Compass - spring 2020 / 21
Compass provides commentary and analysis of recent legislative and regulatory developments affecting pensions and employee benefits.
Compass provides commentary on and analysis of recent legislative and regulatory developments affecting pensions and employee benefits.
This edition of Compass opens with a focus on the Pension Schemes Act 2021, which finally received Royal Assent on 11th February 2021. Key elements of the Act include a structural framework for online pensions dashboards, strengthening The Pensions Regulator, changes to scheme funding, outlining new restrictions on statutory transfers, building on scheme governance for climate change risks and creating a framework for collective defined contribution schemes.
Our second article focuses on the spring Budget, which was delivered to the House of Commons on 3rd March 2021. The aim was, and remains, to support the economy because of the ongoing Covid-19 pandemic.
The Budget sets out how the Government will extend its economic support to reflect the reopening of the economy as restrictions start to ease. The key highlight for the pensions industry was the freezing of the lifetime allowance until April 2026.
Following this, we discuss the proposed new consolidated Code of Practice from the Regulator. The new Code will replace 10 existing Codes and will introduce the requirements relating to the Occupational Pension Schemes (Governance) (Amendment) Regulations.
Our fourth article focuses on pension scams, which remain a hot topic in the pensions industry as scammers continue to find new ways to victimise people.
The article discusses the new guidance recently published by the Pension Scams Industry Group (PSIG) and the statement from the Pensions Minister, which urges pension schemes to share data in an effort to work together to prevent further scams.
Elsewhere in Compass, we cover:
- Increase in the earliest age of retirement
- New climate governance regime
- Proposed restructure and increase to the general levy
- Cross-border schemes
- Public sector exit payment cap
- The Supreme Court’s ruling on Uber and the automatic enrolment implications
- Money and Pensions Service (MaPS) consolidation into MoneyHelper
- Fraud Compensation Fund levy increase.
Pension Schemes Act 2021 – initiating change
Pension Schemes Act 2021 - initiating change
The Pension Schemes Act 2021 (The Act) received Royal Assent on 11th February 2021, setting the agenda for legislation for the next few years.
Its content will profoundly shape the future of pensions by pushing forward the core elements of the Government’s policy for pensions. The Act is a skeleton framework and the detail will need to be developed in regulations and policy guidance.
It’s now crucial that employers and trustees recognise the proposed changes so that they can actively engage with these developments while there’s still time to properly prepare for them.
The Act provides the framework structure to support the introduction and development of online pensions dashboards. Notably, regulations within it force pension scheme trustees and providers to provide data on demand via dashboards.
The requirements for schemes to link in with the dashboards and provide standardised benefit information will pose a serious challenge for some schemes as this can only be achieved with high quality data supported by modern pensions administration systems.
The Government aims to consult on proposed regulations for pensions dashboards later this year and lay draft regulations before Parliament for debate in 2022. Delivery is described as ‘on track’ and staged onboarding is expected to start from 2023, so starting a project now could prove to be prudent.
Criminal offences and The Pensions Regulator’s powers
A key driver for part of the Act’s provisions were the controversial corporate collapses of firms such as Carillion and British Home Stores at the end of the last decade.
The Act seeks to create a stronger and more comprehensive sanctions regime, tightening the rules to prevent abuse. It includes the creation of new criminal offences for intentionally avoiding employer debt to any defined benefit (DB) scheme or intentional behaviour risking accrued scheme benefits without reasonable excuse. Those found guilty could face up to seven years in prison or an unlimited fine or both.
The Regulator has been consulting on a draft policy setting out its approach to investigating and prosecuting the new criminal offences.
There are also changes to the existing contribution notice regime with the introduction of employer insolvency and resources tests. Draft regulations that define these matters more closely are currently being consulted on and the intention is for the new regime to be in place for autumn 2021.
The Regulator will have new information-gathering powers and tougher oversight of corporate transactions. Certain people involved in corporate transactions will have to make statements setting out information about those matters and how any detriment to the DB pension scheme is to be mitigated. These will be consulted on later in the year with commencement “as soon as practical thereafter”.
DB scheme funding
The scheme funding provisions within the Act require DB scheme trustees to:
- Have a long-term scheme specific funding and investment strategy. This must set the funding level that the trustees intend to achieve by a date to be set out in regulations and the investments that the trustees intend to hold on that date.
