Premier's thoughts on the Budget Consultation response
Now, more than ever, employers face demands to improve the health and wellbeing for their employees but without having a budget to fund such demands. Add to this significant increases in Private Medical Insurance (“PMI”) costs and you have a circle that’s been difficult to square.
At Premier we felt there had to be a better way forward.
Attached is this month’s Current Issues - matters that we are discussing with our clients
You will see that this includes 3 new issues:
• Same Sex Marriage Regulations (a separate note was prepared on this).
• New Disclosure Requirements
The previous article on the new DC code has been updated to show that The Pensions Regulator expects trustees to prepare an annual governance statement indicating how they have complied with the Code.
Under the Marriage (Same Sex Couples) Act 2013, same sex marriages may take place in England and Wales from 29 March 2014.
From a pension scheme perspective, a same sex spouse will, with effect from 13 March 2014, be automatically entitled to the same minimum benefits conferred on a civil partner.
Technical Updates - What we are talking to our clients about.
Current Issues - What we are talking to our clients about
Director and Executive Pension Concerns – Will you be caught by the impending change to the stealth tax commonly known as the Lifetime Allowance Tax Charge?
On 11 July the Pensions Regulator published a draft code on the governance and administration of trust based DC schemes. The code is expected to come into force in November. He has now published a consultation document regarding its compliance and enforcement policy in respect of the code.
In a lively conversational webinar Premier explains how to reduce PMI costs by up to 20% while improving employee engagement and the benefits provided. Guest speakers from cover the market trends and innovations impacting employee healthcare provision now.
The latest update to the actuarial profession’s Continuous Mortality Investigation (CMI) indicates a fall in life expectancy over 2012. For example, the life expectancy of a male aged 65 has been reduced by approximately 3 months to 22.5 years.
The OFT has reached agreement with the Pensions Regulator and Association of British Insurers on a package of reforms for defined contribution pension schemes. These include;
• Assessing whether small trust based schemes are delivering value for money
• Dealing with old and or/high charging schemes to ensure savers get value for money
• Improving governance in contract based schemes by establishing independent governance committees
In addition the OFT has recommended that the DWP consult on the transparency and comparability of provider charges and preventing auto-enrolment schemes having built-in adviser commissions or different charging structures between active and deferred scheme members.
The Pensions Regulator published a revised Code of Practice for trust-based defined contribution (DC) schemes. This follows on from an earlier draft which during the consultation process received industry criticism for being too long and complex.
Current Issues - What we are talking to our clients about
The Pension Protection Fund (PPF) has decided to replace Dun and Bradstreet (D & B) with Experian for the purpose of assessing the risk of an employer going bust. The change will take effect for levy calculations from 2015/16.
The advent of auto-enrolment and the consequent increase of members in DC schemes is resulting in far greater scrutiny being placed on how such schemes are being run. The Pensions Regulator has just published a revised code of practice for trust based DC schemes and this is expected to come into force in November 2013. In addition the DWP has just launched a call for evidence on setting legislative minimum requirements for all DC schemes whether trust based or contract based. The call for evidence runs until 9 September 2013.
Smaller employers and schemes should ensure that their advisers do more to quantify how they can offer appropriate services and advice - rather than simply claiming an adaptation of their general offering.
Attached is our summary of the market movements in June 2013
In this month's edition of Pensions Age Daniel Taylor looks at the impact of the reduced Annual Allowance for pension savers
With annuity rates at such lows and living costs rising, individuals need to think carefully about retirement and what they will need in terms of both income and financial protection for their loved ones.
TPR annual funding statement 2013
• This is aimed at trustees and employers completing defined benefit valuations with effective dates in the year to 21 September 2013.
• Sets out acceptable approaches to the valuation process in the current economic conditions.
After a period of uncertainty, analysis and intense lobbying from the UK, the European Commission has decided not to implement new solvency requirements within an updated Institutions for Occupational Retirement Provision (IORP) directive. Instead the directive will focus on improving the transparency and governance of schemes in the European Union.
