Pensions Bulletin 2019/32
15 August 2019
Government thinks again on NHS Pension Scheme changes for senior clinicians
The Government has announced that it will shortly launch a consultation on replacing the 50:50 aspect that was part of the pension package proposed for senior clinicians in July (see Pensions Bulletin 2019/29).
Starting from the next financial year the intention now is that new rules in the NHS Pension Scheme will allow senior clinicians to “set the exact level of their pension accrual at the start of each year” (the example given suggests this means choosing a range of proportions rather than just 50:50 – presumably still continuing to maintain full cover for death and ill health pensions).
The stated hope is that this will give such individuals room to take on additional work without breaching their annual allowance and facing tax charges. Employers will have the option to recycle their unused contribution back into the clinician’s salary.
Alongside these proposals HM Treasury will review how the tapered annual allowance supports the delivery of public services such as the NHS. Separately, it is now being reported that the findings of this review will emerge in the Budget and that any eventual reforms would be likely to apply across the whole public and private sectors.
The new consultation extends the flexibility proposed in the July consultation – arguably this should better equip senior clinicians in the NHS to deal with their pension taxation issues.
We suspect that the Government will be keen to limit the scope of the flexibility to only senior staff in the NHS in order to protect their pension contribution income, but this does potentially open the floodgates for demand for such flexibility in the other public service schemes. In the background to all of this, there is also the continued uncertainty as to what benefit scales actually are for anyone in the public sector, given the McCloud ruling (see Pensions Bulletin 2019/28).
The Treasury’s separate but linked review of the impact of the tapered annual allowance is significant. Until now the hope in Government circles had been that the pensions tax crisis in the NHS could be resolved within the current pensions tax framework. It cannot. And as this is morphing into a wider review of the tapered annual allowance, it seems that policy in this area is shifting, with the possibility of the taper either being scrapped or substantially modified in this year’s Budget.
Changes to the function and jurisdiction of the Pensions Ombudsman to go ahead
Eight months after launching a consultation on a number of proposed changes to the operation of the Pensions Ombudsman’s office (see Pensions Bulletin 2019/01), the DWP has announced that they are to go ahead, seemingly broadly as proposed.
The first element of the consultation was concerned with the formalisation of an early resolution process, which the Ombudsman’s office has been successfully running since the transfer of the Pensions Advisory Service’s facility in March 2018 (see Pensions Bulletin 2019/29 for this year’s annual report).
As this differs from the Ombudsman’s traditional investigation and determination role, an appropriate regulatory framework will need to be built, including primary legislation. Amongst other things, the Government intends that the Ombudsman’s early resolution process should be available at any stage, including before a pension scheme’s formal internal dispute resolution process has been invoked, with the expectation that, in the majority of cases, this will be when it is used.
The second aspect of the consultation suggested that an employer should be able to bring a complaint on behalf of itself to the Ombudsman in relation to the provider or administrator of its employees’ group personal pension. This is also to go ahead.
These measures will also need appropriate signposting.
However, it appears that further work is needed before the DWP can bring forward the necessary primary legislation and no timescale is provided for this – and any amendments to signposting requirements will need to be set out in regulations.
We support all these proposals and hope that the policy work can be rapidly concluded in order that the necessary legislative changes can find their way into the Pensions Bill and the Ombudsman’s remit appropriately modified and extended.
DB transfers – quotation rates increase for the first time in 18 months, but take-up rates continue to fall
LCP continues to monitor the pattern of transfer quotations for the DB schemes we administer. In the latest quarter (Q2 2019), the number of transfer quotations was up 12% from the previous quarter, reversing the recent decline in transfer activity. Broadly 1.6% of deferred members requested a quotation compared to a high of 2.0% in Q2 2017.
However, take-up rates have continued to fall with only 23% taken up compared to a high of 34% in Q3 2017. This reduction coincides with the introduction on 1 October 2018 of the Transfer Value Comparator disclosure requirements for DB transfer advice and other new rules for financial advisers.
In the last few months there have been two significant developments relating to DB transfers. Firstly, the Financial Conduct Authority has opened a consultation on pension transfer advice which includes a proposal to ban contingent charging, introduce an “abridged advice” regime (providing lower cost advice for those unlikely to transfer) and asking whether all schemes should offer partial transfer values.
Secondly, the Pensions Administration Standards Association has launched its DB Transfers Guidance for scheme administrators with the aim of improving the overall member experience. We support both developments and think they are a step in the right direction for improving the DB transfer experience for all.
More details of the transfer experience of the schemes we administer can be found in our latest bulletin.
More pension scam warnings made
Following up on last month’s warning from Action Fraud (see Pensions Bulletin 2019/26), the Pensions Regulator has warned that new research suggests that over 5 million people across the UK could be at risk of falling for at least one of six common tactics used by pension scammers. The Regulator’s chief executive, Charles Counsell, has also blogged about the issue.
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.