Pensions; Normal minimum pension age will rise, updated PPF 7800 index and more.

• Normal minimum pension age will rise to 57 in 2028
• The treasury select committee has added its support for an ending of the state pensions triple lock
• PPF publishes updated PPF 7800 index - September 2020
• TPR publishes compliance and enforcement quarterly bulletin

 

Normal minimum pension age will rise to 57 in 2028

(AF3, FA2, JO5, RO4, RO8)

Back in March 2014 when George Osborne announced new pensions flexibility in the Budget, in the first consultation paper on those reforms, there was the following statement:

“The government … proposes to increase the age at which an individual can take their private pension savings at the same rate as the increase in the State Pension age. It is important people have the opportunity to plan properly for this change and so the government proposes to wait until 2028 (when the State Pension age will rise to 67) to fully implement this change. From 2028, people will not be able to draw their private pension benefits without a tax penalty until age 57, whether or not this is the point at which they stop work. From then on, the minimum pension age in the tax rules will rise in line with the State Pension age so that it is always ten years below.”

That proposal for a steadily increasing normal minimum pension age (NMPA) has languished ever since, with no legislation to bring it into being. The procrastination had started to make some people wonder whether the idea had been quietly parked, especially in recent years when Government majorities on anything mildly contentious were by no means guaranteed.

At long last the silence has been broken. On 3 September John Glen, the Economic Secretary to the Treasury, confirmed in a written parliamentary answer to a question from Stephen Timms that the NMPA will rise to 57 from 2028. Although no specific date has emerged (there are no details yet on the Treasury or Parliament websites), it seems probable the change will take effect from 6 April 2028, catching anyone born after 5 April 1973.

Comment

This announcement was long overdue. It will be interesting to see whether the legislation is restricted to just the age 57 adjustment or brings in a general ‘NMPA = State Pension Age – 10’ rule.

The treasury select committee has added its support for an ending of the state pensions triple lock

(AF3, FA2, JO5, RO4, RO8)

The House of Commons Treasury Committee (TC) has added its view on the Triple Lock in a paper entitled ‘Economic impact of Coronavirus: the challenge of recovery’. This is a wide ranging document, covering everything from employment issues (a plea for ‘a targeted extension of the Coronavirus Job Retention Scheme’) to the Treasury’s relationship with the OBR (needs clarification in the Autumn Budget). 

One of the more interesting, if brief, sections in the paper is headed ‘Manifesto commitments”. It is worth reproducing this in full:

“186. The Conservative Party Manifesto 2019 pledged to maintain the State Pension Triple Lock, and also not to raise either Income Tax, National Insurance Contributions or VAT. When asked for reassurances by the Chair at the Liaison Committee whether the Government was going to meet all its manifesto pledges, the Prime Minister stated:

We are going to meet all our manifesto commitments. Unless I specifically tell you otherwise, Mel [Conservative TC chair], the manifesto you and I fought on is—it is an important point.

187. We received some evidence that the Triple Lock on pensions might need to be revisited on a temporary basis next year because the increase in average earnings will be artificially high because of the Government’s Job Retention Scheme. The Triple Lock guarantees that pensions may increase by the highest of the following three measures: average earnings; prices as measured by the Consumer Prices Index; and 2.5 per cent.

188. If the Job Retention Scheme and recession result in the increase in average earnings being atypically high from 2020 to 2021, this will make pension payments more generous than they would otherwise have been. This study from the LSE “The changing size and shape of the UK state” explains how the Triple Lock for state pensions has already increased welfare spending significantly:

the introduction of the ‘triple lock’ in 2011 (whereby the value of the State Pension grows each year by highest of inflation, earnings or 2.5%) alongside roughly £12 billion of cuts to working-age benefits has led to a situation in which the State Pension now accounts for 44% of all welfare spending, up from 37% just ahead of the financial crisis.

189. The Government must be willing to be flexible, even on manifesto commitments, in response to the crisis. Lifting the Triple Lock on pensions next year is a sensible proposal and should be carefully considered.”

Comment

This is not the first time that a House of Commons Committee has called for the abolition of the State Pensions Triple Lock. The Work & Pensions Select Committee made a similar call in 2016 which the Government ignored. Had the ‘smoothed earnings link’ suggested back then been adopted, we would not now be facing the possibility of a 5% rise in state pensions from April 2022. The only solace for the Government is that the 2020/21 earnings recovery projected by the Resolution Foundation in its June report is beginning to look optimistic.v

PPF publishes updated PPF 7800 index - September 2020

(AF3, FA2, JO5, RO4, RO8)

Since July 2007 the Pension Protection Fund has published the latest estimated funding position, on a s179 basis, for the defined benefit schemes in its eligible universe. 

August 2020 Update Highlights:

• The aggregate deficit of the 5,422 schemes in the PPF 7800 Index is estimated to have decreased over the month to £140.5 billion at the end of August 2020, from a deficit of £199.5 billion at the end of July 2020.

• The funding level increased from 89.9 per cent at the end of July 2020 to 92.6 per cent.

• Total assets were £1,754.8 billion and total liabilities were £1,895.2 billion.
• There were 3,506 schemes in deficit and 1,916 schemes in surplus.

• The deficit of the schemes in deficit at the end of August 2020 was £258.6 billion, down from £306.4 billion at the end of July 2020. 

Funding comparisons

	August 2019	July 2020	August 2020
Aggregate funding position	-£129.9bn	-£199.5bn	-£140.5bn
Funding ratio	93.0%	89.9%	92.6%
Aggregate assets	£1,721.0bn	£1,775.0bn	£1,754.8bn
Aggregate liabilities	£1,850.9.0bn	£1,974.6bn	£1,895.2bn
Dataset / Assumptions	Purple 19 / A9	Purple 19 / A9	Purple 19 / A9

 The PPF 7800 index is published on the second Tuesday of every month, and the PPF publishes The Purple Book each year.

TPR publishes compliance and enforcement quarterly bulletin

(AF3, FA2, JO5, RO4, RO8)

The Pensions Regulator (TPR) has published the latest edition of its Compliance and enforcement quarterly bulletin April to June 2020. TPR provides information about how it used its powers between April and June 2020. New data highlights how TPR has supported employers through the upheaval caused by the COVID-19 pandemic and how temporary flexibilities led to a 55% fall in the use of powers between April and June this year compared to the previous quarter. During this period, TPR issued 13,185 automatic enrolment compliance notices but conducted no automatic enrolment inspections.

In addition, the bulletin shows the number of mandatory penalties for missing or incomplete chair's statements fell from 52 between January and March to three in the latest quarter. This reflects temporary measures introduced to ease the burden on trustees, giving them more time to focus on immediate risks to the scheme at the start of the pandemic.

TPR has also published a blog on the results of its approach to enforcing employers’ auto-enrolment duties during the Coronavirus pandemic.  The blog and linked data (the Compliance and enforcement quarterly bulletin April to June 2020) indicate that TPR’s “pragmatic” approach to enforcement has worked well.  Where employers have struggled to comply, TPR has been prepared to delay escalation while escalating enforcement activity where significant and wilful non-compliance has emerged, often via whistle-blowers.

TPR states that they have seen no evidence of a significant spike in non-compliance and confirms that, while keeping its approach under review it will act where necessary to protect savers.