19 September 2019
Government launches NHS Pension Scheme consultation
The replacement consultation on pension changes for senior NHS clinicians (to help them manage pensions tax including the tapered annual allowance – and to alleviate the current problems for “frontline NHS service delivery and patient care”) promised by the Government in August (see Pensions Bulletin 2019/32), has been launched.
As before, the proposals focus on more flexibility plus more transparency on methods of meeting any tax charge and help on predicting it.
In terms of flexibility, as signalled, the new proposals would allow senior clinicians to choose before the start of each scheme year a personal accrual level, in 10% increments, and pay (along with the employer) correspondingly lower contributions, with ancillary benefits such as life assurance and survivor benefits staying at full level.
In addition, there is now a proposal that individuals using this facility can fine-tune it towards the end of the scheme year when they are clearer on total earnings (and hence their tapered annual allowance) – they can unwind all or some of the cutback for the year with retrospective effect. The resultant contribution arrears (both member and employer) must be paid before the end of the scheme year.
Employers would have discretion to pay the employer contributions saved by the accrual given up, to the member, as a lump sum benefit (and given the proposal for fine-tuning of the accrual rate late in the year, that might be by way of a one-off lump sum at the end of the scheme year). This saving would be something less than the headline employer contribution rate – currently 20.6% – as some of that pays for the ancillary benefits and addresses any scheme deficit.
Where a high-earning individual with a largely final salary benefit entitlement is due a large increase in pay, the pensionable aspect of this might be phased in over a number of years to try to limit the scope for unwelcome annual allowance charges.
As before, there is a proposal that the Scheme Pays mechanism (to enable those with an annual allowance charge to meet it out of pension reductions) moves to a “more transparent design” and also for a modelling system that will be ready for use by the end of 2019 to help affected individuals better assess their options.
Consultation closes on 1 November. The intention is to introduce the proposals in time for decisions for the 2020/21 tax year. In the meanwhile, NHS Employers has issued short-term guidance on steps employers can take to mitigate the impact of pensions tax in their workforce during the 2019/20 tax year.
The latest consultation document covers a lot of similar ground to that issued in June (see Pensions Bulletin 2019/29), with perhaps more firmness of detail on flexibilities – but there is also a very relevant warning that (most of) the changes require legislation and significant amendment to pensions administration and payroll systems. Systems are already struggling, without the addition of flexibilities; and as we noted in our previous bulletin, there is the overarching challenge that it will be some time before Government even decides the benefit scales for many public sector workers, given the announcements following the McCloud ruling.
Disappointingly, but perhaps not surprisingly, there is no further news about the Treasury review of the operation of the tapered annual allowance: this review still being flagged to “support the delivery of public services”. But there is a note that if the tax system changes, the need for new flexibilities will be reconsidered.
DWP fact sheet on new stewardship and governance requirements
The DWP has published a fact sheet that explains new requirements relating to stewardship and governance of occupational pension schemes.
The requirements are set out in two sets of regulations:
- The Occupational Pension Schemes (Investment and Disclosure) (Amendment) Regulations 2019 (see Pensions Bulletin 2019/23); and
- The Pension Protection Fund (Pensionable Service) and Occupational Pension Schemes (Investment and Disclosure) (Amendment and Modification) Regulations 2018 (see Pensions Bulletin 2018/36)
The fact sheet contains a useful summary of what trustees need to do and by when, split between DC and DB schemes, but there is not much time now to comply with the first set of changes, as they come into force on 1 October 2019. However, it appears that the fact sheet does not accurately capture the timing of the “implementation statement” requirement coming into force or the implications for “relevant schemes” – ie schemes providing any money purchase benefits not deriving from AVCs.
NEST gives members more choice on payment of death benefits
NEST members can now opt to have their death benefits distributed at NEST’s discretion, in line with preferences set out in an expression of wish form, as an alternative to the previous position whereby members were only able to make a binding nomination of a beneficiary.
The exercise of discretion means that the member’s pension pot at death will usually not be considered to form part of their estate for inheritance tax purposes.
NEST looked to introduce this flexibility when reviewing its rules in 2018 but the proposal was put on the back burner seemingly largely due to concerns over the communication challenges around helping members choose which option suited their circumstances best (see Pensions Bulletin 2018/13). The stated intention then was to “develop a thoughtful communications strategy” and we are now told that NEST has worked with specialist agencies to make sure the communications are simple, easy to understand and accessible. Members are also being encouraged to consider taking professional advice before choosing their preferred option online.
We are pleased that NEST has finally resolved the perceived communication issues and introduced this option – thus allowing members to elect the manner in which their death benefits are distributed to reflect whether their priority is to manage their inheritance tax concerns or have certainty over who their benefits are paid to.
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.