Technical news update 10/09/2019

Taxation and trusts

• Borrowing figures point to higher government spending
• The rise of UK cohabitation continues, but marriage remains the norm
• Claims management companies – FCA calls for better advertising standards
• Sajid Javid announces spending round
• Parliamentary timetable and the budget
• New fuel rates for company cars from 1 September 2019
• Simultaneous death and commorientes
• HMRC Trusts and Estates Newsletter
• How to ensure a power of attorney is acceptable to a financial institution

Investment planning

• August was a volatile month
• National savings – fixed-rate bonds withdrawn from general sale
• The future of the Retail Prices Index

Pensions

• Pension Schemes Newsletter 113 – August 2019
• Tailored Review of The Pensions Ombudsman
• State Pension uprating guarantee for EU resident recipients
• The Pensions Regulator news: Employer handed £350,000 fine for workplace pension failures
• FCA releases video to help consumers understand defined benefit transfer advice

TAXATION AND TRUSTS 

Borrowing figures point to higher government spending

(AF1, AF2, AF3, AF4, ER1, FA2, FA4, FA5, FA7, JO2, JO3, JO5, LP2, RO2, RO3,RO4, RO5, RO7, RO8) 

The latest Government borrowing figures were once again worse than last year’s, despite July being a surplus month. 

The Office for National Statistics’ (ONS) estimate for July 2019 shows the Government enjoyed a surplus of £1.3bn, £2.2bn down on 2018 and £1.4bn below market expectations. July is traditionally a buoyant month for Government finances because of self-assessment payments. Central Government receipts for the month rose by 2.5% year-on-year, but as the Office for Budget Responsibility (OBR) notes in its commentary, this was more than offset by a 6.9% rise in Government spending. On a year-to-date basis the corresponding figures are 3.4% and 6.3%. 

The total borrowing a third the way through 2019/20 amounts to £16.0bn, £6bn (60%) higher than in 2018/19. Four months into the financial year, it is dangerous to project full-year numbers, particularly with Brexit still an unknown, and the numbers are relatively small. Nevertheless, the OBR says “A simple extrapolation to the full-year position … would imply 2019/20 borrowing much higher than our March forecast, which implies only a £5.7 billion rise relative to the latest estimate of borrowing in 2018/19 (itself a little higher than we assumed in March)”. Such an outcome would eat into the £27bn Brexit Budget buffer left by Mr Hammond. 

Since becoming Prime Minister, Boris Johnson has spoken about increased spending in a range of areas, including no-deal Brexit preparations, as well as tax cuts. His Chancellor has been supportive but, as we have noted in an earlier article, Sajid Javid has said he will stick with his predecessor’s fiscal rules in the forthcoming financial year. 

These figures have added a little more complexity to Mr Javid’s first Budget. The timing gap between plans and their execution may have just been extended further. 

Source: ONS: Public sector finances, UK July 2019 – dated 21 August 2019.

 

The rise of UK cohabitation continues, but mariage remains the norm

(AF1, AF2, AF3, AF4, ER1, FA2, FA4, FA5, FA7, JO2, JO3, JO5, LP2, RO2, RO3,RO4, RO5, RO7, RO8)

Cohabitation has continued its rapid growth in the UK, with the numbers of cohabiting couples growing by 25 per cent to 3.4 million families from 2008-2018.

A cohabitant is described as a person who is, or was living with another person, as if they were husband and wife, or two persons of the same sex who are, or were living together, as if they were civil partners.

According to the Office of National Statistics the number of families and households in the UK has continued to rise in line with the growth of the UK population over the past decade. However, the ways that people live together have been changing.

While married couple families remain the most common, cohabiting couples are the fastest growing family type as people increasingly choose to live together before, or without, getting married.

There are also more people living alone than ever before, an increasing number of same-sex couple families and more young adults living with their parents.

However, only marriage and civil partnerships grant legal rights and responsibilities to partners, at least in England, Wales and Northern Ireland. Scotland updated its law to reflect the number of unmarried cohabiting couples with the Family Law (Scotland) Act 2006, but it does not provide the same matrimonial rights as married persons have.

It is really important that individuals who are not married, or in a civil partnership, put their affairs in order before they die so that they cater for the needs of their partners. It would be prudent to either draw up a will or create a trust to ensure their partners are taken care of after their death.

