TAXATION AND TRUSTS 

Scottish widow's attorney granted power to administer late husband's estate

(AF1, JO2, RO3) 

A case in which the attorney of a mentally incapacitated widow won her petition to be appointed executrix-dative of the estate of the widow's deceased husband, despite the lack of legal precedent granting her that right. 

Background 

Generally, under a Lasting Power of Attorney (LPOA) the attorney cannot act as a trustee nor an executor for the Donor. In Scotland, the terminology executor/trix-dative means an executor appointed by the court normally where there is no Will in place. However, the courts can also appoint in other circumstances. An executor/trix-nominate means an executor appointed under a Will. 

The case 

On his death Thomas Rae left a Will naming his wife Eleanor Rae as his sole beneficiary. However, the two executors appointed by the Will had both predeceased him. Normally, this would have entitled Eleanor to act as executrix either in a nominate capacity by virtue of s.3 of the Executors (Scotland) Act 1900, or in a dative capacity as Widow of the deceased. However, by the time of Thomas’s death, Eleanor had lost mental capacity and had granted Power of Attorney (POA) to Susan Gordon. 

Gordon duly applied to be appointed as the deceased's executrix as the representative of Eleanor. Initially, this application was rejected by Sheriff Philip Mann as inappropriate, as a representative appointment is normally reserved for the confirmed executor of a deceased person who, if alive, would be entitled to the office of executor-dative, which was not the situation here. Instead, the question was whether or not Gordon was entitled to be appointed as executrix-dative as Eleanor's attorney, and the petition was amended in appropriate terms. 

The outcome 

There appears to be no definitive precedent on the matter, but Sheriff Mann relied on selected passages from the leading authority on Scottish executor appointments, namely Currie on Confirmation of Executors, now in its ninth edition. Currie suggests that the courts can only appoint a guardian or the holder of an intervention order, and not an attorney, as executor-dative in place of an incapacitated person. 

However, Mann considered that the public interest in the least possible delay and expense in estate administration did not justify appointing a guardian as a precursor to the appointment of an executor-dative. Anyway, he said, in many, if not most, cases the person who might be

appointed attorney might also be the person who would be appointed guardian or intervener. 

As a precaution, Mann submitted this view to both the Office of the Public Guardian and the Lord Advocate before giving his judgment. Both declined the opportunity to enter process and make representations, and accordingly Mann ruled that Gordon was entitled to the same powers to act on the Donor's behalf as a guardian would. He duly appointed her as the deceased executrix. 

Comment 

This seems a sensible decision in this case. However, the rules still stand that generally an attorney cannot act as an executor for a Donor. It is essential that individuals make sure their Wills are up to date in order to ensure a smooth process on death for those who will be administering their estates. 

INVESTMENT PLANNING 

August inflation numbers

(AF4, FA7, LP2, RO2)

The UK CPI inflation rate for the August 2023, which unexpectedly fell from 6.8% to 6.7%. 

The CPI annual rate for August was down 0.1% from July, at 6.7%. A rise had been widely forecast, with market expectations (and those of the Bank of England) pitched at 7.1%, according to Reuters. The Eurozone saw no change for August, leaving its annual CPI inflation rate at 5.3%, while the USA experienced a 0.5% increase to 3.7%. 

August 2023’s monthly CPI change was +0.3%, against a rise of 0.5% in August 2022 (when annual inflation was 9.9%). The CPI/RPI gap widened to 2.4% with the RPI annual rate rising by 0.1% to 9.1%. Over the month the RPI index rose by 0.6%. 

The Office for National Statistics (ONS)’s favoured CPIH index also fell by 0.1% to an annual 6.3%. The decline in CPIH inflation was the result of downward movements from five major categories and upwards movement from two categories: 

Main downward drivers 

Restaurants and Hotels. Overall prices rose by 8.3% in the year to August, down from 9.6% in July. Much of this was driven by accommodation services, where prices fell on the month this year but rose a year ago. Within this category, the ONS notes the majority of the the effect was from overnight hotel accommodation, where prices can vary depending on the number of available rooms resulting in month-to-month volatility. Perhaps that wet August helps explain the CPI fall. 

Food and non-alcoholic beverages. Overall prices rose by 0.3% between July and August 2023, compared with a rise of 1.5% between the same two months a year ago. This resulted in an easing in the annual rate to 13.6% in August 2023, down from 14.9% in July and the recent high of 19.2% in March 2023. 

The drop in the annual rate for food and non-alcoholic beverages between July and August 2023 was driven by relatively small price movements from seven of the 11 detailed classes. The largest downward contributions came from the milk, cheese and eggs, vegetables, and fish categories. 

