Pensions update; Pension Scheme Pays Deadlines extended and more.

Contents: 

• DWP consults on stronger nudge to pensions scheme members to seek pension guidance
• FCA: Scammers target over £2 million in pension pots in the last five months
• Pension Scheme Pays Deadlines extended
• PPF publishes updated PPF 7800 index - July 2021

 

DWP consults on stronger nudge to pensions scheme members to seek pension guidance (AF3, FA2, JO5, RO4, RO8)

The DWP has launched its Stronger Nudge to pension guidance consultation on regulations to implement a requirement that the trustees of occupational pension schemes, in respect of flexible (i.e. typically DC) benefits, ensure that individuals are referred to “appropriate pensions guidance” and have either received or opted out of receiving it, where they are proposing to access or transfer their DC benefits.

This ‘stronger nudge’ requirement, applicable to members aged 50 or above or their survivors, follows an FCA consultation in May on similar rules in relation to providers of contract-based DC schemes. Both requirements follow from provisions set out in the Financial Guidance and Claims Act 2018, which in turn came to pass because of worries that FCA rules and DWP regulations settled in 2015 as part of the ‘freedom and choice’ package, requiring information to be given and ‘signposting’ to pensions guidance in broadly similar circumstances, provided insufficient member protection.

Unsurprisingly, the nature of the proposed DWP regulations is very similar to the FCA’s proposed rules. In particular, in the DWP’s case, the disclosure of information regulations are amended so that when the individual has decided they wish to access or transfer their DC benefits, the trustees must:

• Refer the individual to Pension Wise guidance (which is available only to those who are aged 50 or above).
• Explain the nature and purpose of Pension Wise guidance.
• Offer to book an appointment, and where the individual accepts the offer, book the appointment or provide the individual with sufficient information to book their own appointment.

Where this ‘stronger nudge’ is required, the 2015 ‘signposting’ to pensions guidance is removed.

The trustees will not be able to continue to proceed with the application until the individual has told them they have received the guidance or they have received an opt-out notification from the individual.

The new requirements do not apply where the individual wishes to transfer their DC benefits to a different occupational pension schemes that does not provide DC benefits, or where their sole purpose of transferring is to consolidate their DC benefits (the DWP states that trustees can assume that potential transferees under age 50 are transferring for this reason). Other exemptions include where the individual has received Pension Wise guidance or received regulated financial advice within the last 12 months or is in serious ill-health and wishes to access their benefits as a one-off lump sum.

The law governing transfer values is amended to turn off the trustees’ duty to process a statutory cash equivalent where the above requirements have not been met.

Consultation on the DWP’s proposals closes on 3 September 2021. It appears that these new requirements will come into force on 6 April 2022, presumably at the same time as the FCA’s proposed rules which are intended to be finalised by the end of 2021.

 

FCA: Scammers target over £2 million in pension pots in the last five months (AF3, FA2, JO5, RO4, RO8)

Research set out in a Press Release from the FCA has found that:

• Despite 68% of pension holders claiming they were confident they could spot the signs of a pensions scam, only 28% realised that a free pension review was a sign of a scam and just 40% knew to be wary of opportunities to transfer your pension.

• 28% of respondents said that they felt more at risk of a pension scam now than before the COVID-19 pandemic and, of those who felt more at risk, 65% felt that scammer tactics had become more sophisticated and harder to spot during the pandemic.

• The FCA also reported that a total of £2,241,774 has been lost to pension scammers since the start of 2021, with an average loss of £50,949 which is more than double last year's average.

The FCA are encouraging pension members to ‘flip the context” when approached with pension offers, by imagining the same offer in person, in an everyday, offline setting like a trip to the shops or an afternoon in the pub. It seems from the research that a “Dell-boy” approach is given credence when delivered over the internet.

Commenting on the report, Senior Analyst at AJ Bell Tom Selby said in their Press Release: “It is shocking that £2m has been lost to pension scams so far this year but in reality this is the tip of the iceberg. Most scams occur outside of pensions nowadays, with retirement savers over age 55 who can access their retirement pot flexibly one of the prime targets for fraudsters... While steps have been taken to protect pension savers, Government and regulatory interventions can only do so much. It is vital individuals take responsibility, be careful before parting with their money and take the time to know the tell-tale signs of a scam.”

 

Pension Scheme Pays Deadlines extended (AF3, FA2, JO5, RO4, RO8)

The reporting and payment deadlines for mandatory scheme pays have been extended to allow payments for earlier tax years where members see retrospective increase in their pension inputs.

Mandatory scheme pays requires the scheme to pay the tax charge where it exceeds £2,000 and the member’s pension inputs have exceeded the standard annual allowance of £40,000.

The change comes as part of the planned rectification following the McCloud judgement which will mean that Public Sector members will be put back into the older sections of their pension schemes for previous tax years. This will involve the recalculation of pension inputs and potential retrospective tax charges.

The new rules will take effect from April 2022 and will allow members who have revised pensions inputs which result in a tax charge to use mandatory scheme payments where the other normal conditions are met for tax years 2016/17 onwards.

Note that voluntary scheme pays may also be available where the member doesn’t meet the mandatory requirements and there are no set legislative time limits for this, it is down to the discretion of the scheme. We would expect that Public Sector schemes will offer similar flexibility for voluntary scheme pays as part of the rectification.

 

PPF publishes updated PPF 7800 index - July 2021 (AF3, FA2, JO5, RO4, RO8)

July 2021 Update Highlights:

• The aggregate surplus of the 5,318 schemes in the PPF 7800 Index is estimated to have increased over the month to £99.0 billion at the end of June 2021, from a surplus of £94.6 billion at the end of May 2021.
• The funding ratio increased from 105.6 per cent at the end of May 2021 to 105.8 per cent.
• Total assets were £1,813.0 billion and total liabilities were £1,714.0 billion.
• There were 2,424 schemes in deficit and 2,894 schemes in surplus.
• The deficit of the schemes in deficit at the end of June 2021 was £117.7 billion, down slightly from £117.8 billion at the end of May 2021.

Funding comparison ns

	June 2020	May 2021	June 2021
Aggregate funding position	-£132.2bn	£94.6 bn	£99.0bn
Funding ratio	93.1%	105.6%	105.8%
Aggregate assets	£1,790.7bn	£1,788.3bn	£1,813.0bn
Aggregate liabilities	£1,922.9bn	£1,693.7bn	£1,714.0bn
Dataset / Assumptions	Purple 19 / A9	Purple 19 / A9	Purple 19 / A9

The PPF 7800 index is published on the second Tuesday of every month, and the PPF publishes The Purple Book each year.

e rectification.