Sources: STEP News: Rise of UK cohabitation continues, but marriage remains the norm – dated 12 August 2019; ONS: Families and Households 2018 – dated 7 August 2019.

Claims management companies – FCA calls for better advertising standards

(AF1, AF2, AF3, AF4, ER1, FA2, FA4, FA5, FA7, JO2, JO3, JO5, LP2, RO2, RO3,RO4, RO5, RO7, RO8)

Claims management companies (CMCs) must do more to ensure their promotions do not mislead potential customers according to the Financial Conduct Authority (FCA). Since the FCA took over regulation of CMCs on 1 April 2019 it has reviewed over 200 CMC adverts in various media and found widespread poor-practice in CMCs.

The FCA has introduced a number of new rules in relation to financial promotions issued by CMCs to ensure that CMCs provide information to consumers that is fair, clear and not misleading. These rules require CMC firms to: 

• identify themselves as a CMC; 

• prominently state if a claim can be made to a statutory ombudsman/compensation scheme without using a CMC and without incurring a fee; and 

• include prominent information relating to fees and termination fees which the customer may have to pay if a firm uses the term ‘no win, no fee’ or a term with similar meaning. 

These rules are designed to help consumers make an informed choice whether to use the services of a CMC.

Jonathan Davidson, Executive Director of Supervision – Retail and Authorisations at the FCA, said: 

“Many CMCs play a significant role in helping consumers to secure compensation. But CMCs using misleading, unclear and unfair advertising practices to get business is completely unacceptable. We won’t hesitate to take action where we consider that customers are being misled or otherwise treated unfairly by poor advertising.” 

“Firms should also understand that we will take their compliance with our rules on financial promotions into account when considering applications for full authorisation.” 

The FCA says it has now reviewed all kinds of CMCs’ financial promotions including website pages and social media. The FCA defines a financial promotion as ‘an invitation or inducement to engage in investment activity or to engage in claims management activity’.

Some examples of the bad practice it found included that firms: 

• fail to identify themselves as a CMC; 

• fail to state that the customer could make a claim to a statutory ombudsman or statutory compensation scheme, such as the Financial Ombudsman Service, without using the services of the firm, and without paying a fee; 

• appear to give consumers the impression that they would get a better outcome if they use the services of the CMC; 

• use the term ‘no win no fee’, but do not set out the fees that the customer must pay; 

• include only examples of case studies where the compensation provided to consumers is very high, even though the average amount received by consumers is considerably lower; 

• include important information in small font or in a position that is difficult to see, when it should in fact appear prominently in a promotion. 

The FCA has been taking action on the back of these findings, including: 

• issuing a Dear CEO letter on 4 June 2019 to remind CMCs of its financial promotions rules, amongst other matters; 

• using its formal financial promotions banning power where a CMC appeared to be using a celebrity endorsement without the individual’s permission; 

• highlighting its concerns to CMCs, resulting in many firms amending or withdrawing their adverts; 

• visiting CMCs where it considers that their financial promotions are particularly poor. 

If the FCA concludes that firms have used very poor promotions, it is unlikely that they meet the Threshold Conditions for continuing authorisation. When the FCA reaches this determination, it will also set out what actions the firm needs to take and by when to avoid having to close down. 

(Threshold Conditions are minimum conditions that all firms must meet if they want to be authorised. They are set out in paragraph 2B of Schedule 6 of the Financial Services and Markets Act. You can also find them in the FCA’s Handbook. Once authorised, firms must continue to meet these standards on an ongoing basis.) 

And as the 29 August 2019 deadline for a common example of CMC activity, PPI claims, is now upon us, the FCA has re-issued its guidance on how to complain about PPI, reminding us, of course, that if you complain yourself, by contacting the provider who sold you PPI directly, you will avoid paying a claims management company. 

Sources:

• FCA news: Claims management companies must raise advertising standards, says FCA – dated 23 August 2019.
• FCA Guidance: How to complain about PPI – updated 23 August 2019.

Sajid Javid announces spending round

(AF1, AF2, AF3, AF4, ER1, FA2, FA4, FA5, FA7, JO2, JO3, JO5, LP2, RO2, RO3,RO4, RO5, RO7, RO8) 

Late on 27 August the Treasury announced that the Spending Round would be presented by Sajid Javid on 4 September, the day after the House of Commons reassembles. 

