integrity clarity simplicity Inside Pensions Regulatory Update Prepared by Inside Pensions Date: October to December 2013 1 integrity, clarity, simplicity
FOR ACTION/DISCUSSION WITH YOUR ADVISERS AND/OR ADMINISTRATORS FOR MONITORING FOR INFORMATION Table of Contents New money purchase definition consultation paper... 3 New Pre April 2016 GMP reconciliation exercise... 4 New Issues Finance Bill 2014... 4 New Issues PPF Levy Determination... 5 New Issues TPR approach to DB pension schemes and funding... 5 New Issues Simplifying the administration of pension schemes... 5 DC Code of Practice brought into force... 6 New guidance on asset-backed contributions... 6 Consultation on reshaping workplace pensions... 6 New Disclosure of Information Regulations... 7 Charges Cap Proposed for DC Schemes... 7 Regulator warns against 'double-counting' in DB schemes... 7 Pensions liberation ruling... 8 New Regulations regarding Bridging Pensions... 8 New Issues TPR publishes guide to changes to scheme return... 8 Trustee Newsletters... 9 New Issues Equitable Life Payments Scheme... 9 New Issues Qualifying Recognised Overseas Pension Scheme (QROPS)... 9 2 integrity, clarity, simplicity
New money purchase definition consultation paper As per September s update (see below) regarding the new definition of money purchase benefits, the DWP published in October a consultation paper on reclassifying DC benefits. The main issue will be retrospection as the changes to the definition of money purchase benefits under the Pensions Act 2011 are intended to be retrospective back to 1 January 1997. Under the DWP s proposals schemes which under the new definition will be regarded as DB (and which were previously considered to be DC) will be required to take the following steps: submit their first scheme funding valuations by 31 March 2015 calculate employer debts on any employer exits on or after 28 July 2011, the date of the Supreme Court judgment in Bridge Trustees (with certain exceptions) pay PPF levies from 2015/16 (but note that members will not qualify for PPF compensation before 1 April 2015) apply the new definition for wind-ups which commences on or after 28 July 2011. The consultation will run for 6 weeks until 12 December 2013. The intention is that the new definition of money purchase benefits will come into force on 6 April 2014. https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/254445/pensionsact-transitional-and-consequential-regs-2014-consultation.pdf DWP clarifies when a pension is money purchase The DWP have inserted amendments in the Pensions Bill 2011 to clarify the statutory definition of money purchase benefits. Essentially, the amendments do four things: ensure that the definition of money purchase benefits, only includes those benefits which cannot develop a funding deficit (see below); provide powers to make consequential or supplementary changes; provide powers to make transitional provision; and provide a power to amend the definition of "money purchase benefit" further. New definition of money purchase benefit as it stands in the Pensions Bill. There are two key parts, according to whether the pension has started to be paid. Where pension has not started to be paid, a money purchase benefit must be such that: "its rate or amount is calculated solely by reference to assets which (because of the nature of the calculation) must necessarily suffice for the purposes of its provision to or in respect of the member." Where pension has started to be paid, a money purchase benefit must be such that: "(a) its provision to or in respect of the member is secured by an annuity contract or insurance policy made or taken out with an insurer, and (b) at all times before coming into payment the pension was a benefit falling within this section by virtue of [the definition above]" The amendments will have retrospective effect back to 1 January 1997, so should effect all schemes that have wound up since the Pensions Act 1995 came into effect. https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/182067/pensionsbill-mpb-info.pdf 3 integrity, clarity, simplicity
New Pre April 2016 GMP reconciliation exercise GMPs ceased accruing in 1997. Trustees typically only carry out a full reconciliation of their scheme s GMP records with HM Revenue & Customs (HMRC) when they have need to do so. The ending of contracting out on 5 April 2016 will trigger a requirement to reconcile GMPs. Recognising the potential influx of schemes after that date, HMRC is offering a new membership reconciliation service from April 2014 that will operate until 2016. This service will offer schemes the chance to reconcile GMPs of their non-active membership prior to 2016. A two year window to reconcile is short, so schemes and administrators will need to consider getting first in line if they wish to use it. HMRC is still considering industry suggestions to extend the two year window to 2018. HMRC has informed pension practitioners that there is a three month registration lead in period for this service, so those who register in January 2014 will have access to their data in April 2014. The registration process will be via a web-based tool and data