What's new bulletin - February 2022

TAXATION AND TRUSTS

DOTAS: new HMRC powers

(AF1, RO3)

HMRC has new powers to give reference numbers to avoidance schemes. They can contact anyone it suspects of promoting or supplying the scheme to tell them the number, and, if contacted, they must follow the reporting rules for avoidance schemes.

The Disclosure of Tax Avoidance Schemes (DOTAS) Regulations are an important weapon available to HMRC in its fight against tax avoidance schemes. In essence, if a scheme satisfies certain conditions, any person involved in the promotion of the scheme must disclose details of the scheme to HMRC. If they do not comply with this requirement, they risk suffering substantial penalties.

HMRC’s guidance, which is lengthy, is about what to do if you promote, are involved in the supply of or use arrangements (including any scheme, transaction or series of transactions) that will or are intended to provide the user with a tax or National Insurance contribution advantage when compared to adopting a different course of action.

Currently, disclosure covers certain tax arrangements relating to:

• Income tax, corporation tax and capital gains tax;
• National Insurance contributions;
• Stamp duty land tax (SDLT);
• Annual Tax on Enveloped Dwellings (ATED);
• Inheritance tax (IHT); and 
• the Apprenticeship Levy.

None of that is new. What is new, are HMRC’s new powers to give reference numbers to avoidance schemes.

The scheme reference number (SRN) system is a means of identifying the users of disclosed schemes, allowing HMRC to prioritise and co-ordinate enquiries into users’ returns.

It works by HMRC allocating an eight-digit reference number to a scheme and notifying it to certain persons. Those notified of a SRN are then required to report it and therefore their use of a scheme on their tax return or a specified HMRC form. They may also be required to pass on the number to other persons.

The issue of a SRN does not indicate that HMRC accept that the scheme achieves or is capable of achieving any purported tax advantage nor that the disclosure is complete.

Finance Act 2021 introduced changes so that HMRC is now entitled to issue notices informing persons it suspects of being promoters and other suppliers of a scheme that, unless they can satisfy HMRC that the scheme described in the notice is not notifiable, HMRC may allocate a SRN to the scheme. HMRC can issue a notice when it has become aware that:

• a transaction forming part of the arrangements has been entered into;
• a firm approach has been made to a person in relation to a proposal for arrangements, with a view to making the proposal available for implementation;
• the proposal for the arrangements has been made available for implementation;
• HMRC has reasonable grounds for suspecting that the arrangements, or proposal for arrangements, are notifiable under DOTAS.

The power to give a notice (under section 310D of the Finance Act 2004) covers proposals or arrangements that HMRC has reason to suspect might be expected to give rise to any relevant tax advantage.

If HMRC reasonably suspect a person of being a promoter of the scheme in question, it must give a notice to that person. HMRC can also issue a notice to any other person they reasonably suspect of being involved in supplying the scheme. This notice advises the person receiving it that unless they satisfy HMRC within the ‘notice period’ that the scheme is not notifiable, HMRC may issue a SRN in respect of that scheme.

However, HMRC can only issue notices (under section 310D of the Finance Act 2004) in relation to transactions entered into, firm approaches made, or proposals that are made available for implementation, on or after 10 June 2021.

Also, note that further changes are coming down the line, that will be effective on or after the date of Royal Assent of Finance Bill 2021-22, targeted at the most persistent and determined promoters and enablers of tax avoidance. Please see HMRC’s 27 October 2021 Policy Paper.

Tax-free childcare - new research

(AF1, RO3)

A report, commissioned by HMRC from IFF Research looked into the lack of awareness of the tax-free childcare payments. The report has confirmed there is a general lack of awareness about the scheme with many parents put off claiming for the scheme due to a lack of understanding about eligibility.

HMRC estimates that around 1.3 million families in the UK would be eligible for help with their childcare costs through tax-free childcare, but current take-up is significantly below the original forecast; as of December 2020, 248,000 families used the scheme to pay a childcare provider for 287,000 children.

To be eligible, parents must each earn at least the equivalent of 16 hours a week at the national minimum wage but have an income of no more than £100,000 per year. Eligible parents can open an online childcare account and for every £8 they pay in, the Government will add £2, up to a maximum of £2,000 per child each year, until they reach 12 years old, or £4,000 for a disabled child until they reach 17 years old. The subsidy is available to high earners with a cap on applicants earning over £100,000.

