Happy New Year! There are many pension matters on the go or under consideration. With Boris Johnson’s recent election victory and substantial Conservative majority, here are a few snippets in no particular order:
1. Budget 2020
The Government has announced that it will hold its Budget on 11 March 2020. From a pensions’ perspective, what could happen?
- Increase in the National Insurance (NI) threshold – Although only affecting employees, Boris pledged to increase this to £12,500 from £8,632 in the 2019/20 tax year. Will he (the Chancellor Sajid Javid) do this in one go? Or is the true figure to be £9,500 that was subsequently revealed?
- Annual Allowance (AA) and/or Lifetime Allowance (LTA) changes – Following recent concern within the NHS on this subject due to senior clinicians reducing their working hours in order to avoid exorbitant tax bills, Boris pledged a review. Some sort of announcement can therefore be expected.
- Pension Tax Relief – The Conservatives pledged a review of the “Net Pay”/”Relief At Source” methodology used in pension schemes, in particular affecting those lower paid workers subject to automatic enrolment, but earning less than the standard personal tax allowance. Will an announcement be made?
2. Declaring AA on Self Assessment Tax Returns
Individuals whose total pension input amount has exceeded their personal annual allowance (the standard £40,000 or reduced tapered allowance as applicable) are reminded that, if they do not have sufficient unused annual allowance, they must declare this on their Self Assessment tax return. This applies even if they have a pension scheme paying all or part of that tax charge on their behalf.
Similar considerations are applicable for those who are subject to the Money Purchase Annual Allowance.
3. State Pension and LTA increases for 2020/21
These are based on the annual rate of CPI to the previous September, which was announced to be 1.7%.
State Pension still operates under the “triple lock” guarantee, which was the average earnings increase of 3.9%. As a result, for 2020/21, the basic state pension becomes £134.25 a week (a £5.05 increase) and the new state pension becomes £175.20 a week (a £6.60 increase).
Strict application of the rules for the LTA suggests a figure of £1,073,000. However, the exact figure will have to be confirmed as part of the Budget, with a statutory instrument being passed to bring it into force.
4. TPR General Levy
The TPR General Levy is used towards running the costs of the Pensions Regulator, the Pensions Ombudsman, and the Money and Pensions Service.
In the financial year 2018 to 2019, the levy received amounted to £43.5m. With no change in levy rates over the next 4 years, expenditure is expected to rise from around £78m to £100m over the period. Income on the other hand is only expected to increase to £48m.
Costs are increasing and the funds available are diminishing. The DWP therefore issued a consultation proposing an increase in the General Levy. Four options were suggested to alleviate the funding required, with a special one-off increase for schemes having from 2 to 11 members.
This consultation closed on 29 November 2019, and the response is awaited.
5. Defined Benefit Transfer Register
As part of the process of transferring defined benefits where advice is required, schemes must ensure the adviser is appropriately registered.
However, pension transfer specialists and investment advisers may no longer be showing as active on the financial services register since the introduction of the Senior Managers and Certification Regime on 9 December 2019. Individuals within these roles (and others) may now only be certified internally by their employer and are no longer separately approved by the FCA.
Delays to transfer requests might therefore be expected, as it may be necessary to directly approach the firm that the individual is currently working with.
6. HMRC GMP Equalisation Guidance
In Pension Schemes Newsletter 114 published on 30 October 2019, HMRC indicated they were aiming to publish guidance specific to GMP equalisation on:
- LTA protection regimes – including enhanced fixed, primary and individual protection
This was to be high level and specific to GMP Equalisation only, and intended to be available in December 2019. To date, it is still awaited.
7. PPF Benefit Levels
A recent European Ruling has confirmed that DB scheme members, who don't receive all of their pension due to the sponsoring employer of their scheme becoming insolvent, should continue to be entitled to at least 50% of their benefits. This is subject to the proviso that the person is not left at the risk of being below an EU poverty measure.
In response, the PPF considers that the implementation methodology introduced following the European Court’s judgment in the Hampshire case meets this requirement. This methodology is intended to make sure that all members receive at least 50% of the value of their accrued benefits.
PPF accepts there are other details of the judgment that need to be worked through with the DWP. In the meantime, they continue to make payments in line with existing levels, and to assess and increase payment to those affected by the Hampshire ruling.
8. Simpler Annual Benefit Statements
DWP issued a consultation looking at how to deliver better annual workplace pension benefit statements that are shorter, simpler, have information that is easy to understand and will help members plan for the retirement they want.
This closed on 20 December 2019 and responses are currently being analysed.
9. Pensions Dashboard
The project was introduced in 2016, with the intention of a dashboard being launched by 2019. However, delays to legislation have meant this was not possible.
While 2020 should provide confirmation that the project is proceeding, the main measures will require pension schemes and providers to supply data to allow the dashboard(s) to operate. Data quality will therefore be paramount and, even though the precise data format required may take time to be decided, schemes should ensure their data is of the highest possible standard.
10. Pensions Minister and Pensions Schemes Bill
Following the Conservatives’ election victory, Guy Opperman retained his post as pensions and financial inclusion minister.
As part of his tenure, he is expected to continue to see through the pension schemes bill that was delayed as a result of the election. This bill includes the following:
- a framework for “collective money purchase schemes” (otherwise known as collective DC, or “CDC”)
- provisions to enable pensions dashboards
- new criminal offences for failure to comply with a contribution notice, avoidance of an employer debt, and conduct risking accrued scheme benefits
- a new requirement for trustees of occupational DB schemes to determine (with the agreement of the employer) a strategy for ensuring that pensions and other benefits under the scheme can be provided over the long term (“funding and investment strategy”), and
- restrictions on the right to a statutory transfer, unless prescribed conditions are met.
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Note: The content of this Pensions Briefing should not be deemed as advice. No section of this Pensions Briefing, reporting or data should be considered a client specific, or a personal client recommendation.
Advising on and arranging of occupational pension schemes is not regulated by the FCA. Arranging group personal pensions (GPP) and group stakeholder pensions (GSP) (which are not occupational pension schemes) may be deemed to be a regulated activity by the FCA once members start joining the scheme.