Pensions update: Pension schemes; Default fund charge cap; Workplace pensions; PPF; and more

Pensions

 

• Pension Schemes Newsletter 121 - June 2020
• DWP Review of the Default Fund Charge CAP
• Workplace pension participation and savings trends 2009 – 2019
• PPF compensation cap is ruled age discriminatory
• FCA announces pensions value for money consultation
• Government suffers defeats at Report stage for the Pension Schemes Bill in the House of Lords

 

Pension Schemes Newsletter 121 - June 2020

(AF3, FA2, JO5, RO4, RO8)

HMRC Pension Schemes Newsletter 121 covers the following:

• temporary changes to pension processes as a result of coronavirus (COVID-19);

• managing pension schemes service;

• real time information – cessation of earlier year updates and use of full payment submissions.

Issues of particular interest

APSS106 relief at source repayment claims

As a result of coronavirus (COVID-19) HMRC have conceded that it may be difficult for scheme administrators to obtain signatures from authorised signatories on annual repayment claims.

Where the claims are e-mailed by the authorised signatory, they will accept the claim without a signature. Alternatively, they will accept the form signed and e-mailed by someone else provided they also receive a separate email directly from the authorised signatory authorising them to submit the claim.

The same process is also in place for APSS590 – the relief at source declaration.

Extension of the temporary changes to pension processes as a result of coronavirus

The timescales and deadlines of many pension scheme processes have been extended due to coronavirus. These were outlined in Pension Scheme Newsletters 118, 119 and 120. HMRC have reviewed these extensions and unless otherwise noted these will now all be extended until the end of October 2020. 

Delays relating to the AFT return on managing pension schemes service

The date schemes will be able to submit their AFT return on the managing pension schemes service has been delayed until 21 July. HMRC had initially stated this would be possible from 1 July, but this has been delayed due to new features being added to the AFT return.

DWP Review of the Default Fund Charge CAP

(AF3, FA2, JO5, RO4, RO8)

The Department of Work and pensions (DWP) has issued a Consultation Document seeking views on the effectiveness of costs, charges and transparency measures in protecting pension member outcomes in qualifying workplace pensions.

The document progresses the commitment made by Government following the 2017 review of the charge cap to re-examine the scope and level of the charge cap in 2020, and to review permitted charging structures. 

This call for evidence seeks views and evidence on the following:

• the level and scope of the current 0.75% charge cap applicable to the default arrangement within certain Defined Contribution pension schemes used for Automatic Enrolment;

• the appropriateness of permitted charging structures and the extent to which they should be limited;

• options to assess take-up, and widen the use of standardised cost disclosure templates.

The Consultation runs until 20 August 2020 and the DWP will publish the findings of this call for evidence as part of the charges review by the end the year.

Workplace pension participation and savings trends 2009 – 2019

(AF3, FA2, JO5, RO4, RO8)

The DWP has published their most recent finding on workplace pension savings in the document Workplace Pension Participation and trends of eligible employees 2009 - 2019. 

This annual official statistics publication is the seventh edition in the series. These official statistics provide breakdowns of two key measures for evaluating the progress of automatic enrolment implementation: increasing the number of savers, by monitoring trends in workplace pension participation and persistency of saving; and increasing the amount of savings, by monitoring trends in workplace pension saving.

The main findings were:

• 70% of eligible employees saving into a workplace pension in 2016 were saving persistently over the following three years;

• The annual total amount saved by eligible savers stood at £98.4bn in 2019 an increase of £5.3bn from 2018; and

• 89% of eligible employees were in a workplace pension in 2019.

PPF compensation cap is ruled age discriminatory

(AF3, FA2, JO5, RO4, RO8)

In the case of Hughes V PPF Justice Lewis held the Pension Protection Fund’s (PPF) cap on deferred members’ benefits amounts to unlawful discrimination on the grounds of age. 

The PPF offers different levels of benefits depending on whether members are past their normal pension age or not. Those that are broadly receive 100% of their benefit entitlement, whereas deferred members and members below the normal pension age receive 90% of the value of their benefits subject to a cap set at £41,461 in the current tax year. 

This case challenged the legality of the cap and Justice Lewis ruled the cap was disproportionate and therefore unjustifiable: it affected only a small group of members but could have a very severe adverse effect on those members. As the cap is considered unlawful it should be disapplied. 

The claim did not ask the question of the 90% rate, however, Justice Lewis indicated his view that this would potentially be appropriate and necessary.

FCA announces pensions value for money consultation

(AF3, FA2, JO5, RO4, RO8)

The FCA have announced a new consultation with proposals aiming to make it easier for Investment Governance Committees (IGCs) and Governance Advisory Arrangements (GAAs) to compare value for money of pension products and services.

This follows a review which looked at how IGCs and GAAs ensure the members receive value for money.

The review found a lack of consistency in the way IGCs and GAAs operate and that some IGCs lack the necessary independence meaning they were less effective at ensuring value for money for members.

The new consultation sets out proposals to improve this, such as whether there is a need for a clearer set of rules and guidance on how IGCs should assess value for money.

The consultation closes on 24 September 2020 and a policy statement is planned for Q4 2020.

Government suffers defeats at Report stage for the Pension Schemes Bill in the House of Lords

(AF3, FA2, JO5, RO4, RO8)

The Pension Schemes Bill had its Report Stage on 30 June where (unsurprisingly) all the Government amendments were accepted.  However, no less than four Opposition-sponsored amendments were also carried. 

These successful amendments arose as follows:

1. Concern about the possibility that collective money purchase schemes may not treat all members fairly, resulting in an amendment being carried requiring trustees to report on the fairness to members of the operation of the scheme.

2. Worries that pension dashboards could be utilised by those providing such a service to entice individuals to transfer out their benefits, potentially to a scam. This resulted in an amendment being carried requiring that any pensions dashboard service does not include a provision for financial transaction activities.

3. A desire that the pensions dashboard service being constructed by MaPS has a clear run before other providers can launch their service, resulting in an amendment being carried ensuring that the MaPS service operates for a year and the Government reports to Parliament on its operation and effectiveness before commercial dashboards can open shop.

4. A clearly expressed desire across the House for the Pensions Regulator to treat open defined benefit schemes differently to closed schemes in relation to funding and investment. An amendment was carried setting out a number of principles that any regulation of such schemes should follow, including that their closure is not accelerated. 

Amongst the other matters discussed were the following:

1. A clear Government intention to enable collective money purchase scheme designs to extend to non-employer established schemes and other non-connected multi-employer schemes with potentially different authorisation and supervisory regimes to that envisaged for the proposed Royal Mail (single employer) scheme.

2. Clear worries across the House about the wide scope of the new moral hazard powers being granted to the Pensions Regulator. Earl Howe, speaking for the Government, acknowledged these concerns and offered some comfort that they would be used proportionately, and should not frustrate legitimate business activities where they are conducted in good faith.  Moreover, he stated that the Pensions Regulator will consult on guidance explaining its approach to prosecuting these new offences and such guidance will be finalised before the provisions are commenced.

The Bill now moves to Third Reading and should then cross Parliament to the House of Commons, but it is not clear whether any progress will be made here before Parliament breaks for the summer recess.