Pensions; TPR publishes its annual funding statement 2021 and more.

Contents:

• Government Rejects Calls for radical pensions tax relief changes
• MaPS launches new standards for guidance
• DWP Consultation: Permitted Charges within Defined Contribution Pension schemes
• TPR publishes its annual funding statement 2021
• Pensions Dashboard Programme: Engaging people with pensions via digital dashboards
• Government publishes response to consultation on reduction and consolidation of HMRC statistics publications

 

 

Government Rejects Calls for radical pensions tax relief changes

(AF3, FA2, JO5, RO4, RO8)

On 2 June 2021, the Government responded to the Treasury Committee report on ‘tax after coronavirus’ which was originally published on 1 March 2021.

One of the recommendations within the report was as follows:

“Given the regressive nature of the benefits accruing to individuals from the current arrangements on pension tax relief, especially those in the top earnings decile, the Chancellor should urgently reform the entire approach to pension tax relief.”

The Government has pushed back on this, dismissing the need for a full-scale review, just as they did when the Public Accounts Committee referred to pensions tax relief in their report in 2020.

The Governments full response was:

“As the committee is aware, the 2015 consultation on pensions tax indicated no clear consensus for reform. Changes to pensions tax relief in recent years have aimed to strike a balance between allowing the vast majority of savers to make significant tax-free pension savings and targeting incentives to save on those who most need Government support to save for retirement. Altering this balance could have profound and far-reaching impacts, and so while all tax reliefs are kept under review, more radical changes to pensions tax relief would require careful consideration.

The Government has made a number of changes in recent years to ensure pensions tax relief continues to be fairly distributed. For example, at Budget 2021 the Chancellor froze the lifetime allowance at £1,073,100 until April 2026. This is a progressive measure that only affects those with the largest pensions. Furthermore, at Budget 2020 the Government increased the two tapered annual allowance thresholds to ensure those with earnings below £200,000, including many working in the health service, would not have their allowance reduced. Finally, the Government is analysing the responses to last year’s Call for Evidence on pensions tax relief administration in line with its manifesto commitment to review comprehensively the differing outcomes for low earners between the two main methods of providing pensions tax relief.”

COMMENT

Given the historical reviews and the complexities involved in changing pension tax relief this response isn’t a surprise. It does again give us some comfort that the Government wants some stability for at least the short term.

The call for evidence with regards to pensions tax relief administration isn’t likely to bring any immediate change either, but could raise further questions which would require a consultation. The lack of tax relief given to the lowest earners just because of the type of scheme they are a member of is a serious issue and we do expect there to be some remedy to this, but how and when is yet to be determined.

 

  

MaPS launches new standards for guidance

(AF3, FA2, JO5, RO4, RO8)

The Money and Pensions Service (MaPS) has announced the launch of its “MaPS Standards”. These standards have been developed through a considered and collaborative process and set out the core principles for the effective delivery, quality and performance requirements of MaPS’ Debt Advice, Pensions Guidance and Money Guidance functions.

Caroline Siarkiewicz, Chief Executive of MaPS, said in their Press Release: “The MaPS Standards will set the bar for how we should be working to support, engage and deliver for our customers and they will become a fundamental part of our core operating model. They will ensure that everyone in the organisation and our commissioned services has a framework from which to deliver the best consumer experience; to deliver a consistent, high quality of service aimed at improving people’s financial knowledge and to make informed decisions about their money.”

 

  

DWP Consultation: Permitted Charges within Defined Contribution Pension schemes

(AF3, FA2, JO5, RO4, RO8)

The DWP has published a Consultation Document: “Permitted Charges within Defined Contribution Pension Schemes” This sets out its latest proposals for default fund charging structures permitted in Defined Contribution (DC) schemes used for auto-enrolment, including draft regulations for consultation.  This follows the decision made at the start of the year to introduce a threshold, or ‘de minimis’, below which the flat fee element of the combination charge, used by some pension providers, cannot operate.

For members with small pots, particularly those with deferred pots, there is currently a risk of pot erosion where their pension provider uses a flat fee charge (past research has estimated that the number of deferred pension pots could increase to 27 million by 2035 without further action).  However, for scheme providers, the issue is around the disproportionality between the cost of administering the increasing number of small pots in comparison to the revenue generated.