The DWP will create an automatic transfer system for small defined contribution pots of less than £10,000. The pot will automatically transfer to the new employer’s scheme unless the member opts out. Details of the proposals are included within the recently published paper entitled ‘Automatic transfers: consolidating pension savings’ http://tinyurl.com/blh3shu . The DWP aims to provide for a system for automatic transfers within the forthcoming Pensions Bill. Any emerging legislation will be subject to prior consultation.
The Head of Premier’s specialist Charity Group, John Reeve was quoted in this month’s Pension Age in an article looking at the problems faced by the Charitable sector running pension plans
Following Steve Webb’s recent announcement that the date for GMP equalisation had been shelved until Spring 2014, the government has now published an interim response to its consultation on how to equalise GMPs.
It would appear that the countries opposed to the proposals have nearly enough votes between them to block the change and it is therefore conceivable that, even though the European Commission may wish to push its proposals through, they will be blocked.
In today’s budget Chancellor George Osbourne made a number of announcements with regard to pensions. The key points are as follows:
• No further changes to the tax regime for pension savings
• Plans to smooth assets and liabilities are not to be implemented
• The Pensions Regulator will have a new objective “to have regard for the growth prospects of employers”.
• The implementation of the new single-tier state pension will be brought forward to 2016
Let Premier's experts guide you through the practical steps you need to take in the run-up to your staging date.
Attached is our summary of the market movements in February 2013
Trustees should consider putting in claims for VAT on investment fees to avoid mising out.
The regulator set a deadline of 31 December 2012 for schemes to comply with its ‘common data’ record-keeping requirements. Now that this date has passed it has announced that it will be selecting over 200 schemes and requesting information about their record-keeping. If any breaches of legislation are found it may take enforcement action.
The review will start in March.
The government confirmed on 11 February that next month it will consult on proposals to simplify the auto-enrolment process. Areas for examination include:
• Making assessment of the workforce easier
• Making it easier for DC schemes to show that they meet the scheme quality requirements
• Removing the duty to enrol particular groups such as those who benefit from protection because they have already exceeded the lifetime allowance for tax purposes
Speaking at a recent Association of Pension Lawyers event, Steve Webb the pensions minister announced that the DWP is looking at simpler ways of equalisation GMPs following widespread criticism of the government’s initial proposals last year.
Whilst it was initially anticipated that a different methodology would be announced this year, it now appears that it won’t be until Spring 2014.
Speaking at a recent industry conference Steve Webb has revealed that , based on the experience of larger schemes that have already “staged”, the auto-enrolment process will be simplified in time for small to medium companies staging in 2014.
Following the introduction of a voluntary code on incentive exercises last year, the recent draft Pensions Bill includes clauses that allow the government to prohibit the use of cash incentives as an inducement to members to transfer out of a DB scheme.
The powers will not be needed if the pensions industry complies with the voluntary code and will cease to exist in seven years if this proves to be the case.
This will almost certainly mean that Companies will not offer cash. Indeed we are seeing most exercises now undertaken with the highest possible consideration of the member and making sure that they make appropriate decisions.
The DWP has opened a consultation calling for evidence on :
• Whether the smoothing of assets and liabilities would be appropriate in the calculation of assets and liabilities
• How smoothing might be applied
• Whether a new statutory objective is necessary for the Pensions Regulator which is to consider the long-term affordability of deficit recovery plans to sponsoring employers and to include this within the Code of Practice on scheme funding
Responses on the new objective are required by 21 February 2013 and by 7 March 2013 on the smoothing of assets.
Attached is our summary of the market movements in December 2012
Attached is our summary of the market movements in November 2012
Many employers will now be planning to ensure they comply with the new auto enrolment requirements.
If they have an existing DC scheme, they may be considering using this as their automatic enrolment scheme. It is unlikely that the contribution rates will mirror the exact minimum contribution requirements for the scheme to be a qualifying scheme.