The timing is another acceleration of the process, which started off on 8 August with the Chancellor saying a one-year Spending Round – as opposed to the three-year Spending Review which had been due – would be “completed in September”.  By 17 August the Chancellor was telling The Times that “Whitehall spending for next year [is] due to be announced in the first half of next month”. 

The rush to make the announcement forced Mr Javid to cancel a scheduled speech he was due to give in Birmingham on 28 August. The apparent urgency to reveal 2020/21 spending seven months before the new fiscal year begins raises a number of points: 

• The Budget The Spending Round announcement is not a Budget. At best it is half of one – the expenditure side only. Arguably (see below), this latest announcement suggests the Budget has been kicked down the road, possibly until after an Election. 

• Fiscal rules The latest Treasury statement repeats the earlier two in stating that the Spending Round “will meet current fiscal rules”, ie: 

• Cyclically adjusted Public Sector Net Borrowing (PSNB) is to be below 2% of GDP by 2020/21; and 

• Public Sector Net Debt (PSND) as a percentage of GDP – the debt-to-GDP ratio – is to be falling in 2020/21. 

However, both PSNB and PSND rely on a projection of the level of borrowing in 2020/21. This cannot be known until a full Budget has been set, with the Office for Budget Responsibility (OBR) carrying out its calculations. As we have highlighted before, the OBR needs at least ten weeks to produce an Economic and Financial Outlook. 

The borrowing numbers have been deteriorating and economists generally agree that the Brexit outcome will have a significant impact on Government finances in 2020/21 – no-deal will mean more expenditure. Thus, the Chancellor may have some explaining to do if the Spending Round is perceived as generous. 

Also lurking in the background is the question of whether the fiscal target will be redefined as a result of the £12bn borrowing increase that stems from accounting changes for student finance due to take effect this month. 

• Election date Several commentators have already suggested that the accelerated announcement is indicative of an imminent Election. It certainly allows the Government to reinforce the August roll out of increased spending promises for politically sensitive areas such as education and policing. In the absence of an accompanying Budget, it also avoids disappointment on the taxation front and direct challenges to the impact on borrowing. 

If Parliament is suspended ahead of 31 October – an option Boris Johnson has repeatedly refused to rule out – the Government will at least have released the good news part of the Budget without any immediate need for legislation. 

The haste with which the Spending Round has been developed looks to be driven by politics rather than economics. The logic of the one-year review was to “give Government the time and space to focus on delivering Brexit”, yet without knowing what shape that will take, the spending requirements for 2020/21 are far from clear. 

Source: HM Treasury News story: Chancellor confirms Spending Round will be delivered on 4 September – dated 27 August 2019.

Parliamentary timetable and the budget

(AF1, AF2, AF3, AF4, ER1, FA2, FA4, FA5, FA7, JO2, JO3, JO5, LP2, RO2, RO3,RO4, RO5, RO7, RO8) 

No sooner had we written the preceding article looking at the announcement that Spending Round details would be presented by the Chancellor on 4 September than one piece of our speculation became reality – “If Parliament is suspended ahead of 31 October  – an option Boris Johnson has repeatedly refused to rule out – the Government will at least have released the good news part of the Budget without any immediate need for legislation.” 

That now looks to be the case. With the House of Commons being prorogued in the second week of September and not returning until 14 October, the Chancellor now looks set on a Budget after 31 October or, as we suggested in that preceding article, after the much-forecast Election (if he is still in office). 

The Parliamentary process surrounding the Queen’s Speech, due on 14 October, will continue for some days after, ending with votes on October 21 and October 22. If the government loses any of these, Johnson will be able to watch a default Brexit happen before any Election takes place. 

Although not mentioned in all the focus on Mr Johnson’s prorogation plans, the House of Commons would normally also take a half-term week off in November (rising on the 5^th and returning on the 11^th, based on last year’s pattern). 

As we write this, we live in dread that events will overtake us.

New fuel rates for company cars from 1 September 2019

(AF1, RO3)

HMRC has announced the new fuel rates for company cars applicable to all journeys from 1 September 2019 until further notice.

The rates per mile are based on fuel prices and adjusted miles per gallon figures.