The research, based on a focus groups, proposed a number of recommendations to improve take-up and awareness.

This includes changing the tax-free childcare name to remove negative associations with ‘tax’, confusion about what the scheme is, and perceptions of restricted eligibility and administrative burden.

There was support for a name change to ‘working parents childcare top-up’ to convey eligibility, relevance, ease and flexibility as well as helping parents understand the nature of the scheme. Accompanying messaging should convey the simplicity of the process and mechanism.

It was recommended that HMRC launch a communications campaign to increase parental awareness and understanding of the scheme, as this is likely to have a positive impact on take-up. Childcare providers should also be supported with further information on the scheme, both for themselves and to hand out to parents.

There was also criticism of the information available on the gov.uk website. The report stated: ‘Parents reported that they found the gov.uk website hard to navigate or that the information was confusing or unclear. Some parents who had visited the website talked through the difficulties they encountered locating key information, such as eligibility to make an application, which appeared to involve navigating through a number of links or pages.’

Lifetime tax bill hits 1.1 million pounds per household

(AF1, RO3)

The TaxPayers' Alliance has published a report showing that the average household will pay over £1.1m in tax in their lifetime, meaning they would have to work for 18 years just to pay off their tax bills.

The main findings of the report, entitled Lifetime Tax, include:

• Over a lifetime, 40 years working and 15 years retired, an average household will pay £1,101,255 (in 2019/20 prices) in direct and indirect taxes. While household incomes have increased, the lifetime tax has almost doubled in real terms from the amount of tax the average household paid in 1977.
• In 2019/20, an average household received income of £60,194. With this level of income it would take more than 18 years just to pay their lifetime tax bill.
• Households in the bottom 20% by income will pay £449,860 in direct and indirect taxes over a lifetime.
• Households in the bottom 20% received income of £19,171 in 2019/20. This means it would take them almost 24 years just to pay their lifetime tax bill.
• Over a lifetime, households in the top 20% by income will pay £2,573,815 in direct and indirect taxes.
• The top 20% of households received income of £137,669 in 2019/20. It would take them almost 19 years to pay their lifetime tax bill alone.
• The total lifetime tax has fallen on only four occasions from the previous year since 1977. These were: 2002/03; 2008/09; 2012/13; and 2015/16.
• Over a lifetime, an average household will pay £479,430 of income tax; £187,570 of VAT; £140,745 of employee’s national insurance contributions; £79,415 of council tax; and £37,435 of employers’ national insurance contributions.
• It would take more than 33,500 average households total lifetime taxes to pay for the £37 billion cost of test and trace and almost 4,100 to cover the costs of benefit overpayments in 2019/20 alone.

The figures show that the lifetime tax bill has almost doubled since 1977, only falling on four occasions during that time.

The Taxpayers’ Alliance has launched a new online calculator, enabling users to calculate their own lifetime tax bill.

Comment

All of this highlights the importance of considering tax planning for the current tax year, and putting in place strategies to minimise tax throughout the next tax year. The majority of planning strategies have greatest effect if implemented before a tax year begins.

Our tax year end planning checklist covers the main planning opportunities available to UK resident individuals and will hopefully help to inspire action to reduce tax for the 2021/22 tax year and to plan ahead for 2022/23. 

Student loans

(AF1, RO3)

The income threshold for repayment of student loans in England & Wales has been frozen for the coming tax year.

On 28 January, the Department for Education slipped out an announcement in a blog that the student loan repayment threshold for 2022/23 would ‘remain at its current level’, i.e. be frozen at £27,295. This latest variation on the theme of fiscal drag applies to Plan 2 loans, those taken out in England & Wales for courses starting from September 2012 onwards.