- Appoint a Chair who must explain to the Regulator the trustees’ approach in a statement of strategy, which must be signed on behalf of the trustee board. This will accompany the actuarial valuation. The Regulator will also have power to direct the trustees to have an alternative funding and investment strategy that is more suitable for the scheme.
A consultation on draft regulations will be published later this year, following engagement with key interested parties. This will go alongside a full public consultation on revisions to the Regulator’s Funding Code.
Changes to the statutory transfer rules
A significant change made by the Act is the amendment of existing legislation on members’ rights to transfer their pensions. Regulations can be made to stipulate the destinations and circumstances under which a member will be able to transfer, including the conditions to be met first. The intention is to limit members transferring into pension scams.
A consultation on the regulations setting out the conditions is expected in early summer 2021 and they are expected to come into force in early autumn. Where the conditions are not satisfied, trustees can refuse to action the transfer. The challenge will be getting the detail right, especially as scammers are constantly changing their tactics.
Climate change risk
The major amendment to the Act during its Parliamentary progress was the introduction of new duties on trustees to address climate change risks in their scheme governance. For schemes affected, this will involve trustees establishing and maintaining oversight and governance processes with adequate steps for identifying, assessing and managing climate change-related risks and opportunities relevant to the scheme.
We address this subject in more detail later in this edition of Compass.
Collective defined contribution schemes
The Act provides the legislative framework to establish and operate the new class of collective money purchase schemes. These operate around fixed contributions that are pooled and invested to deliver a target benefit level. Draft regulations are expected to be consulted on in early summer 2021.
Amendments to the Pension Protection Fund (PPF) compensation rules
The Act ensures that a fixed pension (often derived from a transfer-in) and any other pensionable service within the scheme should be added together for the purposes of calculating PPF compensation, including applying the compensation cap.
The definition of an administration charge has been updated to make it clearer which types of charge are in scope of the overarching definition. The administration charge definition is relevant to the charge caps that apply to schemes used for automatic enrolment and stakeholder schemes.
The Act includes several frameworks in which further regulations will be consulted on to clarify the details before changes are actually made. We will be monitoring these closely but, where relevant, trustees and employers may want to keep these subjects on their agenda to ensure that they are kept up to speed, especially as there are likely to be many changes this year.
A key concern for employers and trustees dealing with DB schemes, and those advising them, is the new sanctions regime. The Regulator has indicated that the new offences are only aimed at enabling it to address more serious intentional or reckless conduct. Several concerns were raised about the breadth of the powers when the legislation was going through Parliament. The Government’s response was that these concerns would be addressed in the Regulator’s policy and guidance. However, its recent consultation has stuck very closely to the legislation as drafted and so the wide scope of the powers remains a concern. For example, will prosecutions be pursued as a deterrent? (It’s argued that the decision to prosecute should be based on the merits of the case alone.)
Please speak to your usual Capita contact if you need further information.
The Budget delivered to the House of Commons by the Chancellor of the Exchequer on 3rd March 2021 contained no surprises as the key updates had been indicated in advance.
The aim was, and remains, to support the economy through this very difficult period, assist the recovery and then move public finances onto a sustainable path.
An area to watch will be the further steps likely to be taken on taxation, to be announced at the next Budget in the autumn.
Lifetime allowance frozen
The key announcement for pensions was that the lifetime allowance will remain at its current level of £1,073,100 until April 2026.
Over the last three years, it has increased in line with the Consumer Prices Index to maintain its value. The standard annual allowance, the money purchase annual allowance and the tapered annual allowance remain unchanged.
This change is significant not only for those who are retiring in the next few years but also for savers looking to the medium and long-term. Trustees and administrators will need to review their current communications to ensure that members continue to receive accurate information about the lifetime allowance.
Pension scheme regulation and investment
The Chancellor announced that the Government would look at the operation of the charge cap for default funds in relation to defined contribution (DC) pension schemes. A consultation was subsequently launched on 19th March 2021, looking at whether certain costs within the charge cap affect DC schemes’ ability to invest in a broader range of assets, such as high-growth companies and start-ups.
