Pensions; HMRC: Updated annual allowance and lifetime allowance pension figures published and more.

Contents:

• HMRC: Updated annual allowance and lifetime allowance pension figures published
• The Pensions Regulator: Annual DB schemes survey 02/07/2021
• Pension Schemes Newsletter 130 – June 2021
• DWP publishes consultation response and statutory guidance on occupational DC pension schemes
• Pension Schemes (Conversion of Guaranteed Minimum Pensions) Bill introduced

 

HMRC: Updated annual allowance and lifetime allowance pension figures published

(AF3, FA2, JO5, RO4, RO8)

HMRC has published Commentary for Personal Pensions: Tables 7 and 8. This considers the increase in the level of income tax raised through both the annual allowance (AA) and lifetime allowance (LTA) for the 2018/19 tax year, the latest year for which figures are available. The main findings are:

• The figures for the LTA charge, was up 6% from £269m in 2017/18. This represents the single biggest amount clawed back in one year since the introduction of the LTA in 2006.
• The total value of AA charges also reported by schemes in 2018/19 was £209m, a 71% increase from £122m in 2017/18.
• The total value of contributions reported as exceeding the AA was £817m in 2018/19, decreasing from £912m in 2017/18 and £584m in 2016/17.
• The data shows that 34,220 taxpayers reported pension contributions exceeding their AA through self-assessment in 2018/19. They paid an average charge of £23,874.
• About 80% of savers choose to pay a 25% LTA charge, preferring to leave the money in the pension scheme, rather than withdraw as a lump sum which would have incurred a 55% charge.

Remember, that for a basic rate taxpayer in retirement, the 25% LTA charge, followed by a 20% PAYE charge is an effective rate of tax of 40% which, if the individual benefited either from employer contributions or was a higher rate taxpayer during part of the accumulation period, that is not a penal rate of tax.

Lane Clark & Peacock LLP Partner Karen Goldschmidt has called, in a Press Release, for a simplification of pension tax relief limits. She commented: “The annual and lifetime limits were originally designed to catch only those with the largest amounts of pension saving in a given year or with the largest pension wealth over a lifetime. But the Treasury has increasingly seen pension tax relief limits as a 'go-to' source of additional revenue, especially compared with raising headline tax rates. The current system reflects a stream of salami slicing and knock-on 'tweaks'. We now have a system subject to constant change and uncertainty, with considerable complexity and with no obvious and coherent rationale. It is time for a fundamental rethink of tax relief limits to come up with a system which is simpler, less distorting and which will stand the test of time.”

 

 

The Pensions Regulator: Annual DB schemes survey 02/07/2021
(AF3, FA2, JO5, RO4, RO8)

The Pensions Regulator (TPR) has issued its Defined Benefit Survey, which is its annual survey of DB pension schemes. TPR has found that such schemes are not as prepared as they should be and need to act ahead of upcoming regulations on climate change as too few trustee boards are:

• allocating enough time or resources to assessing financial risks or opportunities associated with climate change.
• assessing the risks/opportunities from particular climate-related scenarios.
• giving significant consideration to climate change in their investment and funding strategies.
• devoting significant consideration to climate-related opportunities.
• aware of the work of the TCFD.

Other findings from the 250 schemes surveyed included:

• The DB survey found that of the 250 respondents:
• only 49% indicated that they had allocated time or resources to assessing any financial risks or opportunities associated with climate change.
• the likelihood of allocating time or resources to assessing financial risks or opportunities associated with climate change increased with scheme size, ranging from 19% of micro to 70% of large schemes.
• only a minority had processes to manage climate-related risks and opportunities:
• 21% had included climate-related risks to their risk register,
• 19% regularly covered climate-related issues at trustee meetings,
• 16% included, monitored and reviewed targets in their climate policy
• 12% had assigned responsibility for climate issues to a trustee or sub-committee, and
• almost three-quarters (71%) were unaware of the Taskforce on Climate-related Financial Disclosures and only 8% made the disclosures it recommends.
•  
• The survey also found:
• 14% of schemes had experienced some form of cyber-attack or breach in the previous 12 months. Across all sizes of scheme, the most common type was staff receiving fraudulent emails or being directed to fraudulent websites (9%).
• of those schemes that experienced cyber breaches/attacks in the previous 12 months, almost one-fifth (17%) reported a negative impact, equating to 2% of all DB schemes.
• the most common impacts of these cyber-attacks or breaches were personal data being altered, destroyed or taken (7%), temporary loss of access to files or networks (7%) and software/systems being corrupted or damaged (5%).