The threshold should have risen in line with earnings growth, a pledge given by Theresa May in 2017. The increase, based on earnings growth to March 2021, would have been 4.6%, a rise of £1,255 to £28,550. The consequences of this freeze are:

• An ex-student earning over £28,550 will be paying £113 more (£1,255 @ 9%) than would have been the case had the limit been revalued.
• As with the change to the Triple Lock, even if revaluation is reintroduced in 2023, the Treasury will continue to benefit in future years because any uplift is to a lower base. Over the three years to April 2025 the Exchequer will gain £3.7bn.
• As the non-change starts in April 2022, it means ex-students who are employees will face a marginal rate on earnings over £27,295 of at least 42.25% (20% income tax + 13.25% NICs + 9% student loan payment). Add on auto-enrolment at 4% net and the total exceeds the additional rate of income tax.
• Higher earners who pay off their student loans before the 30-year cut off point will now end up clearing their loans sooner and thus paying less in interest.
• For others who do not repay in full – estimated to be 75% of current undergraduates – nearly all will be paying more every year until the cut-off point arrives.

Alongside the earnings threshold freeze, the interest rate thresholds will remain unchanged at £27,295 (RPI + 0%) and £49,130 (RPI + 3.0%) respectively. The tuition fee cap will also be frozen at £9,250, the level that was first set in 2017/18.

Coming down the line is a potentially bigger student loan issue, the interest rate to be charged from 1 September 2022. In theory this will be based on the Retail Price Index (RPI) inflation to March 2022. The December 2021 RPI was 7.5%. And, even if the RPI reading is unchanged from the December figure, when March 2022 arrives, RPI annual inflation will still be 7.0%. That is because prices rose by just 0.5% on the RPI basis in the first three months of 2021.

In 2020, the Government temporarily cut the maximum rate charged to RPI + 2.7%, which produced a ceiling of 5.3%. That restriction ended from 1 October 2021, meaning that the current maximum interest rate is 4.5% (March 2021 RPI was 1.5%). Raising the interest rate in line with the March 2022 RPI rate will make virtually no difference to what flows into the Treasury’s coffers in the short term. In the longer term it will increase the amount of debt that has to be written off unless there is a corresponding jump in graduate salaries, which looks unlikely.

Comment

The one consolation for anyone with a Plan 2 student loan is that it could have been worse. Last year there was talk of lowering the income threshold, perhaps to the £23,000 proposed in the Augur review.

INVESTMENT PLANNING

NS&I raises Green Savings Bond rates

(AF4, FA7, LP2, RO2)

In last year’s Spring Budget, Rishi Sunak announced that NS&I would be launching a green bond. Details emerged from NS&I in July 2021, but with one vital ingredient missing: the interest rate. When this key information was revealed in October, the reception was less than lukewarm: 0.65% fixed for three years was little more than a third of the then market-leading rates.

On 15 February 2022, NS&I tried again, with the launch of a new issue of the Green Savings Bonds offering 1.3% fixed for three years.

While an improvement on its predecessor, the return is still about 0.55% off the best market rates for three year fixed term deposits, according to Moneyfacts. Following the rise in short term gilt yields this month, the Green Savings Bond yield is also less than on offer from a three-year Government bond. For example, 0.25% Treasury 2025 currently has a redemption yield of 1.50%, largely in the form of tax-free capital gain rather than the Green Savings Bond’s taxable interest.

Comment

NS&I are going to have to try harder if they want to reach their £6bn ±£3bn capital raising target for 2021/22.  

Quarterly Stamp Duty Land Tax statistics - Q4 2021

(AF4, ER1,FA7, LP2, RO2)

The latest stamp duty statistics show that the total stamp duty land tax (SDLT) transactions in Q4 2021 (October to December) were 10% lower than in Q3 2021, and 13% lower than in Q4 2020.

There was an increase in transactions at the end of both June and September due to introduction of the stamp duty holiday. However, there has been a fall in transactions over the last two quarters which may be linked to the phasing out of the SDLT holiday.

The figures also show:

• Residential property transactions in Q4 2021 were 12% lower than in Q3 2021, and 15% lower than in Q4 2020 (the quarter after the SDLT holiday was introduced);
• Non-residential property transactions in Q4 2021 were 10% higher than in Q3 2021, and 10% higher than in Q4 2020;
• Total SDLT receipts in Q4 2021 were 55% higher than in Q4 2020;
• Residential property receipts in Q4 2021 were 19% higher than Q3 2021, and 63% higher than Q4 2020;
• Non-residential property receipts in Q4 2021 were 28% higher than in Q3 2021, and were 39% higher than Q4 2020.