The Government aims to ensure that pension schemes are not discouraged from such investments and can therefore offer the highest possible returns for savers. The Department for Work and Pensions is due to introduce draft regulations to make it easier for schemes to take up such opportunities within the charge cap by smoothing certain performance fees over a number of years.
Pension scheme trustees need to be mindful of the targeted outcomes rather than be driven purely by cost considerations. In principle, diversification into a broader range of assets should help and if this boosts the economy, everyone wins.
However, there are traps beyond just the charge cap rules. Investment in illiquid assets has the potential to be problematic in a world of easy transfer rights, member choices, daily pricing and electronic processing systems. Defined benefit schemes are also progressively becoming more mature, with a focus on cashflow management and shorter time horizons.
Scale and time will be crucial, so broader investments may be most suitable to master trusts and schemes with long-term horizons.
Personal taxes, National Insurance Contributions (NICs) and savings
The principal items relevant to pensions include:
- The income tax personal allowance will increase to £12,570 and the threshold income at which higher rate tax at 40% is payable will rise to £50,270 for tax year 2021 / 22. Both will then remain at that level until the end of the 2025 / 26 tax year. (Scottish taxpayers will have their own thresholds above the UK-wide personal allowance).
- NICs primary threshold will rise to £184 per week (£9,568 a year) and the upper earnings limit will follow the income tax higher rate threshold to £50,270, both from April 2021. They will then remain unchanged until April 2026.
- The NICs secondary threshold for employer contributions will rise to £170 per week from April 2021.
- The inheritance tax thresholds (such as the £325,000 nil-rate band) and the annual exempt amount for capital gains tax (£12,300 for individuals) will be maintained at their existing levels until April 2026.
National Living Wage (NLW) and National Minimum Wage (NMW)
The NLW has increased to £8.91 an hour from 1st April 2021. Of more significance is that the NLW is payable from 1st April 2021 to people aged 23 and over (it’s no longer limited to those aged over 25). The recommended increases for the NMW were also accepted.
In light of these increases, employers operating a salary sacrifice arrangement should check the thresholds to ensure compliance with the higher rates.
The Pensions Regulator consults on single code
The Pensions Regulator consults on single code
The Regulator is consulting on a new consolidated Code of Practice that will, as it stands, replace 10 of its existing Codes. The new Code will also introduce the necessary requirements that were legislated for as far back as 2018 in the Occupational Pension Schemes (Governance) (Amendment) Regulations.
A broad scope
The new Code will apply broadly to private sector occupational pension schemes and to those aspects of public service schemes and contract-based schemes that are subject to regulation by the Regulator. In time, this single integrated Code will replace all 15 of the current Codes but, mainly because of changes following the newly enacted Pension Schemes Act 2021, five of the current Codes are out of scope for now. These relate to notifiable events, funding defined benefits, modification of subsisting rights, the material detriment test and master trust governance.
Objectives of reform
The replacement of the existing Codes is more than a simple consolidation, as the overall aim is to make information easier to access, understand and act on. This is achieved using shorter, topic-focused modules (there are 51 of them) with links to related modules and, in time, to relevant guidance.
Substantive new provisions
The draft Code brings in new provisions that will require the attention of trustees and others.
Effective systems of governance
Trustees are required to have an effective system of governance that must be proportionate to the size, nature, scale and complexity of the scheme’s activities. Matters falling into this area include:
- Meetings and decision making
- Remuneration policy (see below)
- Knowledge and understanding
- Internal controls
- Risk management
- Financial control
- IT maintenance and security
- Safe custody and security of scheme assets
- Continuity planning
- Conflicts of interest
- Investment governance
- Climate change risk
- Investment monitoring
- Member communications.
Many of these areas may be familiar but the new focus will require arrangements to be re-evaluated.
For schemes with 100 or more members, trustees should establish a remuneration policy with a written record of it published on the scheme website or otherwise made available to members. It should apply to all people or corporate bodies who effectively run the scheme and those who carry out key functions or whose activities materially affect the scheme’s risk profile.
Own Risk Assessment (ORA)
An ORA is different from a risk register or the usual risk assessment in that it is an assessment of how well the scheme’s governance systems are working. It is, therefore, closer to a backward-looking audit rather than a forward-looking exercise. It should cover:
- how the trustees have assessed the effectiveness of each of the policies and procedures covered by the ORA and
- whether the trustees consider the operation of the policies to be effective and why.