Recreation and culture. Prices rose by 6.0% in the year to August 2023, down from 6.8% in July. On a monthly basis, prices rose by 0.2% into August 2023, compared with a larger rise of 0.9% into August 2022. 

The easing in the annual rate between July and August 2023 was the result of small downward effects from a variety of the more detailed classes. The largest came from cultural services, recording media, and pets and related products. 

Furniture and household goods. Prices rose by 0.2% between July and August this year, compared with a 1.3% rise a year ago. This resulted in an annual rate of 5.1% in August 2023, down from 6.3% in July, and the lowest rate recorded since September 2021. 

The easing in the rate reflected small downward effects from furniture and furnishings, and household appliances. Prices of furniture and furnishings rose between July and August this year but by less than between the same two months a year ago. The downward effect was spread across a wide range of furniture. 

Household appliance prices overall fell this year but rose a year ago, with the largest individual downward effect coming from vacuum cleaners. 

Main upward drivers

Transport. Overall prices rose by 0.2% between July and August 2023, compared with a fall of 1.2% between the same two months last year. On an annual basis, prices fell by 0.7% in the year to August, compared with a larger fall of 2.1% in the year to July. 

The overall upward effect from transport was almost entirely because of movements in the price of motor fuels. The average price of petrol rose by 5.3p per litre between July and August 2023 to stand at 148.5p in August 2023. Last year, prices fell by 14.3p from a record high in July to stand at 175.2p in August 2022. A similar pattern applied to diesel prices. These movements resulted in motor fuel prices falling by 16.4% in the year to August 2023, compared with a larger fall of 24.9% in the year to July. 

Fuel prices look set to be a driver next month, too, as the RAC’s latest data show petrol 7p a litre and diesel 7.95p a litre above the ONS August figures. 

Air fares fell by 2.1% between July and August 2023, compared with a rise of 13.4% a year ago. This is only the second time that fares have fallen between July and August since the monthly collection of prices began in 2001, but the ONS hints this might be due to the timing of data collection, which was later in July this year than last. 

Housing and household services. The annual inflation rate for housing, water, electricity, gas and other fuels was 5.7% in August 2023, up from 5.4% in July but down from a peak of 11.8% in January and February. The increase in the rate between July and August 2023 reflected upward effects from owner occupiers' housing (OOH) costs and liquid fuels. OOH costs rose by 4.8% in the year to August 2023, compared with a rise of 4.5% in July. This is the highest annual rate since April 1993 in the constructed historical series. Liquid fuel prices rose by 17.7% between July and August 2023, compared with a 14.1% fall between the same two months of 2022. 

Six of the twelve broad CPI divisions saw annual inflation decrease, while five saw a rise and one was unchanged. The category with highest annual inflation rate remains food and non-alcoholic beverages (11.9% of the Index) which recorded at a 13.6% increase. Only two divisions (Transport and Education), accounting in total for 16.6% of the Index, posted an annual inflation rate below 5.0%. 

Core CPI inflation (CPI excluding energy, food, alcohol and tobacco) was flat at 6.2%. Goods inflation in the UK rose 0.2% to 6.3%, while services inflation was down 0.6% at 6.8%. 

Producer Price Inflation input prices fell by 2.3% in the 12 months to August 2023, against a revised fall of 3.2% in the year to July 2023. The corresponding output (factory gate) figures saw a 0.4% fall against a previous revised 0.7% fall. Crude oil and petroleum products provided the largest downward contributions to the change in the annual rates of input and output inflation, respectively. The ONS notes that ‘While annual producer price inflation rates have recently turned negative, with prices in some sectors falling, the index levels for both input and output prices remain substantially higher than their 2021 levels. 

Comment 

These CPI figures pose a problem for the Bank of England. The lower than expected numbers, particularly the core and services CPI results, make the case for another (15^th) interest rate rise tomorrow harder to justify. The markets have already reacted by increasing the odds of a rate pause from 20% to 45% and cutting sterling’s value – it is now at its lowest since May against the US dollar. 

The Bank will have to weigh these favourable numbers against the much less welcome earnings data from last week (total pay up 8.5%) and the fact that the anticipated upward kick in annual CPI from fuel prices might still arrive. Between August and September 2022, fuel prices fell by 4.0%, whereas this year there looks set to be a rise of about 5%.   

PENSIONS 

New legislation paves way to expand the scope of Automatic Enrolment

(AF8, FA2, JO5, RO4) 

A Private Members Bill aiming to expand the scope of automatic enrolment has received Royal Assent.  

