Recent developments in pensions€¦ · 2016 in DC schemes used for auto-enrolment • Payments...
Transcript of Recent developments in pensions€¦ · 2016 in DC schemes used for auto-enrolment • Payments...
5 July 2017
Recent developments in pensions
Only of interest to plumbers?
Duncan Buchanan
Employer debt changes
• Scheme goes into wind up
• Employer goes into insolvency event
• Schemes with active members – ceasing to employ active member
• Closed schemes – notice given by "former employer"
• Debts are calculated based on solvency funding deficit
• Employers pay a proportion "K/L"
• Effectively take on a share of "orphan" liabilities
Recap on s75 debts in multi-employer scheme
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So what's the problem?
citywire.co.uk/ Sinking feeling: plumbers face £1.5bn pension 'time bomb' Plumbers could be liable for crippling pension scheme debts when they retire, the Scottish National Party has said.
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The proposed solution
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New option for s75 debts in multi-employer schemes
• Employer treated as if still employs active member, including for:
• scheme specific funding
• responsibility for share of orphan liabilities
Conditions
• Trustees' written consent
• Funding test under the OPS (Employer Debt) Regulations 2005 met
• Not in a PPF assessment period and trustees satisfied unlikely to do so in 12 months after arrangement takes effect
• Notice to tPR
New – deferred debt arrangement
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Arrangement terminated if the deferred employer:
employs an active member of scheme
chooses to trigger a s75 debt, subject to trustees' consent
trustees give notice, if reasonably satisfied that:
• employer has failed to comply with funding regulations
• deferred employer's covenant is likely to weaken in next 12 months
undergoes insolvency event/voluntary winding up
employer restructures
scheme closes to future accrual
Deferred debt arrangement
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Period of grace – will be extended to three
months (currently two)
Former employers – definition to clarify that
includes an employer who ceased to employ active members as a result of a
"freezing event"
Employer debt draft regs: technical amendments
Nicola Rondel
DC update
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• DC charges
• Money purchase annual allowance
• Pension advice
• Pensions Scheme Act 2017
• Pensions Dashboard
DC update
DC charges
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• Cap on charges in DC occupational schemes (whether or not used for AE)
• Existing members at 1 October 2017: 1% of value of the benefits
• Joining scheme on/after 1 October 2017 – 0%, complete ban
• Cap to apply to charges imposed on members between 55 and their pension age when seeking to take/convert/transfer, which would not apply if carried out at their agreed pension age
• Service providers must confirm compliance within one month of
– 1 October 2017 or, if later,
– date on which became service provider
• PPS/stakeholder schemes - similar cap applies from 31 March 2017
Cap on early exit charges
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• Ban member-borne commission in existing contracts entered before 6 April 2016 in DC schemes used for auto-enrolment
• Payments made before 1 October 2017 – unaffected
• Ongoing commission payments (trail commission) – banned from 1 October 2017
• Ban on existing contracts will apply to a service provider six months from:
– 1 October 2017 or, if later,
– date it is notified by trustees that scheme is a DC scheme used for auto-enrolment
• Written confirmation of compliance required by scheme providers for contracts entered :
– on/after 6 April 2016: within one month of ban applying
– Before 6 April 2016: within six months of the ban applying
• Response to consultation issued on 3 July 2017
Member-borne commission: draft regulations
Money purchase annual allowance
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• Money purchase annual allowance reduction to £4,000 (was to have had effect from 6 April 2017) – dropped
• 50:50 whether it will be brought in!
Money purchase annual allowance
Pension advice
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• 2 types
– Employer-arranged
– 'Scheme' arranged – pension advice allowance
• Employer arranged
– Introduction of income tax exemption for "relevant pensions advice" of up to £500 per year – dropped
• Pension advice allowance
– Must be requested by members in writing from their scheme (may be by email)
– Up to £500 from money purchase arrangement in tax year
– Up to three times
– Declaration from member that allowance to be used for regulated financial advice (also a condition of being an authorised payment)
– Require confirmation from adviser?
Pension advice
Pension Schemes Act 2017
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• New requirements are being brought in to reduce the risks for members of commercial master trusts should their scheme fail.
• The new provisions will catch non-associated multi-employer (NAME) schemes, including those which provide defined benefits with money purchase additional voluntary contributions (AVCs).
• The new requirements are not designed with NAME schemes in mind, and some will be difficult for NAME schemes to comply with.
• The extent of any future carve-out from the requirements for NAME schemes is currently unclear, but lobbying continues.