For schemes with 100 or more members, the trustees must prepare their first ORA within one year of the new Code coming into force and then produce subsequent ORAs within 12 months of the last ORA. This is a change to the legislation, which only required an ORA to be a triennial exercise. It is possible that representations may be made to the Regulator on this point of the Code.
Data, IT systems and cyber controls
There is a greater focus on cyber risk in the Code and this means ensuring that internal control processes cover the systems that are used meet the scheme’s current needs and legal requirements. A review mechanism is required to make sure that they are kept up to date with any required software and hardware updates.
The Code has detailed new provisions on stewardship, climate change risk and implementation reports, building on the recent new regulation of investment practices in this area. It also notes how an effective system of governance should ensure that consideration of environmental factors is part of the governing body’s investment decision making process.
Once the consultation closes on 26th May 2021, the Regulator will need time to review the feedback. We suspect that it may not be until the end of this year at the earliest that the Code is laid before Parliament, with a further delay before it can be finally promulgated.
Although the new Code is out for consultation and it will be a while before it is finalised, we think that trustees should not wait to act. Instead, it will be much wiser to check internal systems and governance processes against the expected requirements now. This will allow time to organise plans and resources to address any identified changes that need to be made. Trustees should look at obtaining support in configuring any additional governance processes and producing the required documentation.
Please speak to your usual Capita contact if you wish to know more.
Pension scams remain a current hot topic with challenges for consumers, the pensions industry and regulators alike.
Protecting pension savers – five years on from the pension freedoms
The Work and Pensions Committee has published a report calling on the Government to act quickly and decisively to protect pension savers.
In 2015, those with DC pensions were given greater choice in how to access their pension savings, known as the pension freedoms. Five years on from this, the Work and Pensions Committee has launched a three-stage inquiry into protecting savers, with the first stage focusing on pension scams.
Initially, the main concern was about pension liberation, which saw savers transferring their benefits to a scheme promising them access to cash often before the tax rules allowed (usually before the age of 55). The pension freedoms opened a wider range of investment choices to pension savers, which has triggered a shift towards investment-focused scams.
The report warns that commonly-cited figures of the scale of pension scamming are likely to substantially underestimate the problem, as they are likely to be underreported. It adds that the situation is likely to be getting worse, with the Coronavirus pandemic providing scammers with new opportunities. The lack of a definitive measure of the issue makes it difficult for policy makers and the public to make an appropriate judgement of the level of concern needed.
The cold-calling ban introduced in January 2019 has seen scammers move online and towards social media.
The inquiry found that regulators appear powerless to hold online firms to account for hosting scam adverts in the same way they would for traditional media such as television or newspapers. Tech firms such as Google are being paid to advertise scams while also being paid by regulators to warn about scams.
The report calls for these tech firms to be held to account for facilitating scam adverts and recommends that paid-for adverts on online platforms should be covered by the same rules as adverts in traditional media.
The Committee has called on the Government to rethink its decision to exclude financial harms from the upcoming Online Safety Bill and use it to legislate against online investment fraud.
Although the Financial Conduct Authority states that there have been a large number of prosecutions involving scams, a Freedom of Information request shows that there were only 25 convictions between 2012 and 2020. The Committee warns that the fragmentation of reporting, investigation and enforcement has made combating scams more difficult.
The report recommends that the pension fraud taskforce should be strengthened. The existing Project Bloom should be renamed the Pension Scams Centre, with dedicated funding and staff to manage a pension scams intelligence database alongside the police.
The Committee welcomes the provisions in the Pensions Schemes Act 2021 that will allow the statutory right to transfer to be restricted where there is a sign of a pension scam. It suggests that a review of the system of red and amber flags used to block or pause a transfer should be published within 18 months of the regulations coming into operation to allow any further legislative changes to be made.
New Pension Scams Industry Group (PSIG) Code
PSIG has published version 2.2 of its Code of Good Practice on Combatting Pension Scams.
PSIG was established in 2014 to help to protect pension scheme members from scams, developing and launching the first Code of Good Practice for use by all in the industry in 2015, before publishing version 2.0 on 22nd June 2018 and version 2.1 on 10th June 2019.