For one month from the date of the change, employers may use either the previous or the latest rates. They may make or require supplementary payments, but are under no obligation to do either. Hybrid cars are treated as either petrol or diesel cars for this purpose.

Rates from 1 September 2019:

Engine size	Petrol	LPG	Engine size	Diesel
1,400 cc or less	12p	8p	1,600 or less	10p
1,401cc to 2,000cc	14p	10p	1,601cc to 2,000cc	11p
Over 2,000cc	21p	14p	Over 2,000cc	14p

Source: HMRC Guidance: Rates and thresholds for employers: 2019 to 2020 – dated 28 August 2019.

Simultaneous death and commorientes

(AF1, RO3)

We covered the recent simultaneous deaths case of Scarle in an earlier article.

We now have the judgement in the Scarle estate dispute, in which an elderly married couple were found dead in their Essex home. The ruling is that there was not enough medical evidence to determine who died first (Estate of John Scarle v Estate of Marjorie Scarle, 2019 EWHC 2224 Ch).

Let’s do a quick revision of the facts. John and Marjorie Scarle died of hypothermia at their home at Leigh on Sea in Essex in October 2016. Their bodies were not found until a week later. Both had children from previous marriages, and the difficulty of determining which of the two died first prompted an estate dispute between their respective stepdaughters over the couple's joint assets.

John Scarle's daughter, Anna Winter, claimed that autopsy evidence indicated that Marjorie Scarle died first, so that her [Marjorie’s] share of the joint assets briefly passed to her husband by survivorship, and thence to Anna Winter. 

Marjorie Scarle's daughter, Deborah Cutler, claimed that the order of deaths could not be reliably determined, and so the commorientes rule in section 184 of the Law of Property Act 1925 should be invoked to deem that the elder spouse (John Scarle) died first, so that his share of the joint assets passed to his wife by survivorship, and thence to Deborah Cutler and her brother. 

The England and Wales High Court thus had to evaluate the autopsy evidence, and evidence from the scene of the deaths and of their state of health. Moreover, it had to decide what standard of proof was needed to determine the order of deaths, as the scant case law on commorientes had not settled this matter. 

The judge, Philip Kramer, decided that the correct standard of proof is the civil one, the balance of probabilities, and that where the order of death is uncertain, the burden of proof is on the party seeking to establish otherwise. Moreover, where the evidence is inconclusive, the Court should not reject one inference in favour of another unless there is some evidence upon which it can safely conclude that it be rejected. 

“Otherwise [the court] cannot be satisfied that the inferences it draws are justified and do not result from an absence of information, which is a characteristic of s184 cases”, he said. 

The evidence itself was technical and mostly related to temperature variation in the house and its effect on decomposition. It was complicated by some signs that intruders might have disturbed the scene. 

Ultimately, the Judge decided there were too many variables and unknowns to make a safe decision. He therefore applied the commorientes rule to deem that the elder spouse died first, so that Marjorie Scarle's issue will inherit the estate's jointly held assets. 

John Scarle left a separate personal estate of £160,000 to his daughter Anna Winter, but much of it may be swallowed up in the legal costs incurred, despite attempts to reach a settlement. 

The legal “take away” from this case is as follows: 

a. Where the order of deaths is uncertain, the burden of proof is on the party seeking to establish otherwise. 

b. Such proof is to the civil standard, the balance of probabilities. 

c. Where the events surrounding the deaths are capable of giving rise to different inferences which are not in themselves improbable, the Court should not reject one inference in favour of another unless there is some evidence upon which it can safely conclude that it be rejected. Otherwise, it cannot be satisfied that the inferences it draws are justified and do not result from an absence of information, which is a characteristic of section 184 cases. 

The practical financial planning “take away” is that usually (but not always, of course) a married couple with children together want a Will broadly along the lines of 'all goes to the survivor on the first death and to the children equally when we’ve both gone'. Often, the Wills provide for 'catastrophe' beneficiaries in the event that the couple die together.

Where the couple have been previously married the Wills often provide that, in those circumstances (simultaneous deaths), the estate of the deceased and half the joint estate passes to each of the couple’s side of the family separately and exclusively, so both sides benefit equally regardless of which party to the marriage/civil partnership dies first.