HMRC is only reporting figures up to Q2 2020 and from Q3 2021 for First Time Buyers Relief because the introduction of the residential SDLT holiday meant that there was no requirement for first-time buyers to claim the relief. Up to Q2 2020 there were 540,900 claims that have benefited from that relief.

The statistics also show that 60,500 transactions were liable to higher rate for additional dwellings (HRAD) in Q4 2021, with the 3% element generating £439 million in receipts, an increase of 6% from the previous quarter, and a fall of 7% compared to Q4 2020.

The tax fundamentals of investing in cryptoassets such as Bitcoin

(AF4, FA7, LP2, RO2)

In this article we provide a summary of the tax fundamentals and the rules around holding cryptoassets.

Overview

Investing in the various incarnations of cryptoassets is something that grabs the headlines - often for the wrong reasons. High risk is probably an understatement. Crypoassets are assets or items of value that exist digitally and created by software. They can be transferred, stored and traded electronically. The main types of cryptoassets recognised by HMRC are: Exchange tokens (better known as cryptocurrencies or coins); Utility tokens; Security tokens and Stablecoins. This article focuses on Exchange tokens. The two most common cryptocurrencies are Bitcoin and Ether. All transactions relating to these coins and tokens, including their creation and change of ownership, are recorded on blockchains – effectively databases that act as the books and records on the digital network.

But how about taxation? It’s relatively straightforward and HMRC has published its views in its Cryptoassets manual.  

Essentially, money/profit made from dealing in cryptocurrency will be either capital gains or trading profit. Which will depend on the facts of each case. A case for characterising the transactions in crypto as tax-free gambling can rarely, if ever, be made.

In most cases, individuals hold cryptocurrency as a personal investment to profit from the purchase, on disposal. In those circumstances, when the cryptoasset is sold, the gain will be subject to capital gains tax (CGT). In some cases, though, the individual will be deemed to be trading.

Crypto held as an investment

The presumption/default is that the purchase and sale of cryptocurrency is by way of investment, unless the facts indicate otherwise. Cryptoassets (including crypto currencies) are treated as capital assets (as opposed to sterling currency) and fall within s21 (1) TCGA 1992. This means that, for most, the cryptoasset will be a chargeable asset for CGT. Exchange tokens can be owned and have a market value that can be realised on an exchange or marketplace. Gains arising on the disposal of cryptocurrency will be subject to CGT at normal rates. A disposal will arise when tokens are: sold; exchanged for a different type of token; used to pay for goods/services; or gifted, with the exception of transfers between spouses/civil partners. The allowable costs to arrive at the chargeable gain are listed at s38 TCGA 1992. However, HMRC only allows some exchange fees (please see CRYPT022150).

Cryptocurrencies satisfy the definition of securities at TCGA 1992, s104 and, therefore, the special pooling rules that apply to calculate the capital gains on the disposal of shares will apply to cryptocurrencies. This means disposals of cryptocurrency will be matched with purchases in a particular order, as follows:

1. Same day purchase and sale rules.
2. Sale and purchase of cryptocurrency occurring within 30 days.
3. General pooling rule.

Losses arising on disposal will be available to offset against capital gains in the same year or carried forward and offset against future gains.

Crypto incorporated in trading activity

Whether the profit is a trading gain or investment will be determined based on the activities carried out. Each case will be based on its own facts and circumstances. There is no clear dividing line. Trade is, unhelpfully, defined in ITA 2007, s989, as including “any venture in the nature of trade”. Deciding whether the activity amounts to a trade means resorting to the ‘Badges of Trade’ derived from case law. They are summarised as follows:

• Nature of the subject matter.
• Frequency of the transactions.
• Is the transaction related to the trade which the taxpayer otherwise carries on?
• Intention of the taxpayer at the time of purchase.
• Length of ownership of the asset.

The intention of the taxpayer has been observed to be relevant in case law when considering if trading exists or not. The intention should be matched with the taxpayer’s actions. The list above is not comprehensive; it will be necessary to look at the whole picture having regard to what the taxpayer did.