The latest update, effective from 1st April 2021, reflects recent regulatory and legislative changes as well as the evolving nature of pension scams. Changes have also been made to improve usability.
“This version of the code brings scams prevention and developments up to date. We also expect to produce a further update later in the year when regulations supporting the Pension Schemes Act 2021.”
PSIG chair Margaret Snowdon
Pensions Minister calls for support on pension scams
The Pensions Minister has urged pension schemes to share data with PSIG in the fight to combat pension scams.
Pensions Minister, Guy Opperman, has written to approximately 90 pension schemes, telling them to begin sharing data with the PSIG in an effort to create a clearer picture of the scale of pension scams. Data shared with PSIG is used to inform Project Bloom, a multi-agency taskforce that coordinates efforts to combat pension scams and fraud.
There are currently 51 organisations – including Capita – involved in the Pension Scams Industry Forum.
The battle against pension scams continues and the guidance materials recently published by PSIG will provide trustees and administrators with more structured support. A consistent approach across the industry will also help to shape expectations in what is becoming an increasingly involved process.
However, as per the recent Work and Pensions Committee report, it is only right that the regulators lead from the front in a coordinated and highly visible approach. Unfortunately, the identification of inappropriate investments for retirement benefits is not a precise science and arguably more has to be done to regulate those advising on transfers and those offering access to these opportunities.
Increasing the earliest age of retirement
Increasing the earliest age of retirement
The Government has confirmed that the Normal Minimum Pension Age (NMPA) will increase to age 57 on 6th April 2028.
While the Government recognises that people should have freedom and choice in how they use their money, mechanisms still need to be in place to ensure savings are used for their intended purpose. This was the driving force behind the introduction of the NMPA.
The latest consultation by the Government has confirmed that the NMPA will rise to age 57 on 6th April 2028 and sets out its proposals for how a ‘protection regime’ will operate.
A protection regime will be in place for all types of registered pension schemes. Therefore, if anyone has an ‘unqualified right’ under a scheme’s rules at 11th February 2021 to take their benefits before the age of 57, they will be protected from the increase.
An ‘unqualified right’ means the right to take benefits without needing consent from a third party, such as the employer or trustees.
Where no such right exists, the NMPA of 57 will apply from 2028.
This protection will apply to all benefits in the scheme, even those built up after 6th April 2028, and there will be no requirement to apply to HMRC for a protected pension age.
Previous protected pension ages
The new protection regime offers more flexibility than the existing one that protects a NMPA below 55.
This is because the conditions that must be fulfilled to take benefits before 55, which means that people must retire from employment and for all benefits to crystallise at the same time (no partial retirement), will not be carried across.
It’s important to note that people who already have an existing protected pension age will see no change to the conditions they must meet.
Where members of the armed forces, police and fire services don’t already have a protected pension age, the Government proposes not to apply the increase in the NMPA to them.
If members decide to transfer their benefits to another pension arrangement on an individual basis, they will lose their protection.
However, if benefits are transferred as part of a block transfer (i.e. when two or more people transfer from the same scheme to the same new scheme at the same time), protection will be maintained.
We await further guidance on this, as it isn’t clear from the consultation on the consequences when a member already has savings in the receiving scheme. This will often be the case when a member is trying to consolidate their pension savings.
Clear communications to members will be vital to ensure the change is fully understood, especially when they are considering a transfer. Employers and sponsors will need to carefully consider the implications of the increase while providing a clear message to members on how this may affect them. There is an obvious risk that people could transfer and unknowingly lose their right to access benefits from the age of 55. An unintended consequence may be that transfers to make use of flexibilities in another scheme or to consolidate pension savings become frustrated. Therefore, we welcome further guidance on the matter.
Schemes should be taking steps now to focus on how the changes will be delivered through pension scheme design and member engagement.
We’ve published a Spotlight that looks at the consultation in further detail. Please speak to your usual Capita contact if you would like a copy.
Legislation and guidance are expected to come into effect in October 2021. As it stands, this will require trustees of the largest occupational pension schemes (and all authorised master trust schemes) to address climate change risks and opportunities through governance and risk management measures.
The measures must be in line with the recommendations of the Taskforce on Climate-related Financial Disclosures (TCFD). The idea is that these schemes will set a benchmark of good practice and that their market power will drive improvements in the flow of data necessary for high-quality climate risk governance.