will be provided using HMRC s existing Shared Workspace facility (see link below). http://www.hmrc.gov.uk/nic/nispisw.htm In April 2016 all schemes will be sent a listing by HMRC detailing the GMP liability for which HMRC believes they are responsible. HMRC s plan is that schemes will then have until 2018 in which to agree with HMRC the members for which they are responsible and the amounts of those GMPs. In April 2018 it is the intention that HMRC will be writing to every person (approximately 30 million people) who has ever been in a contracted-out scheme letting them know who is responsible for their GMP for each period of contracted out employment. The current plan is that no GMP amounts will be given. HMRC s ability to cope with the demand to use the membership reconciliation service will be key in determining whether the relatively short timeframes are realistic for administrators and schemes to be able to reconcile scheme memberships and GMPs. The notice that all members will be written to in 2018 will certainly focus the minds of both pension practitioners and HMRC. New Issues Finance Bill 2014 On 10 December 2013, the Government published the draft Finance Bill 2014 (the Bill) together with draft secondary legislation and guidance. The Bill includes provisions which will introduce a new form of transitional protection from a potential LTA charge, to be known as Individual Protection 2014 (IP14). The key points are: The LTA will reduce to 1.25 million (down from 1.5 million) with effect from 6 April 2014. IP14 is designed to give individuals with pension savings in excess of 1.25 million on 5 April 2014 a personalised LTA based on the value of their pension savings at that date (subject to an overall maximum of 1.5 million). IP14 is not available to those who already have primary protection. Applications for IP14 must be received by HMRC by 5 April 2017. https://www.gov.uk/government/publications/finance-bill-2014-draft-legislation-overviewdocuments 4 integrity, clarity, simplicity
New Issues PPF Levy Determination On 11 December 2013, the Pension Protection Fund (PPF) published its 2014/15 Levy Determinations and confirmed that the 2014/15 pension protection levy estimate will be 695 million, as originally proposed. Experian In July, the PPF announced that it will be appointing Experian as its new insolvency risk provider from 2015/16, the start of the next three year period for the levy, replacing current provider, Dun & Bradstreet. Dun & Bradstreet methodology change Dun & Bradstreet will be introducing a new scoring methodology for the UK from the beginning of 2014 and will not be able to supply UK scores on the existing basis. The PPF has decided that it will not make changes to the Levy Rules because of this issue, which means that the new scores will be included in the 12 month average calculations in the same way as the previous failure scores. http://www.pensionprotectionfund.org.uk/news/pages/details.aspx?itemid=347 New Issues TPR approach to DB pension schemes and funding On 2 December 2013, The Pensions Regulator (TPR) issued a consultation on a revised code of practice for DB scheme funding, a new DB regulatory strategy and a revised DB funding policy regulating DB pension schemes. Together, these documents set out TPR's regulatory approach to DB schemes and to DB funding. TPR intends to hold a series of events and meetings with key industry stakeholders and experts during the consultation period in order to gather their feedback on both broad principles and narrow technical issues. The consultation closes on 7 February. It is anticipated that the new code will be in force by July 2014 and will apply to schemes undertaking valuations from that time. Once the code has come in to effect, TPR intends to produce more accessible quick guides for trustees and employers and to update its Trustee toolkit, e-learning modules, and other regulatory guidance material for DB schemes. http://www.thepensionsregulator.gov.uk/doc-library/regulating-defined-benefit-pensionschemes.aspx New Issues Simplifying the administration of pension schemes On 29 November 2013, the DWP published a consultation to seek views on draft regulations that introduce technical changes to simplify the administration of private pension schemes. The draft regulations aim to: outline a solution to address the issues faced by large multi-employer schemes when they appoint auditors clarify pension scheme trustees liability when a pension has been secured by an insurance policy or annuity contract and clarify when a proportion of the benefits may be paid as a lump sum correct a reference in the Employer Debt Regulations, which sets out what should be done when there has been criminal fraud. The consultation closes on 10 January 2014. https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/261998/ occupational-pensions-miscellaneous-amendments-consultation.pdf 5 integrity, clarity, simplicity
