency risk provider – back to Dun & Bradstreet – and as part of this will undertake a review of its levy methodology including its approach to insolvency risk, and consult on proposed changes that will apply for invoices issued from 2021/22.

The PPF has also published, for the first time as a separate document, its Business Plan identifying its key milestones and planned activities for the next 12 months.  Most of these are to do with customer service initiatives but a couple worth noting are that the PPF intends to:

• Maintain a probability of success, in relation to funding, of at least 90% subject to macroeconomic conditions; and
• Launch a rebuilt web portal (with Dun & Bradstreet) by 31 March 2020. This will be used to view insolvency risk scores and information for the levy year 2021/22

Comment

This year’s documents are light on numerical and financial detail, preferring instead to focus on what the PPF feels it needs to do to deliver excellent customer service – but there is little doubt that the PPF is starting from a position of well-earned strength as it undertakes the next phase in its journey.

HMRC finalises overseas transfer charge repayment law

HM Revenue & Customs has finalised two sets of regulations concerned with the repayment of the 25% overseas transfer charge, which itself arises, other than in limited circumstances, when transfers are made from UK occupational pension schemes to certain overseas schemes.  These finalised regulations are virtually identical to the draft versions which were consulted on last November (see Pensions Bulletin 2018/46).

• The first set introduces provisions for the repayment of the charge including setting out the conditions for making a claim, the procedure for processing a claim, the appeal provisions and specifying to whom the repayment must be made
• The second set makes changes to existing regulations in order to align them with the new requirements in the first set

HMRC promised to update its guidance when these regulations were finalised and hopefully this will shortly now be done.

Comment

These are very niche regulations which, hopefully, most pension practitioners do not need to concern themselves with – particularly since the volume of transfers to QROPS has fallen dramatically, from a steady flow to a trickle, since the introduction of the overseas transfer charge in 2017.

However, for those who do have to deal with reclaiming the overseas transfer charge there is still (at least) one unsatisfactory aspect of these regulations.  Namely that if the original UK pension scheme that made the transfer also deducted the charge on behalf of HMRC (as will usually be the case) then that scheme must also reclaim the charge.  HMRC’s current guidance states that “the repayment should be used to provide the member with benefits or a transfer in accordance with the rules of the registered pension scheme”, but this is very likely to create extra work and cost for the UK scheme administrator who, in most cases, will have thought that their responsibility towards the transferee had ended when the transfer was made.

Accountants issue guidance on impact of “GMP equalisation” on pension scheme accounts

Trustees’ pension scheme accounts may need to contain a quantification of part of the additional benefits that will need to be awarded under “GMP equalisation” (see Pensions Bulletin 2019/04), but only if the liability in respect of such benefits is material and it can be measured reliably.  So says the Pensions Research Accountants Group in a guidance paper issued at the end of March.

As such accounts do not report on a scheme’s long-term liabilities, PRAG is concerned only with that aspect of equalisation that involves paying affected current pensioners and dependants compensation for the payments they should have already received had they been delivered on an equalised basis.

PRAG says that it may be possible to carry out an initial high-level assessment of what is in effect a current, rather than a long-term liability, going on to say that it is not necessary to undertake detailed member by member calculations if a reliable estimate can be determined by other methods.  If the liability is clearly going to be immaterial trustees do not need to do anything, although they could provide an appropriate disclosure in the scheme accounts.

Where there are grounds to believe that the liability is material, PRAG says that although non-recognition of liabilities due to measurement difficulties is normally expected to be rare and very exceptional, if the trustees conclude that it is too early in their deliberations and decision-making process to determine a reliable estimate this should be disclosed in the notes to the financial statements and it would fall to be treated as a contingent liability rather than an accrual or provision.

PRAG concludes by stating that, having regard to the balance of views emerging from accounting firms:

• Schemes with year-ends before the Lloyds Banking Group judgment date (26 October 2018) where financial statements are approved after the judgment date should disclose the ruling as a non-adjusting post balance sheet event with an estimate of its financial effect or an explanation that such an estimate cannot be made, where the amounts are material; and
• Schemes with year-ends after the judgment date should recognise the cost of backdated benefits and related interest in their financial statements for the accounting period in which the date of the ruling falls where material and where a reliable estimate can be made

The appendix to the guidance contains some useful example disclosures.

Comment

Yet another area in which the GMP inequality issue is having an impact, although we expect that after receiving actuarial and legal advice many trustees will conclude that either the liability is not material or it is too early to obtain a reliable estimate – especially because in the latter case it will likely involve obtaining a legal interpretation of the scheme’s arrears payment rules.

EU Parliament approves Pan-European personal pension schemes

The European Parliament has approved rules that will enable a new style of personal pension scheme to be marketed that can operate across the European Union and so be used as a retirement savings vehicle if workers move between EU countries.  This follows on from a vote in favour of such PEPPs by the European Parliament’s economic affairs committee last September (see Pensions Bulletin 2018/36).

To accompany this development the European Commission has published a Q&A document, which amongst other things sets out the benefits of PEPPs for retirement savers and providers.

Attention now turns to the European Council and after it has approved the rules, the PEPPs Regulation will be published.  A number of delegated and implementing acts are needed for the effective implementation of the Regulation and as such it is anticipated that the first PEPPs will come to the market within the next 2½ years.

Comment

This EU initiative seems to have come too late for the UK to be required to implement it, but with Brexit uncertainty continuing who is to know?

Dormant assets – unclaimed personal pensions are now potentially in line to be taken

The next stage in the dormant assets debate has been reached with the publication of a report from industry champions.

In February 2018 the Government said it believed that there was substantial potential for dormant pension products to be included in a proposed expansion to the current scheme, put forward by the Dormant Assets Commission.  However, it would wait to hear from industry champions on this and other matters before taking any further steps (see Pensions Bulletin 2018/23).

Now, one of the proposals from the industry champions is that unclaimed personal pensions will potentially fall into the Reclaim Fund for redistribution, but only at the earlier of the point at which it is identified that a deceased customer has no next of kin, or seven years after a death claim is accepted and there is no ongoing contact with those managing the estate.  Ahead of this, the personal pension provider will need to carry out robust tracing, verification and reunification efforts so long as the funds concerned exceed £100.

The champions also acknowledge that in order for such pensions to take part in an expanded scheme there will need to be changes to legislation – pointing out in particular the risk that a transfer to the Reclaim Fund could currently be regarded by HMRC as an unauthorised payment.

The Government will now consider the recommendations set out in the whole report, consult with stakeholders and set out next steps in due course.

Comment

This appears to be a measured response to the problem of “gone away customers”.  Insofar as DC benefits within occupational pension schemes are concerned, these would seem to remain outside the dormant assets scheme.