From 1st October 2021, trustees of schemes with £5bn or more in assets (along with authorised master trusts and any new collective money purchase schemes) at the first scheme year end on or after 1st March 2020 must meet the new climate governance regime.
Bulk and individual annuity contracts where the insurer’s future payments fully meet the cost of specified benefits are to be disregarded for the purposes of the £5bn asset threshold test (as the trustees irreversibly handed over control of the assets to a regulated insurance company).
The new climate governance regime involves trustees putting in place effective governance, strategy, risk management, and accompanying metrics and targets for the assessment and management of climate risks and opportunities.
Trustees must undertake scenario analysis in the first year and every three years thereafter. In other years, they must review whether they should refresh their analysis or explain why they’ve decided not to.
This regime will be extended to schemes of £1bn or more in assets from 1st October 2022, with a report within seven months of the end of the scheme year underway on that date.
The Government intends to consult in 2024 before deciding whether to extend the regime to schemes with less than £1bn in assets.
The draft statutory guidance is for trustees subject to the new regime and describes what they need to do and report on. Trustees are required “as far as they are able” to:
- Undertake scenario analysis
- Obtain the scope one, two and three greenhouse gas emissions and other data relevant for their chosen metrics
- Use this data to calculate selected metrics that, in turn, can be used to identify and assess the climate-related risks and opportunities
- Measure, on an annual basis, the scheme’s performance against any target they have set.
Trustees will be required to obtain data from their asset managers and, in turn, from investee firms on emissions and other characteristics. The Regulator recognises that schemes may face difficulties in acquiring full data for their portfolio, at least in the early days.
Trustees will have to report on these matters within seven months of the end of the scheme year already underway on 1st October 2021. As TCFD reports could be quite long and detailed, they would not need to be presented in full in the trustees’ annual report, but only referenced in it as a key disclosure.
The TCFD report will have to be published on a publicly-available website. Members are to be told that this information has been published and where they can find it in their annual benefit statements. For defined benefit schemes, which may only produce such a statement on request, they will have to add a link to the annual funding statement issued to members.
The website address for the TCFD report will also have to be provided to the Regulator using the annual scheme return.
A mandatory penalty of at least £2,500 will apply for failure to publish a TCFD report. Other penalties relating to non-compliance are to be left to the Regulator’s judgement, but the maximum penalty will be £5,000 for individuals and £50,000 for all others.
The Government has sensibly moderated some of the proposals by carving out buy-in annuity contracts and allowing for annual rather than quarterly calculations of metrics, with scenario analysis being carried out every three years and intermediate reviews as needed. This is welcome. However, the new regime will be challenging even for well-resourced large schemes.
For many smaller schemes, the fact that these requirements do not apply to them for now may lead trustees to ignore these developments. However, the Government intends further reforms and Statements of Investment Principles must cover financially-material considerations that link to climate risk. We think trustees should take the opportunity now to review their knowledge and understanding of climate risk and investments in general.
Please speak to your usual Capita contact if you would like assistance.
General levy consultation outcome
General levy consultation outcome
In December 2020, the Government launched a consultation on plans to restructure (and increase) the general levy, which funds the Pensions Regulator, The Pensions Ombudsman (TPO) and MaPS. The consultation noted a growing deficit between revenue from the levy and the cost of the activities which the levy was expected to fund. Therefore, it was clear that an increase to the levy was unavoidable.
Consultation outcome – new levy structure
The consultation outcome was published in March 2021 and, of the three proposals that were put forward, the greatest support was for the Government’s preferred option: to increase rates and introduce separate levy rates for DB, DC, master trust and personal pensions schemes. This approach makes the levy rates more representative of the differing supervisory involvement required by the respective scheme types.
With the industry response broadly mirroring its own expressed preference, the Government has unsurprisingly decided to enact the proposed approach without amendment.
Consultation outcome – new levy rates
The revised levy structure and rates have quickly been introduced in regulations, taking effect from 1st April 2021 and representing an immediate increase in rates from the April 2020 level for all schemes.
The regulations include a series of tables that detail the levy rates in force up to and including the financial year beginning in April 2023, with increases to the rates due to apply each year.
To enact the new levy structure, the increases introduced are steepest for DB and hybrid schemes, for which the rates will have more than doubled by 2023 / 24.