NAMES schemes
Pensions dashboard
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• Pensions dashboard prototype launched at UK FinTech week in April
• https://www.abi.org.uk/products-and-issues/products/pensions/the-pensions-dashboard/
• https://pensionsdashboardproject.uk/
– "Pensions dashboards will show you what you’ve saved so far. They’ll also show you an estimate of what that may be worth in the future. For more information you will need to speak to the pension providers direct, to one of the free advice services, or to a financial adviser."
• Pension finder?
• Multiple dashboards
• State, DC and DB – aspiration
– Compulsion?
Pension dashboard
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Pension dashboard mock-up
Edward Brown
Pensions post the General Election
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• Regulator powers: block transactions, punitive fines, criminal offence
• State pension increases: "triple lock" until 2020 then "double lock" (inflation and prices only).
• Pensioner benefits: removal of the Winter Fuel Allowance for all pensioners other than "poor" (?) pensioners.
• Auto-enrolment: Manifesto pledged to make auto-enrolment available to the self-employed, and members of the "gig economy" (eg drivers & delivery workers).
• State pension age: this will "reflect increases in life expectancy, whilst protecting each generation fairly" (?)
Conservative Manifesto – what was in it?
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• Tax relief: end to Exempt, Exempt, Taxed?
• Allowances: potential further reduction?
• Accrued rights: DWP Green Paper.
• WASPI
Conservative Manifesto – what was not in it?
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• DUP
– Protect pensioner benefits
– Maintain triple lock
– "support an end to the unfair treatment of women pensioners" (?)
• Other parties
– Lab, LD & SNP all support triple lock
– Lab & SNP support WASPI
– Lab & SNP oppose increasing state pension age further
Other Parties
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• DUP/Con deal 26 June – Confidence & Supply?
• Triple lock to stay (any difference?)
• Winter Fuel Allowances unchanged
• WASPI?
Minority Government
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• No Pensions Bill in Queens' Speech – 2 year period
• Primary/Secondary legislation
– Regulatory changes/new powers?
– Tax changes?
– CPI/RPI override?
– RAA reform – making it easier
– S.67 carve-out for schemes in distress? More widely?
• VAT?
• Brexit unlikely to be significant for DWP (?)
So what's going to happen on wider issues…?
Faye Jarvis
Update on the general data protection regulation (GDPR)
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• Direct effect in all EEA countries from 25 May 2018
• Post-Brexit – expectation that the UK will adopt something similar
• Focus on:
– Putting people in control
– Practical compliance
• Needs to be included in trustee risk registers
• Schemes should be taking action now to ensure they comply
GDPR – a reminder
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• Increased risk of penalties if suffer a data security breach
– Penalties could be up to €20m or, if higher 4% of annual worldwide turnover
– Not clear how apply to a pension scheme
• Reputational damage
• Individuals' right to sue data controller and/or processor
GDPR – why do we care?
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• Trustees are "data controllers" and so responsible for ensuring compliance with data protection legislation
• 4 key areas trustees should consider:
– Ensuring compliant processes
– Dealing third party processors
– Individuals' rights
– Preparing for breaches
• Managing risk of cyber security an integral part of this
• BUT employers could be a big help
GDPR – Trustee's responsibility
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Key actions – analyse your data
Employer Legal Trustees Regulatory
bodies Auditor Admin
Insurance co/Annuity
provider/IFA
Admin Member Employer
Pension Scheme
Storage
Paper files Electronic
data
DATA OUT
DATA IN
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• Good news → no longer have to register with ICO
• Bad news → subject stringent record keeping requirements. Records must include, for example:
– Purposes of the data processing
– Categories of data subject and of personal data
– Who it is shared with
– Measures taken to ensure security
Key actions – analyse your data
Actions: • Understand where data comes in from and who it flows out to • Liaise with administrator to understand how data processing activities are currently
recorded and what further information needs to be captured
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• Consent has limitations so only use when absolutely necessary
• Privacy notices will require more detailed information, for example
– Legal basis of processing (including stating what legitimate interest for processing is relied upon)
– Criteria for determining data retention periods
– Statement of data subject's rights
– Recipients or categories of recipients
Key actions – privacy notices
Action: • Issue new privacy notice to all members • Think about timing – include with another member communication