The new legislation provides powers to abolish the Lower Earnings Limit for contributions and reduce the age for being automatically enrolled from 22 to 18. 

The DWP press release states that the changes mean that millions more people including younger and lower earning workers will be helped to save more into their pensions.    It also states that these changes combined with the Mansion House Reforms announced by the Chancellor in July, mean that a minimum wage earner could see their pension pot increase by over 85%. 

Minister for Pensions, Laura Trott, said: 

“Automatic enrolment has been a phenomenal success, and we are determined to go further. It’s great news that the Private Members’ Bill has successfully passed through Parliament and received Royal Assent. 

This will mean younger workers and those in lower paid employment will be able to fully participate in Automatic Enrolment. For the first time, every eligible worker will benefit from an employer contribution from the first pound earned – which will make a huge difference to their eventual pension.” 

Importantly. the new legislation will not result in any immediate change, it simply provides the powers to amend the age limit and lower the qualifying earnings limit for automatic enrolment. Any changes will be subject consultation before implementation.  The consultation is expected to be issued shortly, however, employers are expected to be given significant notice before the changes need to be implemented. 

IFS: The triple lock: uncertainty for pension incomes and the public finances

(AF8, FA2, JO5, RO4) 

The Institute for Fiscal Studies (IFS) has published a report entitled: “The triple lock: uncertainty for pension incomes and the public finances” which explore the potential longer-term implications of the funding cost of the State Pension triple lock. Some of the key findings are: 

• On 12 September, the Office for National Statistics released its estimate for average earnings growth over the three months from May to July 2023 compared with the same months in 2022; “Average weekly earnings in Great Britain: September 2023”. It is this figure that is typically used as the measure of earnings for the State Pension triple lock and, because at 8.5%, it is above both the best estimate for CPI in September 2023 (the latest figure was July’s at 6.4%) and the underpin of 2.5%, it will probably determine next April’s increase in the State Pension. 

• Since its introduction in 2011, the triple lock has increased the value of the State Pension and the cost to the government of providing it. State financial support to pensioners is now greater as a result of the triple lock. Had the value of the State Pension grown in line with either prices or earnings since 2011, it would now be around 11% lower than it is – a full New State Pension would be worth around £180 per week, compared with the actual current amount of £204 per week. Compared with the State Pension rising in line with prices or earnings, the government now spends an additional £11 billion per year on State Pensions as a result of the triple lock. 

• The triple lock creates significant uncertainty regarding the State Pension people might receive in the future. A full New State Pension is currently equivalent to 25% of full-time mean earnings. If the triple lock is kept in place indefinitely, a reasonable range (occurring 80% of the time) for the value of the State Pension in 2050 is between 26% and 32% of mean full-time earnings. In today’s terms, this would mean a range of £10,900 to £13,400 per year; a difference of £2,500 per year in today’s terms. 

• This uncertainty over the value of the State Pension makes it harder for people to plan for retirement. Generating an income that would make up an additional £2,500 per year from State Pension Age (at 68) would cost at least £50,000–£60,000 today (and more in the future). An additional concern is that the triple lock increases the exchequer cost of providing the State Pension to such a great extent that it leads to other reforms to control spending. Perhaps the most likely of these would be even greater increases in the State Pension Age, which would hit harder those who anticipate being in poorer health, are less able to remain in paid work, and are less likely to enjoy a retirement that stretches into older ages. 

• The triple lock also generates considerable uncertainty for the future level of public spending on the State Pension. Based on our calculations, a reasonable estimate (taking place 80% of the time) for additional spending on the state pension in 2050 due to the triple lock, above and beyond earnings indexation, would be between £5 billion and £45 billion a year in today’s terms (taking into account the growing size of the pensioner population). This range is so large because of the uncertainty over the path of the state pension that the triple lock creates. This unpredictability makes it much more difficult for the government to plan future finances. 

If the increase is the assumed 8.5% that would mean the new State Pension would increase to £221.15 per week (£11,499.80 p.a.) whilst the Category A and Category B Basic State Pension would increase to £169.45 per week (£8,811.40 p.a.) whilst the Category C/D Basic State Pension would increase to £101.85 per week (£5,296.20 p.a.) However, the actual figures will possibly not be announced by the Government until the Autumn Statement on 22 November 2023. 