Where there is a huge disparity in wealth between the parties to a second marriage/civil partnership, the parties may need to deal with their Wills in a different way. The “wealthier” party might discuss with their solicitor a form of Will that provides appropriately for the new spouse/civil partner, while leaving/preserving assets to the children of the first marriage/civil partnership, without concern as to the contents of the Will of their new, less wealthy, spouse/civil partner. 

In an ideal world, a couple in Mr and Mrs Scarle’s modest financial position would have sat down with their solicitor, agreed where they would like their joint estates to end up after they’d both died, and execute Wills accordingly. Basically, putting a legal framework around simple, clear, plain English requirements. 

In framing the Wills, the lawyers/Will writers will have in mind three important legal “truths”: 

1. Where jointly owned property is held as 'joint tenants' it passes automatically to the survivor of the joint owners regardless of what any Will, or the intestacy rules, say; 

2. You can’t predict which of a couple will die first; 

3. Unless the doctrine of 'mutual Wills' applies (which is rare), a surviving partner can change their Will at any time.

Of course, it’s never possible to completely guarantee that family members won’t fall out over your estate after you’ve gone. However, by making a Will after careful consideration with your solicitor of all the options and their consequences, there’s a fair chance you can both achieve the desired result and minimise the risk of a family upset along with its associated legal costs. 

Source: STEP News: Commorientes rule invoked as evidence fails to prove order of English couple’s deaths – dated 15 August 2019.

HMRC Trusts and Estates Newsletter

(AF1, RO3) 

The August 2019 edition of HMRC’s Trusts and Estates Newsletter is now available. It includes some interesting updates as well as a couple of reminders.

Agent Toolkits

As trust and estate returns is a specialised area many agents do not complete a large number of these returns.  The trust and estates toolkit helps and supports tax agents and advisers for whom trusts and estates is not a significant element of their practice’s work. Other agents may still find the toolkit helpful in validating their approach to this work and anyone, including businesses, trustees and personal representatives, may find the toolkit useful.

Trust Registration Service

HMRC has recently deployed the first feature for the Trust Registration Service (TRS) that allows users to register a Will Trust that contains: 

• A lead trustee (can include multiple UK-based trustees).
• Multiple named individual beneficiaries (will only require Name, Date of Birth, National Insurance Number or Address).
• Classes of beneficiary.
• Assets (money, property and land). 

Further features will be delivered between now and the end of the year. 

Consultation on the Fifth Anti-Money Laundering Directive 

The consultation closed on 10^th June and HM Treasury and HMRC are now analysing the responses. 

Trust and Estates Allowance 

The interim arrangements that allow trustees or personal representatives not to have to submit returns, or make payments under informal arrangements, where the only source of income is savings interest and the tax liability is below £100, have been extended until 2020/21.

Lifetime Gifting Research 

HMRC recently published a report about lifetime gifting which explores the nature of gifting and motives behind the gifts.  This is an interesting study into why individuals make gifts and their awareness of the inheritance tax rules and exemptions. 

Office of Tax Simplification Review into IHT Part 2
This is the second of two reports focusing on broader policy and technical issues. Now that both reports have been published, the Government will consider the recommendations.  

Inheritance Tax – IHT421 Agent Update 

HMRC has recently updated the Inheritance Tax (IHT) process surrounding the Probate Summary form IHT421.  It has simplified and shortened the process aligning it with what is already in place for personal representatives. 

Changes to agent letters issued when the IHT400 is processed 

Following on from the April 2018 newsletter HMRC recognised some of the information provided in the letters needed updating. 

HMRC is in the process of updating the letters to ensure they are brief, clear and concise when telling agents what they need to know, whilst recognising the knowledge and expertise agents have in this area. Currently, the letters have been suspended for agents but not personal applicants. 

Administration Period of a Deceased’s estate: Income tax and capital gains tax 

The Trusts & Estates newsletter of August 2018 provided guidance for using informal arrangements for non-complex estates which HMRC are re-affirming in this newsletter together with the process for complex estates.

How to ensure a power of attorney is acceptable to a financial institution

(AF1, RO3) 

It has been reported that several banks and building societies now appear to insist that certified copies of a property and finance lasting power of attorney must be dated on every page, as well as certified. This demand appears to originate in online Government guidance, so it is useful to reproduce its main points.

