Technical Update April 2018

ARTICLE — 4 Apr 2018

Hot topics

White Paper on DB pensions

 On 19 March 2018, the government published its White Paper ‘Protecting Defined Benefit Pension Schemes’ in response to the previous Green Paper published in February 2017.

The overriding message in the White Paper is that the current system ‘is working well for the majority of Defined Benefit schemes, trustees and sponsoring employers’ but some improvements should be made to improve the security of benefits for members.

 The white paper focuses on the following main areas:

 A stronger Pensions Regulator - The government proposes to punish those who deliberately put their pension scheme at risk by introducing punitive fines and a new criminal offence to punish those found to have committed ‘wilful or grossly reckless behaviour’. It also proposes to change existing processes to support the disqualification of company directors and strengthen the existing notifiable events framework and voluntary clearance regime.

Scheme Funding – The Pensions Regulator (TPR) will consult on a revised DB Funding Code of Practice with focus on how prudence is demonstrated when assessing scheme liabilities, what factors are appropriate when considering recovery plans and ensuring a long-term view is considered when setting the statutory funding objective (SFO). In addition there will be a requirement for the trustees of DB schemes to appoint a Chair and for a Chair’s Statement to be submitted to TPR with the scheme’s triennial valuation. The Chair’s Statement is ‘expected to set out the scheme’s long-term financial destination and a description of the scheme’s strategic plan for reaching the SFO’.

Scheme consolidation – Whilst the government believes there appears to be a strong case for supporting greater voluntary consolidation they are unconvinced that compulsory consolidation would be the right approach. As a result a consultation is planned to be held later in 2018 to look at ways in which new forms of consolidation vehicles could operate.

Other live areas – The Government has decided to take forward changes in the following areas: 

  • Regulated Apportionment Arrangements (RAAs) – it is proposed that further work will be carried out to identify improvements to be made to the RAA process.
  • Indexationthe White Paper confirms the government is presently ruling out measures which would override provisions in scheme rules and allow employers, or schemes, to change the measure of inflation used to calculate annual increases.
  • Employer debt provisions for multi-employer schemes – the government considers the existing arrangements provide a sufficient range of mechanisms to deal with employer debt. 

The White Paper states that some measures can be implemented quickly, or are already underway but other measures will require legislation and consultation. It is thought that areas where primary legislation is required might not be dealt with until the 2019–20 parliamentary session at the earliest. 

How this could affect you:

There is no immediate impact at present but government action as a result will be monitored and further updates will be provided. The Pension Regulator’s consultation on a revised DB Funding Code of Practice will be a key area to look out for.

Scottish Budget 2018/19

The Scottish Budget for 2018/19 was passed by the Scottish Parliament on 21 February 2018. Among the measures included in the budget are the following changes to income tax rates: 

  • a new starter rate of 19p for earnings over £11,850 and up to £13,850;
  • a freeze on the basic rate at 20p for earnings over £13,850 to £24,000;
  • a new intermediate rate of 21p for earnings over £24,000 to £43,430;
  • an increased higher rate of 41p for earnings over £43,430 to £150,000; and
  • an increased top rate of 46p for earnings over £150,000.

 HMRC has confirmed that it will work closely with the Scottish Government and pension providers “on the implications [of these changes] for pension tax relief, and to clarify how the mechanisms for providing relief will operate in respect of Scottish pension savers”. HMRC has also published a newsletter for pension schemes on relief at source for Scottish Income Tax. 

How this could affect you:

It is HMRC’s responsibility to identify employees who will pay the Scottish Rate of Income Tax and decide what tax they pay. Employers, and pension providers, should only use a Scottish tax code if HMRC tells them to. HMRC provides a Scottish code, which has a prefix of “S”, to those who live – or have their main home – in Scotland.

Spring Statement

The new “Spring Statement” was held on 13 March 2018, in which the government responded to the forecast from the Office of Budget Responsibility.

As previously confirmed the Chancellor did not make any significant tax or spending announcements at the Spring Statement and contained nothing that will directly impact pensions. 

An Autumn Budget is expected in late November or early December 2018.

How this could affect you:

No impact.

Consultation on draft regulation (Master Trusts)

On 19 March 2018 the government published its response to their consultation on the Occupational Pension Scheme (Master Trusts) Regulations 2018.

The document gives a summary of the feedback received and confirms that the main provisions and overall approach will not change.