Click onthe heading for more information.
The Consumer Prices Advisory Committee (CPAC) has recently released a publication of their minutes which suggests some potential changes to the method of calculation of the two inflation indices (CPI and RPI). The potential amendments revolve around the ‘formula effect’ which is the difference in the averaging methodology used for the sub-indices which make up RPI and CPI.
The National Statistician will consider various options from leaving the current formula unchanged, to eliminating the "formula effect" altogether by changing the averaging method used for RPI. Depending on a scheme’s deferred revaluation and increase in payment requirements any change in the methodology, and resulting changes to RPI, could potentially have a significant effect on scheme funding.
Click on the heading for more details
Recent ONS figures indicate that the number of 85-89 year olds based on last year’s census is 2% lower than expected.
Whilst this may be an early sign of a new longevity trend, many actuaries are advising that it is too early to reflect the findings in mortality assumptions. Nevertheless this development will be closely monitored.
The Pensions Regulator is clearly taking more interest in the extent to which trustees commission independent advice on the employer covenant.
From 26 November submitted recovery plans require confirmation as to whether independent advice has been sought. A copy of any covenant advice does not have to be submitted with the recovery plan but the regulator may request a copy later.
Is it too early to fully access the success or failure of auto-enrolment?
The Pensions Minister, Steve Webb is understandably singing its praises citing that by Christmas there will be over 600,000 new pension savers. On the other hand in a recent survey, 40% of 300 companies staging in 2013 indicated that they would only pay minimum contributions which in most cases will only provide a modest replacement income for retirees . Of even more concern is a Friends Life survey of 2000 people which found that 26% would opt out of a pension scheme regardless of the level of member contributions with a further 35% saying they would opt out if contributions were over 5%. This indicates an unwillingness to save and adds weight to the argument for compulsory savings.
On 6 November the DWP published a call for evidence on the possible removal of restrictions that apply to the National Employment Savings Trust, NEST. NEST is a not-for-profit scheme established by the government as a possible vehicle for employers to meet their auto enrolment requirements. Currently annual contribution limits and transfer restrictions apply to NEST and the call for evidence is whether these constraints are acting as a barrier to employers selecting NEST. The consultation will also examine :
a) The extent to which commercial providers are able to supply low-cost provision to a diverse range of employers as auto enrolment gathers pace
b) Whether the balance between employer choice and consumer interest shifts as more smaller employers reach their auto enrolment staging dates
The call for evidence runs until 28 January 2013.
The Pensions Regulator has updated his winding-up guidance.
The Pension Regulator Chairman recently set out his views on the funding of Defined Benefit plans in the current climate of low gilt yields.
Auto enrolment became a reality on 1 October 2012. Many employers are spending a lot of time reviewing all the complex procedures that are necessary to comply with the auto enrolment process.
Some of these complexities will be life assurance issues if the life assurance cover is greater for pension scheme members than it is for non pension scheme members. The following is a summary of how we believe the life assurance industry will handle this. It is important that, once you start the auto enrolment process, you agree with your group life underwriter the actual process.
The Treasury Select Committee is now carrying out a more detailed analysis on the effects of QE. Evidence can be submitted to its website up to 1 November 2012.
Nick Clegg has announced that the government is considering how parents and grandparents can help their children and grandchildren gain a foothold on the property ladder. This would involve the provision of a guarantee based on the value of their pensions. The DWP will now consult with the financial services industry regarding how this might work in practice.
The initial view of the Pensions Industry has been sceptical to say the least. At a time when the Govenmemnt is trying to increase pension saving with a view to increasing income in retirement, the idea of putting this at risk seems strange.
We await the details with interest.
Over the last few months there has been an increased focus on buying-in pensioner liabilities.
The calculation of a Scheme’s PPF levy includes a Dun & Bradstreet Assessment of the likelihood of the sponsor failing. The ‘failure score’ was previously taken as the score at the end of March each year. However, it is now averaged over 12 months from April to the following March.