DC Code of Practice brought into force The Pensions Act 2004 (Code of Practice) (Governance and Administration of Occupational Defined Contribution Trust-Based Pension Schemes) Appointed Day Order 2013 was published on 13 November 2013. It will bring TPR s Code of Practice No. 13: Governance and administration of occupational DC trust-based pension schemes into force with effect from 21 November 2013. As the first DC-specific code of practice issued by the Pensions Regulator, the DC Code marks an important change in the Pensions Regulator s approach to regulating DC pension provision. Together with the DC guidance, it is drafted around the Regulator s 31 DC quality features against which DC schemes will be expected to make a compliance statement in their annual report and, in the case of schemes for non-associated employers, to embrace a voluntary assurance framework. Introduction to the DC Code and DC guidance: http://www.thepensionsregulator.gov.uk/docs/introduction-draft-code-13-governanceadministration-dc.pdf Guidance for DC schemes: http://www.thepensionsregulator.gov.uk/docs/guidance-dc-schemes.pdf DC Code: http://www.thepensionsregulator.gov.uk/docs/code-13.pdf New guidance on asset-backed contributions On 19 November 2013, The Pensions Regulator published new guidance on asset-backed contributions (ABCs). These are also commonly referred to as asset-backed funding (or special purpose vehicle) structures and pension funding partnerships (PFPs). It is aimed at trustees who are considering a proposal to enter such an arrangement. Whilst recognising the potential advantages of ABC arrangements for employers and pension schemes in terms of funding and security, TPR expects trustees to examine ABC proposals critically and carefully. Trustees should consider whether there are any less risky alternatives to support the Scheme. Trustees should unpack the ABC arrangement to identify the extent to which the value attributed to the ABC in the Scheme s accounts is reliant on future payments. All ABC arrangements should include a separate underpin to protect the scheme s position should the arrangement be declared void or there is a change in the law. http://www.thepensionsregulator.gov.uk/docs/asset-backed-contributions-2013.pdf Consultation on reshaping workplace pensions On 7 November 2013, the DWP unveiled its plans for Reshaping workplace pensions for future generations. The consultation, which follows the DWP s November 2012 paper on Reinvigorating workplace pensions, sets out the Government s proposals for alternatives to the traditional DB and DC models of pension provision, in the form of DA (defined ambition) arrangements. https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/255541/reshapingworkplace-pensions-for-future-generations.pdf 6 integrity, clarity, simplicity
New Disclosure of Information Regulations The Occupational and Personal Pension Schemes (Disclosure of Information) Regulations 2013 revoke and replace the Personal Pension Schemes (Disclosure of Information) Regulations 1987 and the Occupational Pension Schemes (Disclosure of Information) Regulations 1996. The purpose of the new regulations, which will come into force on 6 April 2014, is to ensure that the regulatory regime for the disclosure of information by occupational and personal pension schemes to their members is clear, up to date and supports the DWP s aim of reinvigorating workplace pensions. http://www.legislation.gov.uk/uksi/2013/2734/contents/made Charges Cap Proposed for DC Schemes In October the DWP published a consultation on capping charges. The consultation closes on 28 November 2013. The DWP s consultation asks for views on whether a cap on charges in default funds should be introduced. The consultation sets out three options for a cap. Option 1 a charge cap of 1% of funds under management Option 2 a lower charge cap of 0.75% Option 3 a two-tier comply or explain cap, which would comprise a standard cap of 0.75% which could be increased to 1% for all employers who are able to explain to TPR the reason for the charges in excess of 0.75%. The proposal is that the cap should be introduced for all members, both active and deferred, of default funds in qualifying DC schemes (namely, used for automatic enrolment) for those employers staging from April 2014. The cap would then be extended by April 2015 to all employers who have staged since the introduction of automatic enrolment in October 2012. https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/254332/cm8737- pension-charges.pdf Regulator warns against 'double-counting' in DB schemes The Pensions Regulator is reminding trustees and employers of multi-employer defined benefit (DB) schemes that payments under a schedule of contributions cannot also be considered payments towards section 75 debts, or vice versa, in a statement published on 25 October 2013. Some of the risks of double counting include: Leaving a debt owed to the scheme unpaid, which will have a detrimental impact to scheme assets and member security. Potential ineligibility of the scheme for Pension Protection Fund entry. Failing to properly consider the impacts on the employer covenant following an employer departure. http://www.thepensionsregulator.gov.uk/docs/statement-double-counting-2013.pdf 7 integrity, clarity, simplicity