MaPS: Pension Wise users much more likely to feel well informed about pension pot options than non-users

(AF8, FA2, JO5, RO4) 

The Money and Pensions Service (MaPS) has issued a Press Release setting out details of research it has undertaken across Pension Wise users, which involved a poll of 327 telephone appointment and online customers conducted four months after their interaction. MaPS found that: 

• 90% of Pension Wise users say they’re well informed about their options for accessing their pension pots after an appointment or using its resources.
• Users are also much more likely to take financial actions than non-users.
• A third of people accessing a defined contribution pension in the past four years used the service, according to the FCA. 

The research also revealed that 70% of telephone appointment customers and 65% of online users had “calculated how much income they'd need in retirement” in the four months following their interaction with Pension Wise. Meanwhile, 59% of telephone appointment customers and 49% of online users had “spoken to their pension provider about their pension pot options” in the same period. 

Lynsey Oliver, Pension Operations Service Lead at MaPS, is quoted as saying that: “Planning for the future and deciding how to access your pension can seem daunting, but it's never too early to take that first step. If you're over 50, it's really important to examine your options and feel prepared for what's next. However, there will always be more we can reach and we’re urging all over 50s to consider using a service like ours. It really can make all the difference long term and we’re here to help anyone and everyone who needs us.” 

Responses to DWP Mansion House consultations published

(AF8, FA2, JO5, RO4, AF7) 

There have been a number of responses to the DWP’s Mansion House consultations: 

1)	Lane Clark & Peacock (LCP) Press Release included a warning that: “after a decade of regulatory pressure to de-risk and move towards an ‘end game’ of buy out with an insurer, LCP argue that it will take more than words of encouragement from government to get schemes to take a different approach.”   Partner, Jonathan Camfield, said that: “There is widespread agreement that DB pension fund assets could be invested more productively. But trustees have little incentive to agree to any form of re-risking if this puts member benefits at greater risk. In our view the ‘secret sauce’ which would unlock this barrier would be the creation of a new PPF [Pension protection Fund] regime allowing sponsors to opt in to 100% protection of member benefits. Only with this security will trustees be more willing to take a fresh look at scheme investment strategy."
2)	Hymans Robertson’s Press Release has partner, Kathryn Fleming saying that: “The consultation suggests an aim ‘to establish a broad alignment in the service offer among different providers where every pension scheme, either directly or through a partnering arrangement, provide decumulation solutions for their members’. We believe this can be achieved through a step-based approach. Firstly, all DC [defined contribution] trust-based schemes should be required to provide a solution to support a member in accessing the full range of the pension freedoms. Secondly, Master Trusts and Pension Providers should be asked to design a default solution for any member that does not wish to make any active choices at retirement. Thirdly, DC Trusts and Hybrid scheme trustees should be required to put in place a default decumulation solution. This phased approach will allow for innovation to have a credible chance of success, balance the risk appetites and budgets of employers and trustees, and play to the strengths of trustees.
3)	Association of Professional Pension Trustees’ Press Release states that: APPT supports the planned major overhaul by TPR [The Pensions Regulator] of the Trustee Toolkit, or whatever replaces it, as the recognised source of minimum required trustee knowledge and understanding. For Professional trustees who follow the accreditation regimes there are already checks on knowledge, understanding and standards made ahead of accreditation being achieved and annual checks made including submission of the previous year’s Continuous Professional Development record. APPT has recently reviewed our accreditation process to make sure it continues to be in line with the standards currently required.
4)	The Pensions and Lifetime Savings Association (PLSA)’s key points in their response are: The PLSA has long argued for a policy solution to protect savers who don’t engage with their at-retirement choices from poor outcomes. We strongly support the government’s proposals, which share many of the key components of our Guided Retirement Income Choices (GRIC) framework, including a statutory obligation on all DC trustees to support their members and offer them, directly or via partner, a suitable retirement solution. This duty is also an important component to protect trustees in designing a suitable solution for their members. The DWP is consulting only on a duty to provide at retirement products and services, and the proposals do not consider what communications and guidance savers should receive. These are essential elements of a saver’s retirement decision making, even with a soft default. Therefore, we ask that these elements, which are an important pillar of our GRIC framework, are brought forward as soon as possible. The government’s intention to legislate as soon as time allows is especially welcome.   Nigel Peaple, Director of Policy and Advocacy at the PLSA, said in their Press Release that:   “With its package of consultations over the summer, the Government put forward an ambitious set of proposals to deal with some of the key issues facing pensions. As the number of savers with substantial DC pots at retirement is set to grow significantly over the coming years, it is especially welcome that the Government is seeking, at the earliest opportunity, to establish a legislative solution to protect savers from the risk of making poor decisions... Given the improvements in DB funding levels and the higher interest rate environment, now is a sensible time to explore whether and how to ensure the significant weight of capital these funds manage is deployed as efficiently as possible in the interests of pension savers. Some of the proposals put forward by Government on DB schemes are worth examining further, others less so. In all cases it is imperative that the regulatory safeguards that protect savers' pension benefits are not compromised.”
5)	Chair of the Association of Consulting Actuaries (ACA) Pension Schemes Committee Steven Taylor said in their Press Release that: “We wholeheartedly support the principle of looking for ways to improve the quality and capability of trustees. Having engaged trustees who are able to work with their advisers to critically assess their objectives and weigh up alternate solutions is the foundation of good governance and positive member outcomes.”
6)	The PPF believes that it is “well placed to run a Public Sector Consolidator” for UK DB schemes according to its consultation response. Some of its key points being: Current framework doesn’t support DB schemes to increase substantially their allocations to productive finance assets. Fundamental changes to the objectives for DB investments are needed – adjustments to incentives will not secure a substantial increase in DB allocations to productive finance. Consolidation – by removing the employer covenant link with schemes – can achieve the government’s objectives at scale without mandation. The PPF’s existing capabilities and investment approach show what can be achieved.