The DWP intends that the de minimis will come into force in April 2022 and will initially be set at £100 and apply to all members, both active and deferred.  A pot of this value or below will not attract a flat fee charge.  If a member has multiple pots within the same provider’s default arrangement which charges a flat fee, the assessment of whether a flat fee can be charged, will be based on the combined value of those pots, rather than on the separate value of the individual pots.  In such a scenario, a flat fee can only be levied once per member.  Where a member has several small pots of £100 or less with different pension providers, for which a flat fee is chargeable, then the de minimis will be applied according to the value of the member’s pots, for each provider.

The consultation also invites the submission of more evidence on both the financial costs and benefits and the non-financial or indirect impacts on businesses and members of adopting the de minimis.

Additionally, the consultation seeks views on a proposal to move away from the current three permitted charging structures for the default fund to a “universal” charging structure based on a single percentage annual management charge.  Under this proposal combination charging, such as that operated by NEST, would no longer be permitted.  It is not clear what timescale the DWP has for introducing this, should it decide to go ahead.

The consultation ends on 16 July 2021.

 

 

TPR publishes its annual funding statement 2021

(AF3, FA2, JO5, RO4, RO8)

The Pensions Regulator (TPR) has published its Annual Funding Statement 2021 (AFS).  This highlights the need for trustees of DB pension schemes to remain alert to the risk of weakening employer covenants as there is still uncertainty in the market. The AFS outlines how trustees should consider the long-term funding and investment of their scheme depending on the impact of COVID-19, Brexit, scheme maturity and the scheme's funding position relative to its long-term target. It also includes guidance on addressing these issues and sets out actions TPR expects trustees to take.

TPR Executive Director of Regulatory Policy David Fairs was quoted in the Press Release as saying: “This has been a challenging period for many employers and so trustees in carrying out actuarial valuations need to review how their covenant may have changed in the past year and then continue to monitor it. We expect them to remain engaged with employers, who in many cases are emerging from a difficult business period... If there is a prospect of insolvency or a restructure of scheme employers, trustees should probe the covenant even further and take professional advice to gain a fresh view on covenant strength to ensure their scheme is being treated fairly. The pandemic has thrown up short-term challenges which heighten focus on areas such as sustainability and climate change and the impact that they can have on sponsors but also scheme assets and liabilities.”

Lane Clark & Peacock LLP (LCP) has published a useful six-page summary of the AFS. LCP Partner Jonathan Camfield said that during the current major economic upheaval, it is “helpful that the Regulator has set out its latest thinking in some key areas”. He added: “Schemes are reminded to be cautious in making major changes to long-term mortality assumptions in the light of COVID, recognising that the long-term impact is still far from certain. In terms of valuations, although current rules will continue to apply until the end of next year, TPR is clearly keen to ensure that schemes are getting ready now for the 'new world' of the new DB funding code.”

Hymans Robertson Partner Laura McLaren said in their Press Release that the statement emphasises that TPR is clear that the focus should remain on long-term planning and risk management. She commented: “With so much uncertainty surrounding investment markets, covenants and mortality rates, robust contingency planning will be key. Schemes which are fortunate to find themselves in a period of relative calm and recovery would be wise to take the opportunity to revisit long term plans and strategy, making sure these are fit for purpose and considering what actions could be taken to 'lock-in' recent gains and avoid any material deterioration.”

Nigel Peaple, PLSA's Director of Policy and Advocacy, said in their Press Release that there are high levels of support for the new code amongst its members, with 72% supportive of it, and only 2% opposed. However, he said the PLSA would like TPR to highlight where they have made changes to requirements or added new requirements in order to help reach higher levels of compliance and minimise the administrative burden on schemes.

 

  

Pensions Dashboard Programme: Engaging people with pensions via digital dashboards

(AF3, FA2, JO5, RO4, RO8)

The Pensions Dashboards Programme (PDP) has published a rapid evidence assessment to assist the Money and Pensions Service in guiding the development of pensions dashboards in the UK. The report gathers evidence about the barriers and enablers to engagement with pensions and dashboards, as well as the evidence on the optimal functionality and presentation of dashboards. According to the report, the key barriers to engagement include inertia, present bias, friction costs, choice overload and lack of knowledge or ability.

 

 

Government publishes response to consultation on reduction and consolidation of HMRC statistics publications

(AF3, FA2, JO5, RO4, RO8)

HMRC has published the Government's response to the consultation on reduction and consolidation of HMRC statistics publications. In the response, the Government has confirmed it will discontinue publishing Registered Overseas Pension Schemes (ROPS) statistics and will consolidate the flexible payments from pensions, annual pension contributions by contribution type and personal and stakeholder pension statistics into one pensions statistics publication.

 

 

 

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