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• GDPR sets out mandatory terms to be included in contracts with data processors, for example:
– All persons handling the personal data have committed themselves to confidentiality
– Processor observes all data security measures required by GDPR
– Processor will assist controller in notifying data breaches
• Will need to review and amend existing contracts
– Both parties may want to review liability caps and require indemnities
Key actions – contracts with service providers
Actions: • Ask service providers how they will deal with GDPR and proposed timescales • Review and negotiate amendments to contracts • Prioritise key contracts
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• Notification of personal data breach to ICO
– Not later than 72 hours after having become aware
– Unless unlikely to result in a risk
• Communication of personal data breach to the data subject
– If high risk to individual
Key actions – data breach response plan
Action: • Prepare data breach response plan • Liaise with employer
Judith Crate
New from the PPF and the Pensions Regulator
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From the PPF
2017/18 Levy Determination and Policy Statement
Update to Type C(1) contingent asset – letter of credit/bank guarantee
Levy proposals for triennium 2018/19 to 2020/21
Third Levy Triennium Webinars
Other
From the Pensions Regulator
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Governance
Investing to fund DB
Matching and growth DB Assets
Guidance on DB investment
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Regulator's response to the Green Paper
Overriding CPI change not justified on affordability/ simplification grounds
Level playing field for different types of schemes – extend new powers in relation to master trusts to other schemes where appropriate
Blanket requirement on clearance before corporate actions - disproportionate
Open to proposals to strengthen clearance power… "in some defined circumstances"
Enhance information-gathering powers – including ability to request information regularly/ad hoc
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Successfully complete remaining roll out of AE
Deliver more interventions more
quickly where DB scheme underfunded or
avoidance suspected
Protect consumers through effective
regulation of master trusts
Drive up standards of record keeping and data
maintenance
Be clearer in codes, guidance and other
interactions with schemes and employers
about what should be done
Drive up standards of trusteeship across all schemes – particular focus on chairs and
professional trustees
Develop and implement enhanced approach to
regulation, explain approach publicly, more
effective and efficient regulator
Create high performing teams of people with the skills and capabilities to
deliver
Corporate Plan for 2017-2020 – Eight Priorities ("TPR Future")
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Annual scheme funding statement
Trustees and employer should agree contingency plan in advance – Trustees should satisfy themselves that remedies legally enforceable
Tougher approach on failure to submit valuations on time
Trustees of stressed schemes expected to demonstrate they have taken appropriate measures to reach the best possible funding outcome
Dividends in excess of deficit contributions
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•
Section 89 reports – June 2017
Hoover
BHS
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• Response to requests for clarity about which trustees would be held to higher standards
• "Any person, whether or not incorporated, who: – acts as a trustee of the scheme in the course of the business of being a trustee; or
– is an expert, or holds themselves out as being an expert, in trustee matters generally."
• Financial compensation (beyond reimbursement of expenses) not automatic determining factor
• Less likely to consider a remunerated trustee to be acting in the course of the business of being a trustee if:
– they are/have been member of scheme (or a related scheme), or are employed by a participating employer (or an employer in same group); and
– they do not act, or offer to act, as a trustee in relation to any unrelated scheme
• Co-trustees should regularly assess value of remunerated trustees
Consultation on revised professional trustee description
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Consultation on monetary penalties policy
3 penalty band levels
• Band 1: up to £1,000 for individuals and £10,000 in any other case;
• Band 2: up to £2,500 for individuals and £25,000 in any other case;
• Band 3: up to £5,000 for individuals and £50,000 in any other case.
Examples:
• Band 1: failing to submit scheme return;
• Band 2: failing to provide members with SMPI within required timeframe;
• Band 3: reimbursing Trustee out of scheme assets in breach of legislative restrictions.
Katie Banks
Recent cases
BA v Airways Pension Scheme Trustee Ltd
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Clause 2 : The Scheme is not in any sense a
benevolent scheme and no benevolent or
compassionate payments can be made
therefrom.
