8 August 2019
Regulator increases pressure on small DC schemes to improve
The Pensions Regulator (TPR) has used the release of its’ latest annual DC scheme governance survey to highlight the “unacceptable” scale of under-performance in small pension schemes (less than 100 members).
By contrast larger schemes, such as authorised master trusts, are more likely to be well run and provide good value for members and, because of the scale of master trusts, almost three quarters (71%) of members are in pension schemes which meet all of the five expected governance standards (up from 54% in the 2018 survey).
There is a strong correlation between scheme size and the number of requirements being met. All master trusts (100%) met two or more applicable requirements, compared to 84% of large (greater than 1,000 members), 64% of medium (100-999 members), 15% of small (12-99 members) and 12% of micro schemes (2-11 members).
The press release accompanying the survey continues TPR’s recent strong messages that disengaged trustees (particularly of small schemes) are failing their members by not running their schemes properly. Given this data, it is not surprising that TPR is exploring ways to accelerate the consolidation of small DC schemes (see our News Alert). But TPR must also be disappointed that just 64% of medium-sized schemes are meeting two or more of the five key governance requirements measured – that hardly indicates a landscape of well-governed single-employer DC trust-based pension schemes.
Government accused of complacency over cost transparency in pensions industry
The Work and Pensions Committee chaired by Frank Field has published a hard-hitting report on its inquiry launched a year ago into pensions costs and transparency (see Pensions Bulletin 2018/32). The report acknowledges progress in various different areas but concludes overall that the Committee is 'unconvinced' that the industry will rise to the challenge of providing clear, transparent information to pension schemes about the costs and charges of investments without legislation requiring mandatory disclosure to a set format for both DC and DB schemes.
Other specific recommendations include that the Government should:
- Support the disclosure templates published by the Cost Transparency Initiative (see Pensions Bulletin 2019/20) with an independent verification process, overseen by the relevant regulators, with additional powers to tackle non-compliance
- Review the level and scope of the 0.75% charge cap on DC schemes as well as permitted charging structures in 2020, including the consideration of preventing flat fee charging structures being applied to dormant pension pots and revisiting measures to proactively consolidate smaller pots. The Committee would like to see a similar 0.75% cap on decumulation products available through FCA decumulation pathways (see Pensions Bulletin 2019/30)
- Publish a timetable for the rollout of a non-commercial pensions dashboard by the end of 2019, including key milestones, such as the date for pension providers to include their data in the pensions dashboard and target timescales for phases beyond the initial launch. Dashboards should include State Pension projections at launch and also feature retirement income targets
- Stipulate that individuals accessing DC pensions savings flexibly should only be able to opt-out of guidance through an active decision communicated to an impartial body, such as the Money and Pensions Service
- Resolve the inequitable impact on the pension savings of low earners between net pay and relief at source tax relief pension arrangements (see Pensions Bulletin 2018/43) as a matter of urgency
The Committee also suggests that the FCA should review whether it dedicates sufficient resource to combat active pension scams, prevent new pension scams and protect individuals (the FCA’s dedicated scams team only consists of approximately 10 people out of 3,700 FCA staff) and that the FCA’s list of unauthorised firms be expanded into a widely publicised and regularly updated database.
This report is wide-ranging – covering many areas in which more transparency is desirable – and at times quite provocative in the language used. It will be interesting to see what impact it actually has on pensions provision and policy. We do, however, note that even if costs could be reduced to zero, auto-enrolment minimum levels of contributions are unlikely to see pensioners afforded the standard of living they hope for in retirement.
HMRC updates on AA and other pensions tax admin issues
Pension Schemes Newsletter 112 covers a number of largely administrative topics, including the consequences of late submission of 2018/19 annual returns of information for schemes operating relief at source and the systems introduced to help such schemes report any excess relief claimed.
Much space is devoted to matters relating to regular annual allowance management. HMRC reminds scheme administrators that they must issue – by 6 October 2019 - an “annual allowance pension savings statement” to any member whose pension savings in a scheme in 2018/19 used up more than the general annual allowance (£40,000).
Scheme administrators are also encouraged to remind members that they must identify and disclose on their self-assessment tax returns if they have incurred an AA charge (ie whether the individual’s total savings for the year exceeded his/her personal 2018/19 annual allowance (which might be tapered) together with any remaining carry forward).
The newsletter also notes the assistance HMRC provides: firstly the availability of, and caveats around, its annual allowance calculator; and secondly updates to its guidance for members on the web (which is a work in progress).
There are also links to two sets of statistics published by HMRC: the latest quarterly statistics on flexible payments from pension schemes (the payments made, and the amount of overpaid tax repaid); and the number and amounts of transfers to Qualifying Recognised Overseas Pension Schemes (QROPS).
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.