HMRC views trading in Exchange tokens to be like trading in shares. Therefore, it is useful to consider the decisions in case law on trading in shares. In most cases, the decision concluded trading did not exist. We can draw on the principles identified in such cases. Common themes included:

1. The greater the number and size of the purchases and sales of marketable securities, and the greater the frequency, the more likely it will point towards trading.
2. Intention of deliberate profit-making scheme.
3. There is a degree of organisation.

For trading in cryptocurrency to exist the following will need to be shown:

• A deliberate trading strategy.
• Transactions are made based on the strategy.
• Basic book-keeping is maintained.
• There is a (preferably) written business plan.

If a trade exists, the profit will be subject to income tax. If losses arise, they will be available to offset against future trade profits or other income. The principles outlined above will also apply to corporates.

The location of cryptoassets

The above also applies to individuals who are UK resident, but not UK domiciled (RND). The main difference will be the application of CGT and inheritance tax (IHT) for non-UK situs assets. RND can claim the remittance basis for gains arising on the disposal of foreign assets and the excluded property rules will apply for IHT, meaning the gains or asset can escape UK tax.

Cryptoassets are digital in nature and therefore don’t have a physical location. Determining the location for tax purposes can be complex. HMRC’s current view is cryptocurrency is located where the beneficial owner is resident under the UK statutory residence test. HMRC claims this gives a clear, logical, predictable and objective rule that can be easily applied. HMRC’s view may change in the future. Therefore, Bitcoins owned by an individual/company resident outside the UK will be a non-UK asset. Whereas, a Bitcoin held by a non-domiciled UK taxpayer will be a UK asset for IHT and CGT.

STEP issued guidance in September 2021 outlining an alternative view to the location of cryptocurrency, noting HMRC’s view is one view that does not appear to be based on any legal principle. It was suggested a likely approach would build on existing principles of control, ability to deal and, by extension, enforceability based on law governing the proprietary aspects of rights. This is because, normally, law governing property rights regarding an asset is the law of the jurisdiction in which the asset is located. Therefore, the location would not be linked to the beneficial owner but to the participant in the relevant cryptocurrency system who will be the person who has control over the private key (key to authorise cryptocurrency transactions).

In situations where cryptocurrency is not held directly by the beneficial owner but is instead held by a third party, such as a cryptocurrency exchange or trading platform on the owner’s behalf, it would be the residence of the third party that would determine the location of the asset.

In the absence of any statutory rules it will ultimately be a matter for the courts. In the meantime, it will be for the taxpayer and their agent to decide on what approach to take.

What is the regulatory position in relation to cryptocurrency?

The FCA has made the position tolerably clear in relation to the promotion and sale of cryptocurrency.

The FCA has made rules banning the sale, marketing and distribution to all retail consumers of any derivatives (i.e. contract for difference – CFDs, options and futures) and exchange traded notes (ETNs) that reference unregulated transferable cryptoassets by firms acting in, or from, the UK.

The FCA estimates that retail consumers will save around £53m from the ban on these products.

According to the FCA “This ban reflects how seriously we view the potential harm to retail consumers in these products. Consumer protection is paramount here.

Significant price volatility, combined with the inherent difficulties of valuing cryptoassets reliably, places retail consumers at a high risk of suffering losses from trading crypto-derivatives. We have evidence of this happening on a significant scale. The ban provides an appropriate level of protection.”

PENSIONS

DWP publishes consultation and draft Regulations on pensions dashboards

(AF3, FA2, JO5, RO4, RO8)

The DWP has published a consultation seeking views on a range of policy questions relating to the creation of pensions dashboards. The consultation includes an indicative draft of the Pensions Dashboards Regulations 2022 to show how the Government envisages the policy turning into law.

The main proposals include:

• Large pension schemes will need to provide data to Dashboards between April 2023 and September 2024
• Medium-sized schemes will be brought in between October 2024 and October 2025
• Small and micro schemes “expected from 2026”
• State pension details to be available from “day one” via Dashboards

Alongside the publication of the DWP consultation, the Pensions Dashboards Programme (PDP) has published information about the scope of its standards and how it will go about setting them, with some indicative examples of what the standards could contain. The publications include:

• data usage guide;
• design standards scope;
• reporting standards scope;
• technical standards; and
• a guide to the code of connection, which will include security, service and operational standards.