• DB scheme originally public sector; six ENT, six MNT
• Original rule 15 – annual increases based on statutory orders
• Clause 18 power of amendment – trustees unilateral power exercisable on 2/3rds majority
– no amendment could be made that would have effect of changing the purposes of the scheme
– used to be subject to consent of Minister for Civil Aviation
• Clause 2 – main object – to provide pension benefits on retirement/not a benevolent scheme
• 2011 – rule 15 amended to introduce discretionary power to grant additional increases on 2/3rds majority and subject to professional advice
BA v Airways Pension Scheme Trustee Ltd (HC)
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June 2010 – Govt switches
from RPI to CPI
Feb 2011 – Trustees vote
unanimously to amend rule 15
March 2011 – vote on increase
for 2011 fails (6:6)
Feb 2012 – Trustees vote on
2012 increase fails (5:7)
Timeline
BA v APS
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Feb 2013 – Trustees vote (10:0) to award
0.2% increase, subject to later review
June 2013 – Trustees confirm Feb decision
Nov 2013 – Trustees vote (8:4) for 0.2% increase from Dec
2013
Timeline
BA v APS
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• BA challenged
– the exercise of the power of amendment
– the subsequent decisions by the trustees in 2013 under amended rule 15 to award increases above CPI
• HC rejected BA claims, although found that June 2013 decision was invalid because no effective date agreed for increase
High Court
BA v APS
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• Morgan J distinguished between cases of:
– “Excessive execution” - purported exercise of power beyond scope of the power
– “Abuse of power” – within the scope but exercised for improper purpose
– “Inadequate deliberation” – where trustees have failed in their duty to give proper consideration to all relevant matters/no irrelevant
• Pitt v Holt – power of court to set aside trustees’ decision because of inadequate deliberation only arises if amount to breach of duty
Scope of the powers to amend/award increases
BA v APS
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• Decision to grant increases
• Didn’t involve compassionate/benevolent payments – available to all
• Didn’t change the purposes of the scheme and wasn't an abuse of the power conferred by amended rule
• MNTs had not pre-determined their decision and had actively and genuinely engaged with process of deciding whether to award discretionary increases
• MNTs asked for and took advice (legal, actuarial, covenant ) as required by amended rule 15
• Had regard to all relevant factors – eg BA’s interests/funding commitments , position of tPR, potential cost – and no irrelevant considerations
• Exercise of power of amendment
• Not beyond the scope, or abuse, of the power to amend
• Trustees' power to amend unilateral; requirement for Minister consent historically didn’t change this
• BA's position relevant but no veto, regardless of whether scheme in surplus or deficit
• Did not offend the restriction in objects clause or change purposes of the scheme – rule 15 as amended was itself subject to same restriction about not changing the purposes/making benevolent payments
• Trustees actively and genuinely engaged with decision-making process; no pre-determination to restore RPI
Morgan J analysis of trustees' decisions
BA v APS
McCloud v MoJ
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• (Unregistered) Judicial pension scheme closed in 2015 and replaced by a new registered scheme, with substantially less favourable benefits (and subject to lifetime and annual allowance)
• MoJ introduced transitional provisions:
1. Full protection for those who would reach NRA before April 2022 – they could continue to accrue rights under the old scheme
2. Tapered protection for those who would reach retirement age between 2022 and 2025 – they could remain members of the old scheme for a limited period
3. No protection for all other members – they transferred immediately to new scheme
Age discrimination
McCloud v MoJ (ET)
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• Groups 2 and 3 claimed indirect discrimination under Equal Treatment Directive
• MoJ conceded that there was direct age discrimination (and, because of the gender and racial profile of the three groups, indirect sex and race discrimination) and so ET looked at whether transitional arrangements were objectively justified – a proportionate means of achieving a legitimate aim
• MoJ argued that protections were focused on those closest to retirement because they would have less time to prepare for the reforms and would find it harder to change their retirement plans; judges are unique – it is public policy that a judicial role should be the last post to be held
McCloud v MoJ
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• ET upheld claim
• “Being closer to retirement” was not a justification – simply defined the group being treated more favourably
• Suggestion that judges would find it harder to adjust retirement plans was "speculation“; judges close to retirement suffer least adversity
• Alternative aim (consistency with other public sector pension reforms) could be legitimate but MoJ had failed to show how it contributed to any social policy objectives
• Transitional provisions were not proportionate – 10 year cut-off point not supported by research or analysis and MoJ had not shown that they had considered less discriminatory alternatives
McCloud v MoJ
Sargeant v London Fire Planning Authority
Hogan Lovells
Age discrimination
• Firefighters pension scheme 1992 closed to new members in 2006. New scheme introduced in 2015
• Differences between the 1992 and 2015 schemes included:
– A NPA of 60 rather than 55
– Lower accrual rates than under the 1992 scheme
– Pension based on career average rather than final salary
• Transitional provisions in 2015 schemes:
– Member within 10 years of NPA would remain in 1992 scheme
– Members more than 14 years from NPA would transfer to 2015 scheme
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Sargeant v London Fire Planning Authority (ET)
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• Claimants argued the transitional provisions in the 2015 scheme were age discriminatory
– older firefighters to stay in 1992 scheme (or granted tapering benefits)
– younger firefighters transferred into 2015 scheme straight away
Sargeant v London Fire Planning Authority
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• Tribunal dismissed the claim
• Referred to McCloud but noted not bound by this decision which related solely to transitional provisions in the judges' pension scheme
• The Fire Authority had established that the age-related treatment in the transitional provisions was objectively justified
• Held that it was legitimate aim to protect those closest to retirement from the effect of pension reform. Reasonably necessary to draw a line somewhere causing inevitably some to be disadvantaged
• Social policy decision where the government has "broad discretion" or a "wide margin of appreciation"– decision proportionate to achieving legitimate aim
• Fire Brigades Union appealing decision – may be heard simultaneous with McCloud appeal (late 2017/early 2018)
Sargeant v London Fire Planning Authority
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5 July 2017
Recent developments in pensions