Pensions liberation ruling HMRC has made changes to strengthen existing processes to deter pension liberation and safeguard pension savings. These include: Registering a pension scheme - scheme registration will no longer be confirmed on successful submission of the online form. This will enable HMRC to conduct detailed risk assessment activity before making a decision on whether or not to register a scheme; Transferring pension funds between registered pension schemes - HMRC will respond to requests for confirmation of a scheme s registration status without seeking consent from the receiving scheme. However, HMRC will only provide confirmation where the receiving scheme is registered and the information held by HMRC does not indicate a significant risk that the scheme was set up, or is being used, to facilitate pension liberation. Otherwise, a response will be issued setting out the conditions in which HMRC will confirm registration status and explain that one or both of the conditions are not satisfied. These changes take effect from 21 October 2013. http://www.hmrc.gov.uk/news/pensionliberation.htm The Pensions Regulator responded on 21 October 2013 to Mr Justice Morgan s High Court ruling in respect of the legal status of a number of suspected pension liberation schemes. In May, City of London Police carried out a series of raids on organisations accused of involvement in such schemes. Independent trustees were appointed to administer schemes suspected of involvement in pension liberation fraud. The High Court was asked to determine the legal status of these schemes in light of ambiguities in the documentation. Mr Justice Morgan has ruled that the schemes are occupational pension schemes. http://www.thepensionsregulator.gov.uk/press/pn13-38.aspx New Regulations regarding Bridging Pensions Regulations which came into force from 1 October 2013 provide that trustees of schemes that provide bridging pensions will be able to modify their scheme by resolution so that the bridging pension requirements take account of the increases to state pension age. http://www.legislation.gov.uk/uksi/2013/1754/pdfs/uksi_20131754_en.pdf New Issues TPR publishes guide to changes to scheme return All DB schemes have to complete an annual scheme return. On 17 December 2013, The Pension Regulator (TPR) issued a guide to the questions covered in the scheme return. The guide also highlights those areas that are the subject of new questions in the scheme return from January 2014. http://www.thepensionsregulator.gov.uk/docs/scheme-return-changes-db-hybrid.pdf 8 integrity, clarity, simplicity
Trustee Newsletters In November The Pensions Regulator (TPR) published a Trustee Knowhow newsletter which is designed to help trustees find out about important developments and understand how they might affect their duties. In this edition TPR highlights pension liberation fraud, aiming to help trustees limit the impact of this risk, and to put them in a better position to protect their members. The newsletter also looks at record keeping, auto-enrolment and forthcoming publications and developments. http://www.thepensionsregulator.gov.uk/docs/trustee-knowhow-november-2013.pdf New Issues Equitable Life Payments Scheme On 6 December 2013, the Government announced that they will make a single ex gratia payment of 5,000 to people who have one or more With-Profits Annuities from the Equitable Life Assurance Society which began before 1st September 1992 and were aged 60 or over at the date of the Budget announcement on 20 March 2013. An additional 5,000 would also be paid to those policyholders who meet the above criteria and are in receipt of Pension Credit on 1 November 2013. https://www.gov.uk/government/publications/equitable-life-payments/equitable-life-payments On 9 October 2013, the Government announced that it is extending the Equitable Life Payments Scheme (ELPS) to mid-2015. This action is being taken to make sure as many Equitable Life policy holders as possible receive the payment they are due for the injustice they suffered. The scheme had previously been due to close in April 2014. https://www.gov.uk/government/news/equitable-life-payments-scheme-extended New Issues Qualifying Recognised Overseas Pension Scheme (QROPS) On 27 November 2013, HMRC published guidance for individuals, pension schemes and advisers on the taxation of unauthorised transfers to schemes included on the QROPS list. The guidance concerns transfers of sums or assets which took place before 24 September 2008 from a registered pension scheme to a scheme that was included within the list relation to QROPS. It will operate in relation to a small number of transfers where the scheme was not a QROPS when the transfer took place. http://www.hmrc.gov.uk/pensionschemes/transfers-to-qrops.pdf In October HMRC published the Registered Pension Schemes and Overseas Pension Schemes (Miscellaneous Amendments) Regulation 2013. Aiming to further strengthen the Qualifying Recognised Overseas Pension Scheme (QROPS) regime, these regulations make a number of changes to the rules on tax-free transfers of UK tax-relieved pension savings to pension schemes overseas that meet the requirements to be QROPS. http://www.legislation.gov.uk/uksi/2013/2259/contents/made 9 integrity, clarity, simplicity