A donor can confirm that a copy of their lasting power of attorney (LPA) is genuine by ‘certifying’ it if they are still able to make their own decisions.

A donor or their attorney can use a certified copy to register the LPA if they do not have the original form.

The attorney can also use the certified copy to prove they have permission to make decisions on the donor's behalf, for example to manage their bank account.

The guidance includes the appropriate wording to use in order to certify, which needs to be written on the bottom of every page of the copy, namely: 

‘I certify this is a true and complete copy of the corresponding page of the original lasting power of attorney.’

On the final page of the copy, it must also be written: 

‘I certify this is a true and complete copy of the lasting power of attorney.’ 

The donor needs to sign and date every page. 

Obviously, once the donor has lost capacity, they will not be able to certify anything. In such a case copies of an LPA can be certified by a solicitor or a person authorised to carry out notarial activities. As the latter is likely to incur a fee, it may be sensible to advise donors, who still have capacity, but have not made certified copies, to do so sooner rather than later.

INVESTMENT PLANNING

August was a volatile month      

(AF1, AF2, AF3, AF4, ER1, FA2, FA4, FA5, FA7, JO2, JO3, JO5, LP2, RO2, RO3,RO4, RO5, RO7, RO8) 

August was a month many equity investors would prefer to forget. Government bond owners have a different view.

 

The traditional silly season month of August was, to put it mildly, an interesting one on the world’s investment markets. As the graph above shows, both the US and UK markets declined over the month. Despite the US garnering some of the more daunting headlines – the Dow Jones Index fell 800 points one day mid-month – the S&P 500’s decline over August was 1.8% against the FTSE 100’s 5.0% drop. Europe, as measured by the Euro Stoxx 50, lost 1.2%.

The flip side was the strength in bonds, which meant that the value of negative yielding bonds approached $17tn over the month. The yield on 10-year German Bunds fell from -0.52% to -0.7%, US 10-year yields dropped from 1.85% to 1.50% and even UK 10-year yields declined from 0.51% to 0.48%. During the month, Germany managed to sell 30-year Government bonds with a 0% coupon at a price which guaranteed purchasers a loss if held to redemption.

The market moves over the month can be blamed on a number of factors, including: 

• The continued trade spat between China and the US, the direction of which often seems driven by Donald Trump’s Twitter account. As September got underway new rounds of tariffs were introduced by both countries. This is casting a shadow over world trade and has prompted China to allow a weakening of its currency to below 7 Renminbi to the US Dollar. 

• There is a widespread expectation that central banks will cut interest rates, as the Federal Reserve did at the end of July. The bond rally reflects both this and a hope that quantitative easing may re-emerge to provide the “greater fool” to buy bonds at even more negative yields. 

• The Brexit saga is another cloud on the trading front which has come further to global investors’ attention with the arrival of Boris Johnson at 10 Downing Street. 

• In the background there remains the fact that world equity markets have enjoyed a bull run of over 10 years, while bond markets have, by some measures, been on a bull run that started in 1981. The worry here is, to quote Hebert Stein, “If it cannot go on forever, it must stop”. 

September looks set to be an equally “interesting” month. 

Sources: FT, FTSE, Stoxx, Investing.com

National savings – fixed-rate bonds withdrawn from general sale

(AF4, FA7, LP2, RO2) 

NS&I has withdrawn its 1-year and 3-year Guaranteed Growth Bonds and Guaranteed Income Bonds. 

In June 2018, six months after a relaunch, NS&I cut the maximum investment on its Guaranteed Growth Bonds and Guaranteed Income Bonds for new investments from £1,000,000 to £10,000. It has now announced that the Bonds are to be withdrawn for general sale with immediate effect (2 September 2019). 

At the same time, NS&I has cut rates by 0.25% on all fixed-term Bonds and Savings Certificates available to current holders on reinvestment. However, the previous, higher interest rates will apply for those savers with Guaranteed Growth Bonds, Guaranteed Income Bonds and Fixed Interest Savings Certificates, which mature on or before 5 October 2019, who automatically renew into a new issue of the same term. Anyone renewing for a different term will receive the new, lower rates. 