• TPR published its climate change strategy in April.

• TPR will publish further climate change guidance for schemes in the Autumn.

 

 

Pension Schemes Newsletter 130 – June 2021
(AF3, FA2, JO5, RO4, RO8)

Pension Scheme Newsletter 130  covers the following:

• an extension to some of the temporary changes to pension processes as a result of coronavirus
• managing the Pension Schemes service
• signing into online services
• self-invested personal pensions (SIPP) and small self-administered scheme (SSAS) pensions – connected tenants

Issues of particular interest

Extensions to some temporary changes to process

HMRC are further extending the following until 31 October 2021:

• APSS105 relief at source repayment claims
• APSS106 relief at source repayment claims
• APSS590 relief at source declaration
• submitting the APSS107 registered pension schemes annual statistical return without a signature

SIPP and SSAS – connected tenants

Where schemes provide payment holidays on loans and rents due from connected parties on commercial properties scheme administrators are still required to make sure:

• a payment holiday is on a commercial basis
• a payment holiday does not result in an unauthorised payment charge
• they base all decisions on independent supporting evidence

Administrators should ask connected tenants to provide a formal request for deferral, including evidence of hardship. This may need to be confirmed by an independent party with evidence of the tenant’s financial position and proposals for paying future rents and clearing any arrears. The proposal should then be formally considered by the trustees and the decision recorded.

In relation to leases, any renegotiation of a lease must be on commercial terms. HMRC expect scheme administrators to keep evidence to show that their dealings with connected tenants are conducted in the same way as they would deal with unconnected tenants.

Scheme administrators should be able to demonstrate the steps thy have taken to make sure they’ve acted in the best interests of scheme members.

 

 

DWP publishes consultation response and statutory guidance on occupational DC pension schemes
(AF3, FA2, JO5, RO4, RO8)

The DWP has published the Government's response to two consultations on the investments and overall governance in occupational DC pension schemes:

• The March 2021 consultation Incorporating Performance Fees Within the Charge Cap, and
• The September 2020 consultation Improving Outcomes for Members of Defined Contribution Pension Schemes.

The consultation response finalises the important next steps in preparing the DC occupational pensions market for the challenges and opportunities ahead.

In addition, the DWP has published:

• Statutory guidance for trustees of relevant occupational DC pension schemes on completing the annual value for members assessment and reporting of net investment returns.
• Updated statutory guidance for trustees and managers of occupational pension schemes on reporting costs, charges and other information on disclosure and administration regulations.

The two sets of statutory guidance are effective from 1 October 2021.

The implications for small DC schemes include:

• Small schemes with total assets of £100 million or less will need to carry out extra value for money checks and report the outcome of this assessment to The Pensions Regulator (TPR).
• Where trustees conclude their scheme does not provide good value for members, either immediate improvement or consolidation could be necessary.
• The Government is also seeking to encourage more schemes to invest in illiquid assets within the charge cap by allowing performance fees to be smoothed over a five-year period.
• In addition, all relevant schemes will be required to publish investment returns net of charges for default and ‘self-select’ funds.

 

 

Pension Schemes (Conversion of Guaranteed Minimum Pensions) Bill introduced
(AF3, FA2, JO5, RO4, RO8)

The Pension Schemes (Conversion of Guaranteed Minimum Pensions) Bill has been introduced in the House of Commons as a Private Members' Bill. The Bill is intended to make provision about the amendment of pension schemes so as to provide for the conversion of rights to a guaranteed minimum pension (GMP). Margaret Ferrier, Independent MP for Rutherglen and Hamilton West, is sponsoring the Bill and said that it will help “reassure occupational pension schemes that they are able to use the methodology published in DWP guidance to level the effective differences between pension amounts paid out to men and women”. The Bill is scheduled for its Second Reading on 26 November 2021.

Alasdair Mayes, Partner and Head of GMP Equalisation at LCP, welcomed the introduction of the Bill, commenting: “It has been known for several years that the GMP conversion legislation has some rough edges. And survey after survey shows that GMP conversion, in some shape and form, is preferred by many as a means to equalise benefits for GMPs over the administratively complex 'dual record' approaches. Hopefully this Bill will iron out the rough edges in the conversion legislation.”

 

 

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