Pensions; TPR: An act to protect pension savers and more.

 

• PLSA publishes report on pension tax reform
• PASA issues GMP equalisation group guidance on tax issues
• TPR publishes automatic enrolment declaration of compliance report
• TPR: An act to protect pension savers
• PPF publishes updated PPF 7800 Index - February 2021
• Dashboard looks for confirmation of its digital identity approach from data providers
• ABI: Scrap the money purchase annual allowance to help financial resilience

 

PLSA publishes report on pension tax reform

(AF3, FA2, JO5, RO4, RO8)

The Pensions and Lifetime Savings Association (PLSA) has published a discussion paper, entitled “Five Principles for Pension Taxation”. This sets out the five principles against which any pension tax reform should be assessed and considers whether the range of reforms most frequently discussed would satisfy them. As well as looking at the current system, the report considers the application of:

• A single rate tax relief at 20%, 25% or 30%,

• Reduction in the annual allowance

• Reduction in the lifetime allowance, and

• TEE, whereby pension contributions are taxed at a person’s marginal rate of income tax but investment returns and pension income are exempt.

According to the PLSA, even under the most generous scenario, where the Government would adopt a single rate of 30% tax relief, the biggest improvement any saver in a DC pension scheme would see to their income replacement rate in retirement is only 1% to 2%.

The Five Principles for Pension Taxation

PLSA’ s Five Principles for Pension Taxation are that it should:

1. Promote adequacy: provides financial support and incentivises saving for retirement.

2. Encourage the right behaviours: helps savers make the right decisions about retirement saving

3. Be fair: helps everyone – the employed, the self-employed, and non-workers - save for retirement

4. Be simple to adopt and administer: avoids unreasonable transition and on-going costs for employers and schemes

5. Be enduring & sustainable: designed to avoid repeated change and so builds confidence in long-term saving.

Nigel Peaple, Director of Policy and Advocacy at the PLSA, said: “Our assessment suggests that no single reform or the current system is perfect. Most reform options leave many people with lower pension savings and create very substantial cost and complexity for employers and occupational pension schemes. Introducing major change to the system of fiscal support for pensions risks undermining hard-won confidence in pensions. This, in turn, could undermine the gains made in recent years, particularly through the advent of automatic enrolment and improvements in governance.”

 

 

PASA issues GMP equalisation group guidance on tax issues

(AF3, FA2, JO5, RO4, RO8)

The Guaranteed Minimum Pension (GMP) equalisation working group, chaired by the Pension Administration Standards Association (PASA), has issued further a document entitled: “Guidance Note on Tax Issues”.

The new Guidance highlights tax issues which schemes may encounter in adjusting benefits to correct for the inequalities of GMPs and identifies possible approaches for dealing with those issues.

Daniel Gerring, Chair of the Sub-group responsible for preparing the Guidance, commented: “Tax considerations are crucial for GMP equalisation exercises. Since the first judgment in the Lloyds Bank case established once and for all the need to equalise there has been a natural desire to get on with it. But schemes continue to be faced with difficult unresolved issues – tax often being one of the knottiest. The newsletters published by HMRC provided an important starting point and we hope this guidance will provide a further layer of support in getting things moving.”

Gerring added: “This Guidance combines commentary and analysis with good practice guidance, to help enable schemes to make informed decisions. Many schemes want to implement GMP equalisation projects as soon as they reasonably can, and we hope this guidance will help the industry address tax issues in a pragmatic and proportionate way.”

The Guidance draws on the experience and thought leadership of a group of advisers from various professions across the pensions industry. Appendix 1 starting on page 50 of the PDF considers the implications for the various forms of transitional protection and will requires advisers to take action in some cases, particularly in respect of Primary Protection and the various forms of Individual Protection.

 

 

TPR publishes automatic enrolment declaration of compliance report

(AF3, FA2, JO5, RO4, RO8)

The Pensions Regulator (TPR) has published its monthly automatic enrolment declaration of compliance report, which sets out information based on data submitted by employers. According to the report, between July 2012 and the end of January 2021, 1,791,786 employers confirmed that they had met their automatic enrolment duties. The report also states that, as of January 2021, 10,418,000 eligible jobholders were automatically enrolled into an automatic enrolment pension scheme during the same period.

 

 

TPR: An act to protect pension savers

(AF3, FA2, JO5, RO4, RO8)

The Pensions Regulator (TPR) has published a new blog about the Pension Schemes Act 2021, which received Royal Assent last week. Written by TPR's Executive Director of Regulatory Policy, Analysis and Advice David Fairs, the blog looks at the new powers granted by the Act and confirms that a second DB funding code consultation is planned for later in 2021. Mr Fairs also discusses how the Act pushes pension scheme trustees to engage with the issue of climate change. Mr Fairs noted: “[The Act has] been a long time coming and marks a watershed moment in TPR’s mission to protect savers. But, Royal Assent is not the end of the story. Some of the Act’s provisions won’t commence straight away, with many also requiring regulations from DWP. TPR will be engaging with the pensions industry and providing guidance in due course to help it navigate the changes brought by the new law.”

