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Pensions Bulletin 2019/33

Our viewpoint

The next Brexit countdown begins in earnest

On Sunday the Government started a public information campaign under the strapline of “Get Ready for Brexit” (on 31 October) which will run across television, social media, billboards and other platforms.

On the same day the DWP posted a warning that in the event of the UK leaving the EU without a deal, the Government could only guarantee that UK citizens who have retired in EEA countries or Switzerland would receive annual increases to their UK state pensions for the next three years (ie April 2020 to April 2022 inclusive).  The clear risk is that after this date their state pensions will be frozen.

Parliament, of course, returned from its summer recess on Tuesday, ahead of which the Government announced that Parliament is to be prorogued at some point between 9 and 12 September with the next session of Parliament commencing with the Queen’s Speech on 14 October.

However, this timetable could be overtaken by an early General Election following the Government’s defeat on Tuesday night at the hands of the “rebel alliance”.  But even a General Election is not certain thanks to the Fixed-term Parliaments Act and the mood within the Commons.

Comment

If this unprecedented level of political uncertainty at Westminster leads to an early General Election it will almost certainly throw the timing and content of the Pensions Bill up in the air.

But if the Queens’ Speech does go ahead on 14 October, and the Pensions Bill is on the list, shortly after this the Pensions Regulator should at long last be able to launch the first of its planned consultations on what the new scheme funding regime will look like.

Chancellor responds to concerns about the RPI’s failings

On Wednesday, in a coordinated set of announcements, the Chancellor of the Exchequer, Sajid Javid, responded to a letter from UK Statistics Authority chair Sir David Norgrove containing the UKSA’s proposed reform of the Retail Prices Index (that hitherto had not been in the public domain) and to the House of Lords Economic Affairs Committee on its report “Measuring Inflation” (see Pensions Bulletin 2019/03).  Separately the UKSA published a statement on the future of the RPI.

In his March letter to the previous Chancellor, Philip Hammond, Sir David recommended that the publication of the RPI be stopped at a point in the future and that, in the interim, the shortcomings of the RPI should be addressed by bringing the methodology of the CPIH into it.

In response, Sajid Javid rejected introducing the necessary primary legislation that would enable the publication of the RPI to cease.  He also did not consent to the proposal to align RPI with CPIH any earlier than February 2025.

However, he did say that in January 2020 the Government will consult publicly on whether this change should be made at a date other than 2030 (when the requirement to seek the Chancellor’s consent to certain changes to the RPI expires), and if so, when between 2025 and 2030.

As part of this consultation, the UKSA will consult on technical matters concerning how to implement the proposed alignment of RPI with CPIH.  The response to this consultation will be published before the 2020 Spring Statement and the end of the 2019/20 financial year.

In his separate letter to Lord Forsyth, chair of the Lords Committee, the Chancellor confirmed that index-linked gilts will continue to be issued by reference to the RPI.

A number of other documents have also been published which can be found alongside the UKSA statement.

Comment

This is a cautious response from a Chancellor who is focused on Brexit, but nevertheless signals that, in time, the RPI may well be measured on a CPIH approach.  If this comes to pass (and it seems that the UKSA can impose it in 2030 in any event) there will be significant impacts, not only within pensions, but quite possibly outside too (such as regulated rail fares and interest on student loans).

For pensions it would mean many occupational pension scheme members receiving lower pension increases in retirement from some point in the future, necessitating careful communication and reducing the attractiveness to employers of continuing to explore formal RPI to CPI changes now.

Depending on how investment markets react there could be significant impacts now on the funding, accounting and buyout positions of DB schemes.

Pensions Ombudsman passes its “tailored review”

The latest departmental review of the Pensions Ombudsman’s office acknowledges the high esteem in which the service is held, given the significant changes that are taking place, including new ways of working, improved delivery times, and a substantial increase in caseload and workforce driven primarily by public awareness and the increasing complexity of pensions provision over the past few years.

As with any such review, the report also identifies some areas for improvement.  These centre around governance, operational effectiveness, organisational effectiveness and operational efficiency.

As with the previous review in 2014, the report once again notes the continued overlap with the jurisdiction of the Financial Ombudsman Service.  However, the recommendations do not include any fundamental changes to the functions or remit of the Pensions Ombudsman at present, apart from some initial proposals for considering how to resolve this overlap issue “as future legislative priorities allow”.

Since the publication of the review the DWP has announced the appointment of Caroline Rookes as the interim chair of the Pensions Ombudsman Service.  Her role is to drive forward some of the recommendations in the review.

Comment

An unsurprising report for a service that has clearly improved in the eyes of its stakeholder in recent years.

Time to get off the escalator

The Pensions Regulator’s latest quarterly compliance and enforcement bulletin is announced with a stark warning about the dangers of failing to keep up with ongoing auto-enrolment duties.  An anonymous employer, who did not engage with the Regulator when being found out for a number of compliance failures, ended up having to pay a £350,000 escalating fine as well as £100,000 of backdated pension contributions.

Over the same quarter, the Regulator also, for the first time, appointed a trustee “primarily because of a lack of competence of the existing trustee board”.  Having had more than a decade of being responsible for running the scheme, the Regulator says that the trustees in question failed to obtain or exercise their knowledge and understanding for the proper administration of the scheme, which led to a series of governance errors with little attempt to rectify them.

