1. Bulk transfers between defined
contribution occupational pension schemes to be simplified - April 2018? The good news is that the Department for Work and Pensions (DWP) has confirmed that it has plans to scrap the current requirement for an actuary to certify equivalence in bulk transfers. This requirement is inappropriate for defined contribution (DC) schemes and stems from particular requirements of defined benefit (DB) schemes. The expectation is that more appropriate member protection will be introduced instead including that the trustees of the ceding scheme will need to take professional advice unless the receiving scheme is a master trust.
2. Improving DC costs disclosure
The Government continues its aim of achieving clarity and transparency of pension scheme costs and charges by ensuring the public has access to information that will allow them to compare all the costs within all pension schemes. We think there are a number of problems with their approach including:
- The volume and complexity of the information that is proposed each scheme should provide.
- It will require individuals to seek out and interpret differences.
- The employee may identify that their employer’s plan is not the most competitive on costs but other features such as quality of communication materials and in-house support are not measured leading to employee dissatisfaction with the scheme the employer offers.
- The DWP intends not to have a central register that individuals can access but instead leave it to individual schemes to make the relevant information available - on the internet - themselves.
3. Schemes that hold land or shares directly and/or pay stamp duty
This is likely to only apply to the largest schemes, or the small self administered schemes and is where trustees physically own assets directly, rather than holding units in a pooled fund. Trustees that are in this position will need to register with HM Revenue & Customs’ (HMRC’s) trust registration service and provide certain information. The deadline is 31 January 2018, and then on each following 31 January. Trustees who are affected will not need to provide details of all scheme members (as originally feared).
4. Contingent asset agreements and the Pension Protection Fund
The Pension Protection Fund (PPF) wants revised documentation to be used from early January 2018 for agreements entered into after that date; existing agreements need only move to the new basis from March 2019 (for the 2019/20 levy).
5. How to help with workplace financial matters – a guide for employers and trustees
The Financial Conduct Authority (FCA) and the Pensions Regulator have published a new guide for employers and pension scheme trustees on how they can help employees with financial matters without needing to be regulated or authorised. The guidance covers promoting pensions and other financial workplace benefits, as well as answering employees’ queries and directing them to other resources. The guidance includes a couple of case studies which highlight the relevant considerations for trustees and employers.
6. VAT and fees
Regular readers will know that last year HMRC deferred a decision until this winter. It has concluded that the present system of VAT charging and recovery can continue. DB schemes can continue to use the ‘30/70 split’ (administration/investment services) but if the employer contracts for these services, we understand that all VAT can be recovered. HMRC’s updated guidance covers alternative VAT recovery mechanisms including the Ascot Lloyd standard of a tripartite contracts (between service providers, employers and trustees).
7. VAT exemption for services provided by insurers
HMRC has announced it will withdraw its longestablished policy of allowing VAT exemption for pension fund management services provided by insurers. HMRC claims that this recognises the position set out in a 2005 European Court judgment, severing the link between an insurer’s regulatory status and the VAT liability of its supplies. The move appears to be HMRC’s response to a court challenge brought by United Biscuits. The company argues that services which are essentially similar should be taxed in the same way, and contests the disparity in HMRC’s treatment of pension fund management services provided by insurers (which are treated as VAT exempt) and those provided by non-insurers (which are not). HMRC asserts that most insurers will be providing management services to VAT-exempt defined contribution schemes, but the industry has criticised the loss of the insurance exemption and the tight timescale for implementing the change. In response to lobbying, HMRC has agreed to postpone the original implementation date of 1 January 2018 – a new date has yet to be fixed.
8. The November 2017 Budget Statement Government backed investment vehicle
They are considering whether DC members should be able to invest a proportion of their assets in this fund which would then be used to invest into infrastructure projects. This has been proposed before in respect of public sector schemes, but the interesting idea this time is that if implemented, the individuals could get a higher annual and lifetime allowance. Change: Thankfully there was no significant change announced in the 2017 Budget. Annual allowance remains at £40,000 with the lifetime allowance rising as required in line with CPI to £1,030,000. There was fear that the lifetime ISA (LISA) model of no tax relief on contributions, but no tax on exit would be adopted. The Chancellor stepped away from this complex and contentious approach.
9. Auto enrolment
The industry expects the charge cap to reduce from 0.75% of funds to 0.5% at some point, but not in the current review it would seem. The next review is due in 2020. Also, increasing personal allowance to £11,850 will exacerbate the problem of some low paid members not benefitting from full tax relief in net pay schemes.
10. Pension scams
The Pensions Regulator has taken to using social media to increase the awareness of scams.
11. Pensions dashboard
Individuals can currently use the Government’s Pension Tracing Service to find old pensions and then need to add them together themselves or employ an adviser to do it. Not content with this the idea, the Pensions Dashboard was born which, if it is to work, will require all pension schemes to upload confidential information in a common format to a central site. While a trial version exists with some major schemes and providers, getting the myriad of smaller schemes involved is a challenge, particularly as there will be a cost. The DWP has now taken control of this project from the Treasury, along with an undertaking that the project is not to be cancelled.
12. Minimum income before pension freedoms?
The operation of pension freedoms is currently being considered by the Work and Pensions Committee, the chairman of which has suggested that the new freedoms should only be available for people with sufficient capital. Before what was introduced as pension freedoms in 2015, it was already possible for individuals to access cash from their pension funds provided they had assured, guaranteed income of at least £20,000 a year, including state pensions. Extending that facility in 2015 certainly advanced what would have been future tax income to the Treasury but it also opened the door to people spending their capital and then having to fall back on welfare benefits. Concerns over employees becoming a future burden on the state are emerging – could they consider introducing a requirement to buy a certain level of income and call it... an annuity?