Pensions; FCA updates, HMRC pension schemes newsletter 124 and more.

• Pensions tax relief - safe for now?
• FCA highlights pension scammers circumventing cold calling ban
• FCA: Retirement income market data 2019/20
• Government has "no immediate plans" to review or lower threshold for DB transfer advice
• HMRC Pension schemes newsletter 124updated on 6 October 2020: Re-employment in response to the coronavirus outbreak
• PPF announces 2021/22 levy estimate and draft levy rules consultation

 

Pensions tax relief - safe for now?

(AF3, FA2, JO5, RO4, RO8) 

The Government has rejected the Public Accounts Committee (PAC)’s proposal that HMRC should, within 12 months, evaluate the impact of pensions tax relief. The PAC were concerned that HRMC did not understand the impact of some of the UK’s largest tax reliefs which includes pension tax relief and called for a formal review.

The Government disagreed with this recommendation and pointed to several recent consultations on pensions tax over the last few years. They stated that these investigations included gathering views and evidence from stakeholders to understand the regime’s impacts and the impacts of possible changes.

They referred to the responses to the 2015 wide-ranging consultation on pensions tax relief and noted that this indicated there was no clear consensus for reform at that time, and so at Budget 2016 the then Government announced it would not make fundamental reform to pensions tax reliefs at that stage.

The Government stated they would continue to engage with stakeholders and gather evidence through consultations, but they did not think now was the right time for a formal evaluation. 

The Government did, however, back the PAC’s other pension related recommendations, including one stating that HMRC should publish data showing who is benefiting from pensions tax relief and that they should split this data by income; groups with protected characteristics such as gender, age, and ethnicity; people working in the public and private sectors; and people in defined contribution and defined benefit schemes.

At first glance, this could be seen as suggesting there is currently no immediate appetite for fundamental pensions tax reforms and given that the Government specifically refer back to the lack of clear consensus for change in 2015/16 this may well be the case.

However, unfortunately, this doesn’t rule out changes – they may feel they have already gathered sufficient evidence, or they may feel this could be done via other consultations. Of course, tweaks to the annual allowance or lifetime allowance could also be made which, whilst these may not be considered fundamental, may have a significant impact on the benefits to an individual.

Clearly, savings will need to be made at some point and any significant tax break is going to be within the sights of the Chancellor. Where pension planning is suitable, and clients have the funds and allowances available to make contributions now, clients should consider making contributions sooner rather than later.

FCA highlights pension scammers circumventing cold calling ban

(AF3, FA2, JO5, RO4, RO8) 

According to the FCA's Perimeter Report 2019/20, pension scammers are offering consumers free pension reviews via social media to try and evade the cold calling ban. In the report, the FCA said: “In relation to pension transfers, we have seen evidence of firms contacting consumers with offers of free pension reviews, often via social media, in an attempt to circumvent the cold calling ban. At times, it can be difficult to establish what is being covered in these reviews, but there are indications that they can be instrumental in consumers deciding to transfer or switch out of their existing pensions, potentially losing major benefits in the process and/or being exposed to high-risk or illiquid investments.”

The FCA's report mentioned the importance of the ScamSmart campaigns and added: “Our objective is to reduce the scope of opportunity for scammers. This type of harm is particularly acute as a result of coronavirus, with consumers facing difficult decisions around their savings and investments.” 

 

FCA: Retirement income market data 2019/20

(AF3, FA2, JO5, RO4, RO8)

The Financial Conduct Authority (FCA) has published data from firms on the retirement income market which covers the year from April 2019 to March 2020. Some of the previously published data for the year April 2018 to March 2019 has been restated in this update due to firm resubmissions.

In each quarter between 53% and 56% of the plans accessed for the first time are cases where the funds have been fully withdrawn. This will either be as a UFPLS or small pot lump sum. Of these cases 90% were of a value of less than £30,000 which would seem to imply this was demonstrating it is not worth consolidating smaller plans and just as likely, individuals (probably under advice) making use of one or more “small pot lump sums”, either to avoid triggering the MPAA, or to mitigate the lifetime allowance.

Government has "no immediate plans" to review or lower threshold for DB transfer advice

(AF3, FA2, JO5, RO4, RO8) 

Minister for Pensions and Financial Inclusion Guy Opperman has confirmed that the Government has “no immediate plans” to review or lower the threshold at which savers are required to take financial advice when transferring a DB pension. Responding to a written question UIN94569 from Charlotte Nichols, MP for Warrington North, Mr Opperman noted that the Secretary of State for Work and Pensions has a duty to review the requirement and the first report must be published before 6 April 2023. He added that the Government’s commitment to maintain the existing threshold “forms part of a wider commitment to safeguarding consumer savings”, saying: “[W]e want individuals to better understand their choices and the risks that exist. To this end, DWP will be introducing new information requirements from the age [of] fifty to those with defined contribution pension savings, that will inform them in more simplified terms, about their retirement options and the availability of guidance to help with their decisions.”

HMRC Pension schemes newsletter 124 updated on 6 October 2020: Re-employment in response to the coronavirus outbreak

(AF3, FA2, JO5, RO4, RO8)

On 22 April 2020 John Glen MP made a written ministerial statement to confirm that the Government intended to temporarily suspend tax rules that would otherwise apply significant tax charges to pension income received by recently retired individuals aged between 50 and 55. In line with this statement, if the nature of the employment is to undertake work in relation to the COVID 19 outbreak, then HMRC confirmed that it accepted that the re-employment conditions had been satisfied.

This meant that any payments made to those that would otherwise have been unauthorised payments would not be treated as such

This easement was originally extended until 1 November 2020, the update to newsletter 124 confirms that this will not be extended further so will cease on 1 November 2020.

PPF announces 2021/22 levy estimate and draft levy rules consultation

(AF3, FA2, JO5, RO4, RO8)

The Pension Protection Fund (PPF) has published the estimated levy for 2021/22 and a consultation on changes to the levy rules for 2021/22.

The estimated PPF levy for 2021/22 is quoted as £520m, down £100m from £620m in 2020/21. The PPF have stated that it is clear that many scheme employers will have been significantly affected by the pandemic, with scheme funding also being impacted. From a PPF perspective, it means the risks we face have increased with the possibility of significantly higher claims. However, the PPF are helped by having entered the pandemic in a robust financial position and with extensive hedging of their risks. This means, despite increases in risk, they are able to avoid the need for substantive short-term changes to their strategy. In particular, they are able to leave the parameters which control how much levy is collected unchanged.

The consultation covers some minor proposals for calculating the Scheme Levy. Particular changes with regards to smaller schemes are part of the consultation because they can often pay some of the highest levies as a proportion of their liabilities, which can have significant annual fluctuations. 

The consultation will run to 25 November.