Pensions update: Salary sacrifice; Pensions dashboard; and Key workers

Pensions update: Salary sacrifice; Pensions dashboard; and Key workers

 

• The Pensions Regular issues COVID-19 technical guidance on salary sacrifice and scheme certification
• Pensions dashboard progress report issued
• Actuaries reveal Covid-19 influenced mortality worsening
• The Pensions Regulator asks Trustees to issue a warning letter to DB members requesting transfer values
• Government announces temporary tax change to protect pensions of returning key workers
• Consultation period for RPI reforms extended to August

 

The Pensions Regular issues COVID-19 technical guidance on salary sacrifice and scheme certification

The Pension Regulator (TPR) has issued detailed technical guidance relating the Coronavirus Job Retention Scheme and:

• Pension contributions under salary sacrifice arrangement;
• Defined contribution scheme certification.

Pension contributions and Salary Sacrifice

• When calculating 80% of a furloughed worker’s salary, the amount of salary after sacrifice is used.
• However, any contractual obligations continue to apply as normal.
• All of the grant received from Government to cover the furloughed worker’s pay must be paid to them in the form of money. This means that employers cannot deduct the normal sacrificed amount from the furloughed pay, meaning that employers would need to maintain the total pension contribution due.
• If the sacrifice agreement refers to a set amount of employer pension contribution, the employer will need to continue paying that amount regardless of the pay.
• If the sacrifice agreement refers to a percentage, the employer should be able to reduce the pension contributions in line with the reduction in pay.
• HMRC have confirmed that COVID-19 counts as a life event, meaning the terms of a salary sacrifice agreement could be changed.
• Any changes made to the salary sacrifice arrangement from 19 March 2020 do not affect the calculation of the reference wage for the purposes of the claim under the Coronavirus Job Retention Scheme. The calculation of the reference wage is done as at the furloughed worker’s last pay prior to 19 March 2020, or using such other method as is covered in HMRC’s guidance - here.

Defined Contribution Scheme Certification

• Where a scheme is currently certified on one of the alternative bases, the amount the employer can claim under the Coronavirus Job Retention scheme is likely to be less than the amount due under the pension scheme rules. This is because the scheme only covers contribution minimums on a qualifying earnings basis.
• Employers may be able to change their scheme rules to match the Automatic Enrolment minimums subject to contracts of employment, consultation requirements, etc.
• If so, they can end their current certification period early.

The full guidance including example calculations is available on the TPR website.

Pensions dashboard progress report issued

The Money and Pensions Service published its first full report on the progress made so far on the pensions dashboard project and the work that needs to be undertaken before the service launches to the public.

The report sets out proposed ways forward regarding user testing, sourcing an ID verification service, agreeing data standards and how the programme will work with partners to align regulation and legislation.

However, no launch date is proposed or even intimated. Instead the report notes that pensions dashboards will only be ready when the following requirements have been met:

• The security of the ecosystem is fully assured;
• The user experience has been extensively and robustly tested;
• User behaviours have been understood and any adverse impacts or unintended consequences mitigated;
• The service has enough coverage of pension providers / schemes and enough information about those pensions so that it has been proved to meet a user need and be useful to a significant majority of people.

Nevertheless, the report is optimistic that MaPs will be able to set out the shape of a more detailed programme timeline before the end of the year.

Two additional working papers setting out thinking so far on the scope of dashboards and the data elements required from pension providers have also been made available. These are quite detailed, containing in particular a “data pyramid” of the different levels of data needed for the dashboard to operate. The top levels of the pyramid contain the basic data items required to 'find and view' an individual's pension, whilst the lower levels contain more detailed information, to help individuals 'understand' their pension, and enable them to make informed choices.

Schemes (whether DB or DC) will need to provide a future “estimated retirement income”, in today’s money terms, including from when it is payable. They will also need to provide accrued entitlement data. For DB schemes it is intended to be the annual retirement income accrued to date (plus any additional cash lump sum similarly accrued – as found in public sector schemes), whilst for DC schemes it is intended to be the current pot value. Any further data to support additional pension information (such as that relating to contributions, investment funds in which a DC pot is invested, guarantees, dependants’ benefits etc.) will not form part of the mandatory data requirements that the Government will legislate to compel schemes to supply.

Industry views will be sought formally on these two data working papers later in the year, although any informal feedback before then would be appreciated.

Regular progress reports will be provided every six months.

Actuaries reveal Covid-19 influenced mortality worsening

The Institute and Faculty of Actuaries’ Continuous Mortality Investigation is moving from quarterly to weekly monitoring of mortality data during the Covid-19 emergency and its first weekly report makes for disturbing reading. This is set out in a Press Release entitled “Deaths attributable to COVID-19”.

For the first three months of 2020 cumulative standardised mortality rates in England and Wales were tracking closely with that for 2019; itself an exceptionally good year when compared with every other year since 2010. But all this is beginning to change when the week ending 3 April 2020 is taken into account. The cumulative mortality now being experienced is heading back to the 2010-19 average with every likelihood that 2020 could turn out to be the worst in the last 10 years and quite possibly longer. The number of deaths in just this one week of 16,387 was 6,112 (59%) greater than expected, with 3,475 having COVID-19 mentioned on the death certificate. It is not clear what else is causing this jump in the number of deaths, although there is speculation that much of it is COVID-19 related.

The 16,387 deaths were also the highest since the Office for National Statistics started publishing weekly data in 2005.

The IFoA goes on to note that as at 14 April there could be over 23,000 more deaths than expected in England & Wales and over 25,000 excess deaths across the UK as a whole.

The Pensions Regulator asks Trustees to issue a warning letter to DB members requesting transfer values

The Pensions Regulator (TPR) is concerned that the market volatility and uncertainty caused by COVID-19 could lead to pension members being at risk of making knee-jerk decisions in relation to their pensions.

They have therefore issued new guidance which asks trustees to send defined benefit members looking to transfer their funds a warning letter urging them to carefully consider the decision.

The letter was produced jointly with the TPR, the FCA and the Pensions Advisory Service and should be sent to all members requesting a CETV quote. It states that in most cases transferring out of a defined benefit pension is unlikely to be in the best long-term interests of the member and points out they will be giving up valuable predictable retirement income. The letter also warns members of pension scams and states that it is really important that the member seeks advice before making a decision.

The guidance is available on the TPR website.

Government announces temporary tax change to protect pensions of returning key workers

The Government has announced plans to temporarily suspend tax rules in order to protect the pension income of key workers in the public sector who have returned to work due to the COVID-19 crisis. According to Economic Secretary to the Treasury John Glen said in a House of Commons Written Statement [HCWS196], these rules “would otherwise apply significant tax charges to pension income received by recently retired individuals aged between 50 and 55”. In a written ministerial statement, Mr Glen added: “This change, taken alongside complementary changes to rules for relevant public service pension schemes (subject to relevant HM Treasury agreement), will help ensure individuals' pension income will remain protected if they return to work at this important time.”

Consultation period for RPI reforms extended to August

Chancellor Rishi Sunak has announced that the consultation period for the proposed reforms to the RPI has been extended to 21 August 2020.

In his letter to the Chair of the UK Statistics Authority Sir David Norgrove, Mr Sunak said: “Since the consultation was launched the situation with the coronavirus pandemic has evolved. Businesses and individuals are now focused on mitigating the challenges that this public health and economic emergency has created. The consultation is scheduled to close for responses on 22 April, with a response due by the summer Parliamentary recess. Our officials have been discussing the feasibility of the consultation in the current circumstances under the existing timetable. In light of the evolving situation, in order to hold a meaningful consultation we agree that we should extend the consultation period.”