 

 

PPF publishes updated PPF 7800 Index - February 2021

(AF3, FA2, JO5, RO4, RO8)

The Pension Protection Fund has published the latest estimated funding position, on a s179 basis, for the defined benefit schemes in its eligible universe. 

February 2021 Update Highlights:

• The aggregate deficit of the 5,318 schemes in the PPF 7800 Index is estimated to have decreased over the month to £65.0 billion at the end of January 2021, from a deficit of £86.4 billion at the end of December 2020.

• The funding ratio increased from 95.5 per cent at the end of December 2020 to 96.5 per cent.

• Total assets were £1,808.4 billion and total liabilities were £1,873.4 billion.

• There were 3,149 schemes in deficit and 2,169 schemes in surplus.

• The deficit of the schemes in deficit at the end of January 2021 was £212.4 billion, down from £230.3 billion at the end of December 2020.

Funding comparisons

	January 2020	December 2020	January 2021
Aggregate funding position	-£74.7bn	-£86.4bn	-£65.0bn
Funding ratio	95.9%	95.5%	96.5%
Aggregate assets	£1,733.9bn	£1,834.1bn	£1,808.4bn
Aggregate liabilities	£1,808.6bn	£1,920.5bn	£1,873.4bn
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. 

 

  

Dashboard looks for confirmation of its digital identity approach from data providers

(AF3, FA2, JO5, RO4, RO8)

The Pensions Dashboards Programme (PDP) has issued a ‘call for input’ on digital identity to those who will be making data available to the dashboard; such as trustees, schemes and pension providers. It has also produced a report “Identity Approach” explaining this.

This follows a recent request by the PDP for information from key participants in the identity market. The call for input sets out the PDP’s intended approach to the establishment of an individual’s identity “to a standard acceptable to the ecosystem as a whole” before data is made available to that individual through any dashboard. The PDP intends to ensure that the identity solution is based on Good Practice Guide 45 and authentication on Good Practice Guide 44 – both written by the Government Digital Service and published by the Cabinet Office.

As regards an individual’s identity the intention is that the user will have to consent to an identity provider validating their identity and confirming the following information; first name, family name, date of birth and address. They may also have to provide the following ‘user asserted attributes’ which may or may not be validated by the identity provider. These are national insurance number, address history, email address, telephone number and previous names.

The identity provider will validate some of the information supplied against five criteria in order to build up an overall level of confidence that the individual is who they say they are. The PDP proposes a ‘medium level’ of confidence to be required before the identity service provides verified attributes to the pension finder service, alongside user asserted attributes.

On user authentication when an individual logs on the PDP proposes a ‘medium level’ approach which incorporates a minimum of 2 factor authentication with attendant security of credential lifecycle and transaction monitoring.

The PDP says that the identity industry was broadly in agreement with both these approaches.

The call for input closes on 19 March 2021.

 

 

ABI: Scrap the money purchase annual allowance to help financial resilience

(AF3, FA2, JO5, RO4, RO8)

In a Press Release, the ABI has called on the Government to scrap the money purchase annual allowance (MPAA). The ABI said the move would ensure that pension savers who needed to access their pension savings during the pandemic are not penalised for paying it back when they are able to do so. The ABI added that “[i]t does not take much to exceed the MPAA” and removing it may also incentivise older workers to continue to save into their pension, thereby improving their financial resilience.

Yvonne Braun, ABI Director of Policy for Long-term Savings and Protection, said: “COVID-19 has shown that households’ financial resilience can be fragile and addressing that should be a central part of the nation’s COVID-19 recovery. Our data suggests that pension withdrawals have not yet substantially increased, but the continued uncertainty and insecure job market could mean more people dipping into their retirement savings to get by. Removing or increasing the Money Purchase Annual Allowance will help incentivise older workers to save. This will improve their financial resilience and also make sure people are not penalised for doing the right thing by paying money back into their pension when they can afford to.”

Tom Selby, Senior Analyst at AJ Bell, commented in a Press Release that: “Even before the pandemic struck, slashing someone’s pensions annual allowance by 90% — from £40,000 to just £4,000 — merely for accessing £1 of taxable income from their retirement pot felt grossly unfair... Regardless of the circumstances, the MPAA is applied indiscriminately and permanently, leaving people facing an uphill battle to rebuild their retirements. This wrongheaded policy, which also runs counter to increasingly flexible working patterns, must now be rethought as a matter of urgency. If this review needs time, in the interim the Chancellor should increase the MPAA to £10,000 — the level it was originally introduced at in 2015 — to give savers a little more flexibility.”