Guy Opperman, Minister for Pensions and Financial Inclusion, commented: “We acknowledge that our proposals are ambitious and that making a success of pensions dashboards is a significant task for both Government and industry. But dashboards are an essential part of our plans to modernise the pensions industry and make it fit for the 21^st century digital age. Dashboards will open huge opportunities to reunite individuals with lost pots and transform the way people think about and plan for their retirement.”

The DWP will also host a series of webinars to explore a range of topics related to the consultation, to assist stakeholders with their responses. The panel for these webinars will include representatives from the DWP, the PDP, the FCA and TPR.

The consultation closes at 11:45pm on 13 March 2022.

Yvonne Braun, Director of Long-term Savings Policy at the ABI, said in their Press Release that: “The consultation on regulations is a vital milestone for the pensions dashboards project. These regulations will have a decisive effect on the type of dashboards that the public will access in the future. User needs and flexibility to enable value-adding innovation should be at the heart of every decision on dashboards to maximise pension engagement.”

Nigel Peaple, Director of Policy and Advocacy at the Pensions and Lifetime Savings Association (PLSA), called the publication of the draft regulations a “significant milestone”, saying in their Press Release that: “These draft regulations help outline who will connect with initial dashboards, when they must do so, and some of what must be provided. However, they do not yet cover the detail of how, which will depend on critical lessons and sharing from the participants in the ongoing alpha phase of testing. It is this work which will help to refine the standards prescribed in the regulations. A full industry consultation on the standards will be necessary over the summer so that beta data providers and other dashboards can connect successfully from the autumn.”

Steve Webb, Partner at LCP, commented in their Press Release that: “Bringing together full pension data in one place is a mammoth task and Ministers have repeatedly over-promised and under-delivered on this goal. Back in 2016 there was a promise of a dashboard in use by 2019, but now it looks as though the first generally accessible dashboard will not be available until mid 2024 — at least five years late... It is vital that the Government ensures there is no further slippage in this project and that the benefits of dashboards are available to the public as soon as possible.”

Automatic enrolment earnings trigger and qualifying earnings band review 2022/23

(AF3, FA2, JO5, RO4, RO8)

The Government has announced the review of the earnings trigger and qualifying earnings band for auto-enrolment purposes for 2022/23. The earnings level above which individuals must be auto-enrolled will remain frozen (as it has been since 2014/15) and the band of earnings on which minimum contributions should be based will remain aligned to the Lower and Upper Earnings Limits for national insurance purposes. As these remain unchanged from 2021/22 all figures for 2022/23 remain the same.

Therefore for 2022/23:

• The automatic enrolment earnings trigger will be maintained at £10,000;
• The lower limit of the qualifying earnings band will be £6,240 (unchanged since 2020/21); and
• The upper limit of the qualifying earnings band will be £50,270 (unchanged from 2021/22).

The review notes that keeping the earnings trigger at £10,000 represents a real terms decrease and is expected to bring a further 17,000 employees into the scope of being automatically enrolled.

TPO establishes Pensions Dishonesty Unit

(AF3, FA2, JO5, RO4, RO8)

The Pensions Ombudsman (TPO) has set out in a Press Release details about its established of a dedicated Pensions Dishonesty Unit. The role of the new unit is to investigate allegations of serious breaches of trust, misappropriation of pension funds and dishonest or fraudulent behaviour by pension scheme trustees. This follows TPO's recent high value determinations in the Norton Motorcycles and Henry Davison cases. The principal aim of the Pensions Dishonesty Unit is to hold wrongdoers responsible for the unlawful gains they have made and ensure they repay these monies to scheme members. The unit is now running on a pilot basis and consists of experienced members of staff from TPO's Casework and Legal departments.

Pensions Ombudsman Anthony Arter said: “A noticeable trend in recent years has been the increase in cases relating to trustee dishonesty and wrongdoing leading to substantial losses for individual pension scheme members. The Norton Determination demonstrated a change of approach for us which not only holds trustees personally liable but also has the potential to benefit all scheme members. The extension of this approach to other cases involving trustee dishonesty through the new Pensions Dishonesty Unit pilot is very significant, enabling quicker redress and the recovery of funds that may otherwise not be achieved, directly from the guilty party.”