The levy will increase at a lesser rate for occupational DC schemes, while master trusts and personal pension schemes will see the lowest increases. The original consultation document suggested that further increases should be expected from April 2024 but plans for this will be determined later.
Consultation outcome – cost transparency
One issue raised by several of the respondents to the consultation was that the pension bodies funded by the levy should be subjected to tighter cost control, and there was a call for greater transparency of the increase in costs over recent years.
In response, the Government has determined to freeze the operating budgets of the Regulator and TPO at their 2020 / 21 levels for the 2021 / 22 financial year and reduce the element of MaPS 2021 / 22 funding, which will be chargeable to the levy.
Trustees should be aware of the increased rates that apply to their schemes and ensure that these are accounted for in their funding plans. This will be especially relevant for trustees of DB or hybrid schemes, where the changes to the rates will be most pronounced.
Please speak to your usual Capita contact if you have any questions on this issue.
Cross-border schemes – winding down
Cross-border schemes – winding down
There have been a relatively small number of schemes that operate cross-border between the UK and other countries – around 40 in total, as at the end of the Brexit transition period on 31st December 2020. However, the UK laws that previously governed schemes operating cross-border have largely been revoked.
Accordingly, the Regulator has issued guidance that reminds trustees and employers to take appropriate advice to establish if they need to comply with new restrictions.
UK schemes with overseas contributions
The guidance makes it clear that, currently, UK law does not prevent an employer in another country from contributing to a UK scheme. However, it should not be assumed that the laws and regulatory rules applying in the other European Union (EU) or European Economic Area (EEA) country or countries involved in the scheme allow this.
EU / EEA schemes with UK contributions
As for a UK employer contributing to a non-UK cross-border scheme, there are requirements to comply with from the UK law perspective.
An important one is that the non-UK scheme must be established under trust and either have a UK-resident trustee or have a trustee-appointed representative who is resident in the UK. (This applies whether the employees are based in the UK or not). Again, it should not be assumed that the EU or EEA country’s laws and regulatory rules allow the scheme to accept contributions from a UK employer.
It is no longer possible to use a non-UK scheme as an automatic enrolment scheme for new entrants and urgent steps should be taken to correct the position.
For existing members in a qualifying scheme that is a non-UK scheme, this may continue but the position will need to be reviewed.
Eligibility for the PPF does not depend on where the employer of the pension scheme is based. To be eligible for the PPF, a pension scheme must have its main place of administration in the UK.
However, the mechanism for triggering PPF entry requires a UK insolvency event.
Trustees dealing with this kind of situation should take legal advice on how PPF entry could be secured, for example a winding-up order in the UK courts.
All members of an eligible scheme that transfers to the PPF are eligible for PPF compensation regardless of nationality or residence.
This latest guidance reinforces the point that cross-border issues are complicated and, where relevant, employers and trustees are likely to require legal advice.
An area to watch out for concerns seconded employees to an EU or an EEA country who are in a UK scheme, as they will not be in cross-border schemes per se because such secondments were exempt.
However, they could be affected by the operation of EU law in terms of their ongoing membership.
Public sector exit payment cap
Public sector exit payment cap
The public sector exit payment cap came into force on 4th November 2020 but it was revoked on 12th February 2021.
The public sector exit payment put a limit of £95,000 in value on employer payments on retirement of a member. All Local Government Pension Scheme (LGPS) employers are included, with the exception of higher and further education establishments and private contractors.
Payments in scope of the regulations include:
- Statutory redundancy pay
- Discretionary severance pay
- Payments to remove early retirement reductions to a member’s pension in full or part
If a member’s exit payment exceeded the cap, the regulations directed for member’s benefits to be reduced to a point where the exit payments are £95,000. However, under LGPS regulations, benefits for members aged 55 or over are paid without reduction when they have retired due to redundancy or business efficiency. The LGPS regulations have not been amended nor has a consultation been issued regarding a potential change.
It is this conflict in the two sets of legislation that has resulted in the Association of Local Authority Chief Executives / Lawyers, UNISON and GMB / Unite unions requesting a judicial review.