 PPF publishes draft levy rules for 2024/25

(AF8, FA2, JO5, RO4, AF7) 

The Pension Protection Fund has recently published its draft levy rules for the 2024/25 levy (to be invoiced in autumn 2024). Continuing the trend in recent years, the PPF expects to collect £100 million, half of that estimated for 2023/24, with almost all (99%) levy payers expected to see a levy reduction. The main proposals in the consultation include: 

• Collect £100 million total levy, rather than a smaller amount that is, arguably, justified by the current funding positions of schemes and the PPF itself, in order to retain the ability to increase levies significantly in future if needed. 
• Increase the Levy Scaling Factor (LSF) to 0.40 from 0.37 – in order to ensure that the £100 million is raised. 
• The scheme-based levy (SBL) multiplier reduced to 0.0015% from 0.0019%, reducing SBLs by over 20% compared with 2023/24, in order to ensure the SBL is no more than 20% of the total levy – as required by legislation. 
• Continue use of A10 s179 assumptions rather than moving to A11; which would otherwise reduce the levy by around £20 million and reduce the pool of levy payers by around 20%. 
• The risk-based levy cap will remain at 0.25% of protected liabilities. Due to the overall reduction in RBLs, the PPF expects that no schemes will need to have this cap applied in 2024/25. 
• No changes to asset stresses (following some significant changes last year), but the PPF will continue to monitor volatility. However, the PPF will work with the Pensions Regulator to improve Exchange help files to clarify how assets should be reported. 
• Possibly reduce the three credit rating agencies (S&P, Fitch and Moody’s) to two. 
• A simplification in the processes required for Special Category employers (those who are part of government, the Crown or established by legislation, and present a low risk to the PPF). 

FCA bans Keith Dickinson and Andrew Allen for British Steel Pension Scheme advice failings, with £155k to be paid in compensation

(AF8, FA2, JO5, RO4, AF7) 

The FCA has published two Final Notices in respect of: 

• Keith Dickinson, and
• Andrew Allen. 

The FCA found that between June 2015 and December 2017, Mr Dickinson provided pension transfer advice, which Mr Allen signed off, that was unsuitable. 

Mr Dickinson and Mr Allen will pay £70,000 and £85,606, respectively, to the Financial Services Compensation Scheme (FSCS) to contribute towards the compensation owed to Mansion Park’s customers. 

The FSCS has so far paid out almost £3 million in compensation to Mansion Park customers for the unsuitable advice they received, including over £2 million for advice provided by Mr Dickinson. 

400 Mansion Park customers were advised to transfer out of their defined benefits transfer scheme. Mr Dickinson advised 135 of them, including 68 members of the British Steel Pension Scheme (BSPS). In total, those advised by Mr Dickinson had pension benefits worth approximately £36.8 million. 

Mr Allen demonstrated a lack of competence in his oversight of advice for 328 (82%) of those 400 Mansion Park customers, including 72 who were BSPS members. 

Customers transferring out of the BSPS were in a vulnerable position due to the uncertainty surrounding the future of their pension scheme. It was critical they received sound advice from Mansion Park. 

In most of the advice Mr Dickinson provided and the files Mr Allen signed off, the advice was unsuitable because it was based on the flawed assumption that transferring would be in their customer’s best interest. The advice provided did not assess whether customers were relying on income from their defined benefit pension scheme in retirement, whether the customer understood the risks of transferring out or whether they could bear those financial risks.