Pensions Regulator publishes latest DC trust statistics

(AF3, FA2, JO5, RO4, RO8)

The Pensions Regulator (TPR) has published its latest landscape report on the DC occupational pension scheme market, showing the number, membership and assets of schemes in this market, using schemes on its register as at 31 December 2021.

Amongst the statistics highlighted by the Regulator are the following:

• The market has further consolidated over the last year with the number of non-micro DC schemes (i.e. with 12 or more members) falling by 12% from 1,560 to 1,370 – this continues a trend that has been observed since 2012
• There are now 36 authorised master trusts with 20.7 million DC memberships and over £78.8bn in assets (compared with 38, 18.8 million and £52.7bn this time last year)
• Asset values of DC schemes (excluding micro and hybrid schemes) are £113.5bn – up £26bn from last year
• The average assets per membership at retirement was £5,100 – a 3% fall since last year

Introducing the report, the Regulator says that these statistics point to further consolidation taking place in the DC trust market which it expects to continue as small schemes are now required to demonstrate that they provide value for members (and where they don’t, to wind up or take immediate action to make improvements).  The report also shows, once more, the strong growth in assets under management as memberships continue to build.

Industry responds to WPC's call for evidence on impact of pension freedoms

(AF3, FA2, JO5, RO4, RO8)

The industry has responded to the Work and Pensions Committee's (WPC) call for evidence on the impact of the pension freedoms.

In its response, the PLSA has called on the Government to “level up” UK workplace pensions by rebalancing automatic enrolment (AE) contributions over the next decade so that employers pay the same as employees. The PLSA’s submission makes three key proposals: to extend the current AE regime during the mid-2020s to include younger people and pension saving from the first pound of earnings; for employer contributions to be levelled up to those of employees so each will pay in 5% of salary by the end of the decade; and, in the early 2030s, for a further increase of 1% extra for both employers and employees to bring total AE pension contributions to 12%. Nigel Peaple, Director of Policy and Advocacy at the PLSA, said: “As the Government seeks to ‘level up’ the economy, narrowing wealth disparities between regions and different demographics, we think now is the right time for the Government to commit to levelling up pensions, gradually, over the next decade, in three affordable steps... A Government timetable now, as part of the levelling up strategy, for modest increases over the next decade, will ensure pension savers are not overlooked or undervalued.”

In its response, NOW: Pensions has set out its manifesto to make pension policy changes, recommending three targeted measures that would ensure those groups that are most at risk of being “underpensioned” have more opportunities to save for their retirement. These recommendations include: removing the Qualifying Earnings threshold so that pension contributions begin from the first pound of earnings; lowering the AE age criteria from 22 to 18; and removing the £10,000 AE trigger. Patrick Luthi, CEO of NOW: Pensions, said: “I am pleased to reiterate our call for urgent policy change and welcome this inquiry to promote our manifesto of change. As we reflect on the past ten years of [AE] and the huge success it has played in getting over 20 million people in the UK saving for their later life, it is now time that the Government took action to ensure that everyone in the UK has a fair opportunity to save via a workplace pension.”

Tom Selby, Head of Retirement Policy at AJ Bell, commented: “There is a yawning chasm between the average pension wealth of employed and self-employed workers — a trend that will be exacerbated by [AE]. Failure to address this as a matter of urgency risks creating a pensions apartheid between those who are employed and benefit from [AE], and the millions who are self-employed and do not benefit.” He called for the Lifetime ISA (LISA) to be “supercharged” to make the product more attractive to self-employed savers, saying: “The combination of a 25% upfront bonus and tax-free access from age 60 means the [LISA] has the potential to be an ideal retirement saving vehicle for the UK’s army of self-employed workers. However, by preventing those aged 40 and over from opening a LISA and applying a 25% charge — effectively a 6.25% exit penalty — to withdrawals before age 60 that aren’t used for a first home, the Government has severely limited its potential. Removing the age restrictions and reducing the early withdrawal charge from 25% to 20% — meaning it would simply be returning the upfront Government bonus — would supercharge the LISA and vastly broaden its appeal, particularly to the self-employed.”