The government have confirmed that the flat authorisation fee has reduced from what was proposed:

  • For new master trusts from £24,000 to £23,000; and
  • For existing master trusts from £67,000 to £41,000

The government intends to lay the draft regulations before Parliament in time to come into force on 1 October 2018.

The Pensions Regulator has also launched a consultation on a new and associated Code of Practice. The consultation period runs until 8 May 2018.

How this could affect you: 

The RPS, including the IWDC Section, is classified as a master trust and falls under the scope of these regulations. Therefore, the RPS will be subject to the new authorisation regime, when this comes into force, and RPMI will be working with the Trustee to plan for this.

Other developments

Draft regulation on bulk transfers of formerly contracted-out benefits without consents 

On 21 December 2017, the DWP published the consultation on the draft Contracting-out (Transfer and Transfer Payment) (Amendment) Regulations 2018. The draft regulations aim to enable bulk transfers of contracted-out benefits, to newly established schemes that have never been contracted-out, to take place without member consent under specified conditions. These conditions are: 

  • the rights of members must not be adversely affected by the transfer; and
  • the same protections must be provided by the new scheme (for example, regarding pension increases in payment), as members would have received had the transfer been to another formerly contracted-out scheme.

The consultation closed on 17 January 2018 and the government response on 26 February 2018 confirmed that the government will proceed with its proposals. The new regulations are due to come into force from 6 April 2018.

How this could affect you:

The draft regulations will generally have a minimal impact on the RPS although this is of relevance in cases where TUPE transfers are required to newly created sections.

Pension Scams

On 12 February 2018, DWP and HM Treasury published a response to the Work and Pensions Select Committee’s report titled “Protecting pensions against scams: priorities for the Financial Guidance and Claims Bill”. This called for the government to take urgent legislative action in order to have an enforceable ban on cold calling by June 2018 at the latest and that individuals should either receive or expressly refuse guidance before being granted access to a pension pot.

In response the government have made amendments to the Financial Guidance and Claims Bill which take forward key recommendations of the Work and Pensions Committee.

In addition, the latest Finance (No. 2) Bill was published on 16 January 2018. The Bill includes the new powers for HMRC to register and deregister certain pension schemes to tackle scams and fraudulent schemes. The Bill also includes powers for HMRC to refuse to register master trusts not authorised by TPR, or occupational pension schemes whose sponsoring employer has been a dormant company for a continuous period of one month. The measures in the Bill are intended to come into force on 6 April 2018.

How this could affect you:

There is no direct impact but we welcome the government’s measures to counter fraudulent pension schemes and encourage individual to seek financial advice.


New employer debt option for multi-employer schemes

In April 2017, a consultation was launched on regulations which proposed the introduction of a new Section 75 debt easement to potentially allow an employer in a multi-employer pension schemes (e.g. the Omnibus Section) to defer the requirement to pay a debt if it ceases to employ an active member. This deferred debt arrangement (DDA) would then be subject to the employer retaining all of their previous responsibilities to the scheme.

A response to the consultation was published on 26 February 2018. Some modifications have been made to the detail, although the response confirms that the government will proceed with proposals to allow DDAs. Regulations covering this will come into force on 6 April 2018. 

The potential use of DDAs will be of relevance in the context of the RPS. However, it is worth noting that trustee consent will be necessary for an employer to enter into a DDA.

How this could affect you:

This may be of interest to participating employers in multi-employers schemes such as the Omnibus Section of the RPS.

PPF compensation treatment of bridging pensions

Following a consultation launched in August 2017 on the treatment of bridging pensions within Pension Protection Fund (PPF) compensation, a further consultation was launched in November 2017 to cover modifications to this treatment to reflect feedback received. The government provided a response to the second consultation on 29 January 2018.

As a consequence of the consultation, there will now be a reduction in PPF compensation levels at State Pension age for members who have taken the level pension option or have a bridging pension to reflect the reduction that would have taken place under the existing scheme provisions at this date. However, this change will only apply where a PPF assessment period begins on or after 24 February 2018, which was the date when new PPF regulations to cover this change came into force.

Consequently, the new regulations will not impact the PPF compensation provided to members of the Carillion Rail (GTRM) and Carillion Rail (Centrac) Sections, as the PPF assessment date for these sections is before 24 February 2018. However, any future PPF assessment period cases for sections of the RPS would be subject to this revised approach for treatment of bridging pensions.

How this could affect you: 

This will only directly impact members if they opt to take a bridging pension when they take their benefits and their Section subsequently transfers to the PPF.

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