NS&I blames falling rates from its competitors and declining gilt yields for its move. In terms of competition, the 1-year Bond, which used to offer up to 1.5%, was hardly top of the league tables, but the 3-year Bond (1.95%) made the top ten. Gilt yields are a different story and underline why NS&I is an expensive borrowing option for the Government: 1-year gilts yield 0.49%, while the 3-year gilt yield is 0.35% (thanks to the short-term yield curve inversion). 

It is perhaps surprising that NS&I waited so long to cut rates, but the £10,000 investment ceiling limited the risk of large inflows. 

SOURCE: NS&I makes changes to its fixed-term product range and issues provisional Q1 2019-20 results – dated 2 September 2019.

The future of the Retail Prices Index

(AF1, AF2, AF3, AF4, ER1, FA2, FA4, FA5, FA7, JO2, JO3, JO5, LP2, RO2, RO3,RO4, RO5, RO7, RO8) 

The Chancellor has kicked the can of RPI reform at least five years down the road. 

In January 2015, the UK Statistics Agency (UKSA) published an independent report on consumer price statistics, written by Paul Johnson, the Director of the Institute for Fiscal Studies. In this report Johnson made 24 recommendations, including that ‘The Government and regulators should work towards ending the use of the RPI as soon as practicable’. 

Over four and a half years later, after further reviews and enquiries into the RPI from both the House of Lords Economic Affairs Committee and the UKSA, the Chancellor has announced the Treasury’s plans for the RPI. Mr Javid has refused to follow the UKSA’s recommendation to cease publication of the RPI. He has also rejected for now the UKSA’s parallel proposal to apply to the RPI calculation the methods used in production of the accredited CPIH (Consumer Prices Index including housing costs). The initial effect of this would be to turn the RPI, which has not been an accredited National Statistic since 2013, into CPIH by another name. 

In correspondence dated 4 September Mr Javid wrote that he will not make any changes to the RPI before February 2025 at the earliest. However, he promised to initiate a public consultation on whether the UKSA’s proposed reforms should be made at a date between 2025 and 2030. The latter year marks the first occasion when the UKSA can change RPI without Government consent, which is currently required under section 21 of the Statistics and Registration Service Act 2007. 

The consultation will start in January 2020, a delay the Chancellor says is due to his wish ‘…to ensure that the Treasury, alongside the rest of government, has the time and space to focus on delivering Brexit’. 

The future of the RPI is a market sensitive issue, hence the publication of the correspondence mentioned above occurred before UK markets opened. The amount of RPI-based index-linked Government debt outstanding (including inflation uplift) is over £450bn, with the longest dated stock not reaching maturity until 2068. RPI is also a measure the Government uses in its favour, eg in setting rail fares and the interest rate on student loans. 

Source: HM Treasury Correspondence: A response from Sajid Javid to Sir David Norgrove on UKSA’s proposed reform of the Retail Prices Index, and the Government’s response to the House of Lords Economic Affairs Committee report, “Measuring Inflation”. – dated 4 September 2019.

 

PENSIONS 

Pension Schemes Newsletter 113 – August 2019

(AF3, FA2, JO5, RO4, RO8) 

HMRC Pension Schemes Newsletter 113 covers the following: 

• relief at source - annual returns of information for 2018 to 2019
• relief at source - APSS106 annual claims for 2018 to 2019
• annual allowance - pension savings statements for 2018 to 2019 

Areas of particular interest 

Annual Allowance 

A reminder that pension savings statements must be issued for all those eligible to receive them for the tax year 2018/19 by 6 October 2019. 

Those who are eligible are those that: 

• have savings in the pension scheme in question of more than the standard annual allowance of £40,000; or
• those that the provider has reason to believe has triggered the MPAA and contributed in excess of £4,000. 

Tailored Review of The Pensions Ombudsman

(AF3, FA2, JO5, RO4, RO8) 

This report is the first dedicated report into The Pensions Ombudsman (TPO) and looks at it’s remit, governance, efficiency and effectiveness. The report also draws on recent review work and public consultations across the pensions landscape. 

The report considers each area in detail, with conclusions made in each area, the result being a total of sixteen recommendations covering all areas of TPO, which have been accepted and progress will be monitored. It is also recommended that a further review is conducted in five years. 

