The Government continues to produce new ideas for pensions regulation. We look at some of the latest notions on the agenda including the pension tax relief system, The Pensions Regulator (TPR) powers, defined benefit (DB) schemes and consolidation vehicles and the new DB scheme fines system.
1. Government set to 'examine' pensions tax relief system
Sometime ago the Government said that they would review the pension tax relief system, but we got the Lifetime ISA (LISA) instead. It looks as though the review is now back and will look at the following:
- Occupational schemes: Currently, under the net payment system, which is handled through an employer's payroll, those earning less than their personal tax allowance do not receive tax relief on their pension contributions. Those earning more automatically get relief at their marginal tax rate.
- Personal pension plans: These operate on a relief at source basis, where members automatically receive basic tax relief on their contributions whatever their tax position. Higher rate tax payers may miss out on extra tax relief available if they do not claim the balance in their tax return.
There is logic to making some change, perhaps to a standard rate of relief, but more change in pensions regulation may well be counter productive with the members who at the end of the day want certainty.
2. Consultation on TPR powers
On the 26th June the Department for Work and Pensions (DWP) issued a call for industry views on enhanced regulatory powers, including punitive powers where intentional damage is done to a DB scheme, greater information-gathering powers for The Pensions Regulator (TPR) and a strengthened clearance regime. The main questions can be summarised as follows:
a) Improving the Regulator's and trustees' role in scrutinising corporate transactions
- How the notifiable events framework could be made clearer and more effective; whether the right events are captured especially in more complex scenarios, ensuring that the Regulator is notified of appropriate events at the right time.
- How the new ‘declaration of intent' should be designed and implemented so that employers engage appropriately with the trustees, and that trustees and the Regulator are provided with meaningful information without putting undue burdens on businesses.
- How this should be enforced.
b) Improving the sanctions regime to deter wrongdoing in most cases, and punish it when necessary
- What behaviours and actions (or inaction), and in what circumstances, should attract sanctions.
- What type of sanctions are appropriate in these different scenarios (e.g. fines up to the existing maximum, fines with a new higher maximum, or criminal sanctions).
c) Improving the Regulator's existing powers to issue contribution notices and financial support directions
- In particular, the DWP would like views on where it should make improvements to the Regulator's current powers to make it more efficient to compel related companies to provide financial support to a scheme, and requiring companies to compensate a scheme if they have caused loss or detriment to the scheme.
- How this should be enforced.
3. DB Schemes and consolidation vehicles
The concept was endorsed in the Government’s defined benefit white paper, published in March 2018. The idea is to combine small DB schemes which could then gain economies of scale – a similar concept to what the Pension Protection Fund is doing in practice with schemes of insolvent employers. We have also seen industry-wide DB schemes with lots of participating employers, and of course recently we have seen the advent of DB master trusts.
As with all ideas there are advantages and disadvantages. However, what seems to be forgotten is that £1 of pension in payment still needs to be funded. Sadly, there is no magic bullet.
4. GDPR – DPA18
The Data Protection Bill concluded its journey through Parliament and received royal assent on 23 May, becoming the Data Protection Act 2018 (DPA18).
The DPA18 implements the GDPR including by setting out the detail of some of the circumstances in which special categories of personal data (such as information about health) can be processed.
The Information Commissioner’s Office (ICO) has published detailed guidance which includes sections on why consent is important, when consent is appropriate, valid consent, and how to obtain, record and manage consent. The guidance notes that the GDPR provides that special categories of personal data can only be processed if one of a list of conditions is met, one of which is that the data subject has given ‘explicit consent’. The ICO states that explicit consent is not defined in the GDPR “but it is not likely to be very different from the usual high standard of consent” and the key difference “is likely to be that ‘explicit’ consent must be affirmed in a clear statement (whether oral or written)”.
c) Privacy notices
In May the ICO also published detailed guidance on the right to be informed, that is, the requirement for data controllers to issue privacy notices to data subjects. The guidance explains that the Data Protection Act 1998 allowed privacy information to be made ‘readily available’ but that, under the GDPR, data controllers must actively provide privacy information. The ICO states that “You can meet this requirement by putting the information on your website, but you must make individuals aware of it and give them an easy way to access it”.
d) Other guidance
During May the ICO also published detailed guidance on the definition of personal data, data protection impact assessments and the processing of children’s personal data. It also expanded the pages of its Guide to the GDPR about the right to object to processing in certain circumstances, the right for individuals to access their personal data and data protection by design and default.
5. The new DB fines system
As part of its consultation on enhanced powers for The Pensions Regulator (see 2 above), the DWP proposed new requirements for all trustees of defined benefit (DB) schemes.