It is the trustees who are responsible for the management of the Trust, which includes the retention of the governing documentation. However, if you asked any group of Trustees to produce the original signed documentation and all historical deeds covering the members since inception many would struggle to do this.
The Pensions Regulator can use a Financial Support Direction (FSD) to request from an employer participating in a DB pension scheme or from other companies within the employer's group, proposals to support a scheme's deficit.
The Pensions Regulator has issued a statement supporting the Voluntary Code of Practice on Incentive Exercises. It will have regard to the code, wherever relevant, in the conduct of any regulatory proceedings relating to the Incentive Exercise.
The Pensions Regulator has added the next suite of downloadable resources to assist trustees working through the Pensions Law module.
The Industry Working Group on Incentive Exercises has now published a working code of good practice on Incentive Exercises. It follows criticism by the Pensions Minister regarding poor industry practice regarding the offer of cash incentives to encourage members to transfer out of valuable DB schemes.
Currently, occupational Defined Benefit (DB) pension schemes are funded in line with the European Union directive on "Institutions for Occupational Retirement Provision". The IORP directive requirements were implemented in the UK through the Pensions Act 2004. This requires a scheme to fund on a technical provisions basis.
The five year phase-in of a new employer duty to automatically enrol employees into a minimum standard pension scheme commences from October 2012. This note provides a bullet digest of some key preparatory points for employers to consider well in advance of the new duty applying to them.
The High Court has ruled that the BBC could impose a cap on the annual increase of pensionable pay under its pension scheme by way of a contractual agreement with its employees.
HMRC has issued a further announcement in relation to when insurance cover for lump sum death benefits may lead to members with fixed protection losing that protection.
The recent decision of the High Court in the QinetiQ case has determined that it is possible in certain situations for the introduction of CPI as the relevant index against which pensions are revalued and increased to apply in relation to accrued benefits and not just future service benefits. This will be relevant where the pension scheme's rules specifically allow the trustees or the employer to change the index which is used as the measure of inflation (in other words, the change is not being made under the scheme's power of amendment).
The Chancellor confirmed in the recent Budget that the Government will go ahead with its plans to merge the basic state pension and second state pension. Full details of how this is to be implemented are yet to be published but it is likely that this signals the end of contracting-out on a defined benefit basis. We will track the developments on this and be in touch as further details emerge.
HMRC has confirmed that in some circumstances continued life cover under a registered pension scheme could constitute "benefit accrual" and invalidate fixed protection (which allowed scheme members to retain a lifetime allowance of £1.8 million after 6 April 2012). This will be in the situation where the death benefit lump sum is insured and the amount payable on a member's death could be restricted to the proceeds of the insurance policy so as to become a "money purchase benefit" rather than a "defined benefit". Schemes which will continue to provide life assurance cover for members with fixed protection will need to check their rules carefully to see if this provision of life cover could affect members' fixed protection. This should be done sooner rather than later as any contribution in respect of a death benefit lump sum in this situation after 6 April 2012 could have the effect of invalidating fixed protection.
In previous updates we set out some of the changes to the calculation of the risk- based levy for 2012/13 including the smoothing and stress testing of assets and liabilities and the introduction of 10 risk bands for determining insolvency risk. We now explore the likely impact on the risk-based levy of these and other changes.
On 15 December the Pensions Minister Steve Webb announced the abolition of short service refunds from trust based occupational defined contribution schemes. Currently a member is entitled to receive a refund of pension contributions if he leaves within 2 years.
Many schemes have in place employer guarantees including Type A contingent assets. This is a guarantee given by a group company or other entity to guarantee the funding of the scheme to a certain level.
The Pension Protection Fund (PPF) has proposed new requirements relating to Type A contingent assets. From April 2012 onwards, trustees will be required to certify that guarantors could be expected to meet their full commitment under the contingent asset if called upon to do so as at the date of the certificate.