The recommendations are: 

1. TPO should continue building its relationship with the Financial Ombudsman Service (FOS), and develop a collaborative process to reduce the potential for customer confusion and duplication of efforts.
2. The TPO senior leadership team should work with FOS to commission a transparent and regular feed of case data to both boards to assist DWP and HMT policy consideration of whether any further action is to reduce the scope for jurisdictional overlaps and gaps.
3. DWP should provide greater support and challenge to TPO and be properly resourced in order to achieve this.
4. DWP should work with the Ombudsman to evolve a full Board structure in line with Cabinet Office principles for effective and proportionate governance. As a first step, we recommend the immediate and open recruitment by DWP of 2 Non-Executive Directors, one of whom should act as Lead Non-Executive Director.
5. To support effective succession planning, DWP should support TPO to second in or recruit an experienced operational manager as Chief Operating Officer.
6. TPO should improve the quality and transparency of the management information provided to support Board decision-making and Audit Committee scrutiny, including on risk management.
7. TPO should agree a timetable and resourcing to fully refresh the information and tools available on its website, utilising DWP advice and if required external expertise on content design and user testing.
8. TPO should refresh their key performance indicators (KPIs) to reflect their expanded remit and customer service commitments.
9. TPO should work to clarify externally what cases are appropriate for resolution by the Early Resolution Team and provide assurance that Early Resolution cases are handled independently from other sections of the organisation.
10. The review team concur with previous reviews that the transfer of an expert volunteer resource from TPAS is a major asset and endorse TPO’s commitment to better utilise this. TPO should create a volunteer strategy to clearly articulate how volunteers are utilised and how the associated risks and opportunities will be managed.
11. TPO should continue its positive journey to expand stakeholder liaison and to become a more influential player in raising standards across the pensions industry.
12. TPO should seek and publish much more regular feedback from its customers and ensure customer and stakeholder feedback is considered and acted on at Board level.
13. DWP should work with TPO and the Cabinet Office Public Bodies team to review and share with other public sector organisations the lessons from TPO’s forward-thinking approach on flexible working.
14. TPO should introduce a people strategy with clear priorities for positive promotion of diversity and inclusion and investment in learning and development.
15. Given the requirement to review and increase charges to sustain the growing demand for levy-funded services, DWP should set clearer expectations in 2019to 2020 and as part of a future spending review on areas for efficiency and continuous performance improvement. TPO should work to find and track efficiencies in their processes to meet these expectations.
16. To provide assurance to DWP and the TPO Board that investment in a new customer management system and a redesigned customer journey will yield both an improved customer journey and efficiencies, TPO should set much more ambitious plans for tracking and reducing unit costs, and better anticipating and managing demand fluctuations.

State Pension uprating guarantee for EU resident recipients

(AF3, FA2, JO5, RO4, RO8) 

The Work and Pensions Secretary Amber Rudd announced that those in receipt of UK State Pension and living in the EU will continue to have their benefits increased each year for the next three years in the event of a no deal exit from the EU. 

For the next three years the State Pension will be subject to the same ‘triple lock’ guarantee that applies to UK residents, i.e. benefits will increase by the higher of 2.5%, average wage growth or CPI. 

During the three year period the Government plans to negotiate a new arrangement with the EU to ensure uprating continues. 

A new call centre team will be established in Newcastle to help answer any questions from those affected. 

Full details of the announcement are available here.

The Pensions Regulator news: Employer handed £350,000 fine for workplace pension failures

(AF3, FA2, JO5, RO4, RO8) 

A London based company has ended up with a £350,000 fine for failing to comply with all its automatic enrolment duties. The company allowed an Escalating Penalty Notice to grow despite repeated warnings from the Pensions Regulator (TPR). 

The fine was incurred due to a failure to re-enrol staff and incorrectly calculating the contributions for 2,000 existing members of their workplace pension scheme. 

The company has now re-enrolled 40 employees and paid backdated contributions of more than £100,000 in addition to the fine. 

Read more on the TPR website

FCA releases video to help consumers understand defined benefit transfer advice

(AF3, FA2, JO5, RO4, RO8) 

FCA have released a new consumer video outlining the process that should be followed by advisers when given advice on pensions transfers.  

It is aimed both at consumers who have already received transferred their pensions and are not sure they have received good quality advice and at those who are considering transferring and want to better understand the process before they start. 

The video is available here.