The Regulator goes on to reassure the trustee community that the normal approach is for the Regulator to engage with trustees to raise standards, and its formal powers are only used if trustees fail to improve.

Finally, as part of its “clearer, quicker, tougher” mantra, the Regulator also confirms that there are now 35 schemes in “relationship supervision” (see Pensions Bulletin 2018/37), and the Regulator’s aim is to increase this to beyond 100 schemes this financial year.

Comment

The Regulator’s report provides a positive example of how direct and open engagement between pension schemes and their dedicated supervisor has forged a mutually beneficial relationship.  We look forward to seeing other positive results in the future.

FCA promotes a “video” on DB transfer advice

The Financial Conduct Authority has published a voice-accompanied and automated set of slides intended to help consumers better understand the nature of the financial advice on transferring out of a DB pension scheme they are entitled to receive.

After starting with the FCA’s message to financial advisers that it will generally not be in consumers’ interest to transfer, this “video” outlines the process which such advisers should follow when providing advice on whether to transfer and highlights the key information advisers should provide and the questions they should ask.

These include disclosing the cost of financial advice, asking questions about the individual’s personal situation, carrying out research, providing a personalised report and the information it must contain, and explaining any ongoing services which they recommend.  The video concludes by pointing to the Financial Ombudsman Service to whom the consumer can bring complaints.

Comment

This detailed video acts as a useful check for consumers who may be having second thoughts or, having already transferred, are wondering if they did the right thing.  As such it is more geared towards those who might be thinking of bringing a complaint against their financial adviser, rather than assisting scheme members who are thinking of transferring out.  However, there may be no harm in trustees providing a link to it in members’ transfer packs.

Annual allowance pension savings statements deadline draws near

HMRC’s latest pension schemes newsletter contains three sets of deadline reminders, the most significant of which relates to 2018/19 annual allowance (AA) pension savings statements.  Scheme administrators are reminded that by 6 October 2019 they must issue such statements proactively to scheme members:

  • Who made 2018/19 savings to their pension scheme of more than the (£40,000) annual allowance; or
  • Where the scheme has reason to believe that a member has flexibly accessed their pension rights (anywhere) before 6 April 2019 and the member had money purchase savings made to the scheme in 2018/19 of more than £4,000

The newsletter also contains reminders about 2018/19 relief at source annual returns (30 September 2019 deadline) and 2018/19 relief at source annual claim return (5 October 2019 deadline).

Comment

The AA statement deadline is now just over a month away, so schemes should have this well in hand.  HMRC includes a subtle reminder that of course the group of members to whom a statement must by law be sent proactively does not cover everyone who has an AA charge – because that depends on their personal AA which might be cut back by the taper, and because some members accrue benefits across more than one scheme – perhaps salary linked-old DB and new DC provision?

Conversely, not everyone who falls into the “proactive group” has a tax charge because some may have carry forward to help out, though less and less so as the taper impacts more carry forward years.  Trustees/employers may want to send out statements to a wider group than the strict minimum “proactive group”.

Voluntary Scheme Pays will be even more important this year than in the past, and providing information to members will be key, to avoid a material part of the problems that have been arising for senior NHS consultants.  VSP gives members an easy way to pay their AA charge, is in many cases extra tax-efficient, and makes it easier for members to assess the net value of accruing benefit in a scheme.

HMRC news on GMP reconciliation and conversion

HMRC’s latest Countdown Bulletin confirms that HMRC’s final data cuts for GMP reconciliation will be produced between November and the end of December for all schemes that engaged in the Scheme Reconciliation Service and all ceased schemes that had an ongoing file in the scheme cessation area in April 2018.

The Bulletin also contains a message that schemes that have carried out a GMP conversion exercise do not need to notify HMRC of this fact given that HMRC has not tracked contracted-out rights since 6 April 2016.

Comment

Whilst it is useful to know that HMRC does not wish to be notified when members’ GMPs are converted, the DWP’s conversion law requires such notification as one of the conditions to ensure that the conversion process is validly undertaken.

DWP needs to amend the conversion law in this and other respects; and in the meantime, we would welcome confirmation from the Pensions Regulator that it will not penalise schemes that have followed the conversion law other than the notification point.

PPF levy collection begins

The Pension Protection Fund has started to issue invoices to eligible schemes for their 2019/20 levies, and to help recipients understand the invoice and their next steps, has also published its 2019/20 guide to the PPF levy.

Once received, trustees and companies will have 28 days from the date of the invoice to make the payment, after which interest will become payable.  Schemes unable to pay within 28 days can apply for a payment plan, which from this year can be made through the PPF’s website.

As usual, schemes can request to review the PPF levy or appeal their Experian scores within 28 days of the date of the invoice.  Schemes will still need to meet the statutory deadline to pay the invoice within 28 days even if there are outstanding queries with the PPF or Experian.

Comment

As schemes only have 28 days to raise queries about the invoice, it is important that levy payers check the amount as soon as possible.  This is particularly important for schemes where the invoice is substantially higher than expected, as unless the PPF updates the invoice within the 28 days payment deadline, the scheme will still be required to make the larger payment to avoid interest payments.

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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