Despite previously giving the view that its regulations override the LGPS regulations, HM Treasury has provided further information in the Restriction of Public Sector Exit Payments: Guidance on the 2020 Regulations, confirming that:
“The Government has concluded that the cap may have had unintended consequences and the  Regulations should be revoked. HM Treasury Directions have been published that disapply the cap until the Regulations have been revoked.”
Furthermore, the guidance instructs that the Treasury expects employers to pay the additional sums that would have been paid, had the exit cap not applied in respect of employees who left between 4th November 2020 and 11th February 2021.
Significant automatic enrolment implications following Uber Supreme Court ruling
Significant automatic enrolment implications following Uber Supreme Court ruling
Supreme Court rules that Uber drivers are classed as ‘workers’ not self-employed and therefore entitled to employment rights such as the minimum wage and a workplace pension.
Uber has lost a landmark battle as the Supreme Court ruled that its drivers must be classed as workers and not independent third-party contractors.
The drivers perform driving services booked through the Uber app. The court said it was Uber, not the drivers, who set the fares, which could not be exceeded. The contract terms were also set by Uber and the drivers had no input. Once the drivers logged on to the app, it was Uber that set the rules about accepting requests for rides and monitoring customer satisfaction.
The court concluded that the drivers “are in a position of subordination and dependency in relation to Uber”.
The court emphasised that it must look at the reality of the relationship rather than focus on the contractual document. Uber had significant control over the way that drivers worked and therefore the court concluded that they should be considered the company’s workers rather than self-employed.
There is likely to be a knock-on effect for other companies within the third-party contractor’s field. While the ruling does not automatically mean that everyone in the gig economy will now be classed as a ‘worker’, it certainly sets a precedent for further claims to come forward. However, each case will have to be reviewed on the facts of the relationship between the individual and the company.
Automatic enrolment implications
As Uber drivers are now classed as workers, by law they will be entitled to be automatically enrolled into a workplace pension scheme by Uber if the qualifying criteria is met. This late adoption will also require Uber to make the highest level of contributions of 5% of banded earnings.
This is great news for contractors in similar circumstances as those with Uber, if claims are successful, as it paves the way for automatic enrolment to give them an opportunity to save for retirement.
On the flip-side there are significant cost implications for employers, as they must ensure that all of their workers who fall within the definition of an ‘eligible jobholder’ are enrolled into a qualifying pension arrangement with the opportunity to opt out.
More significantly, they may be required to plug the gap left by missed employer and employee contributions (including interest) backdated to when the workers should have been enrolled.
MaPS rebrand to MoneyHelper
MaPS rebrand to MoneyHelper
Money and Pensions Advice Service (MaPS) has announced plans to consolidate its existing advice brands into a single offering, MoneyHelper.
MaPS was created as a single body to bring together financial guidance services, making it easier for customers to find what they are looking for in one joined-up service.
Since MaPS was formed in 2019, it has operated its services under the three legacy brands of the Money Advice Service, the Pensions Advisory Service and Pension Wise.
After extensive research, MaPS concluded that a single consumer brand would be most effective for achieving its aims. From June 2021, it will roll out the new consumer-facing brand of MoneyHelper.
Once live, the existing websites of the Money Advice Service, the Pensions Advisory Service and Pension Wise will be replaced and redirected to the new MoneyHelper website.
MaPS will remain the corporate brand and MoneyHelper will be how consumers will see and access the service. Pension Wise will continue as a named service under MoneyHelper.
Fraud compensation fund (FCF) levy to increase for 2021 / 22
Fraud compensation fund (FCF) levy to increase for 2021 / 22
The PPF has confirmed that the FCF levy 2021 / 22 will increase due to the number of claims it has received following a court ruling last year.
The PPF has confirmed it needs to raise the FCF levy to 75p per member and 30p for master trusts for 2021 / 22 in light of the number of claims it has received.
This follows a court ruling that clarified that occupational pension schemes set up as part of a scam were eligible for compensation.
Members of a scheme that have lost out due to dishonesty may be able to receive compensation where the sponsoring employer has become insolvent or is unlikely to continue as a going concern, their scheme cannot be rescued, and that scheme has lost funds because of criminal offences involving dishonesty.
Any trustee, scheme manager, member or beneficiary can make a claim but, if they’re successful, compensation can only be paid out directly to the scheme trustees (who in the case of scam schemes may be court-appointed).
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