Brexit arrives – with little immediate impact on pensions

On “exit day”, this Friday 31 January (at 11pm Greenwich Mean Time to be precise), the UK will cease to be an EU member state.  It will then start the implementation period which is due to end on 31 December 2020.

The most recent means by which we have reached this point is Royal Assent for the now European Union (Withdrawal Agreement) Act 2020 achieved on 23 January, following which the UK Government and the EU signed the Withdrawal Agreement.  This was in turn ratified by the European Parliament on 29 January and the EU Council will vote on it on 30 January.

Amongst other things the Withdrawal Agreement Act provides that:

• From exit day to the end of the implementation period, all EU law, including that made during this period, will apply to the UK; and
• All mentions of exit day in regulations relating to the UK’s exit from the EU should be read as if they were replaced with references to the end of the implementation period

Therefore, we do not expect any drastic impact on UK pension law as a result of reaching and passing exit day.  But that is not to say that there might not be some unanticipated consequences.  For example, it has recently emerged that transfers to Gibraltar-based pension schemes that have “QROPS” status may no longer be exempt from the overseas transfer charge as Gibraltar will be leaving the European Economic Area along with the UK.  It is doubtful that this was intended.

Comment

It has been a long road, but we really are leaving the EU.  From a pensions standpoint it is all a bit anti-climactic, but the relegation of EU law from its top rank is a profound change, not to mention how the economics of withdrawal play out over the next few years.

Pension Schemes Bill – second reading debate

The Pension Schemes Bill had its first substantive outing in Parliament this week, with its Second Reading in the House of Lords taking place on 28 January.

Although the debate lasted over four hours, there was little by way of news from the Government side.  Perhaps the most significant announcement was that the DWP is continuing to work on the regulation of DB superfunds, with a promise that a response to its 2018 consultation (see Pensions Bulletin 2018/50) will appear shortly and that it will set out in detail the Government’s proposals for a future legislative framework.  The Government is to legislate as soon as it can, but not it seems in this Pension Schemes Bill.

A number of peers raised concerns about whether the significant powers being given to the Pensions Regulator in relation to Contribution Notices and associated measures, including the introduction of criminal offences, targeting employers but going much wider, had been properly thought through when it came to turning the policy intent into actual legal drafting.  The Government’s response at this stage was that it must ensure that sufficient safeguards are in place to protect members’ pensions from the minority who are willing to put them at risk, but it did acknowledge that it did not wish to stop legitimate business activity.

The pensions dashboard proposals were described by one peer as a half-baked policy and from the Government side little new was said about the initiative, other than that the information on it may well start on a simple basis and build up over time.

Also mentioned was a promise to make available illustrative regulations in relation to collective money purchase benefits; there being a concern about how many powers the Government was taking in relation to such schemes, without much by way of explanation as to how it intended to use them.

The Bill now proceeds to Committee stage, to be held over four days, the timing for which is unknown at the current time.

Comment

Many in the pension industry have concerns about the wide nature of the new powers including that they may hit trustees; not just errant directors.  We expect that at Committee stage there will be some serious probing of the drafting of some of the Regulator’s new powers, but it is not clear whether it will result in the Government coming up with alternative wording that is more faithful in delivering the stated policy intent.

Pension Wise goes from strength to strength

A number of encouraging statistics are contained in the latest report on the operation of Pension Wise – the Government-organised pensions guidance body which is free to enquirers.

The service, now run by the Money and Pensions Service since January 2019, has been accessed by more people in 2018/19 than in any previous year of its short existence, with a 49% increase in customers arranging appointments face to face or over the phone compared to 2017/18.

There is also an excellent level of satisfaction, with 95% of appointment customers likely to recommend the service to others or have already done so and 93% satisfied with the service they received.

But perhaps the most interesting statistics of all are those relating to the empowerment that customers feel they have experienced after using the service compared with had they not used it at all, and especially their greater likelihood of taking steps to inform themselves before taking pensions decisions.

Comment

The service provided by Pension Wise has been a success since its launch in 2015, but the issue all along has been to increase its usage.  FCA data suggests that around half of those accessing their DC pot in 2018/19 did not receive any regulated advice or Pension Wise guidance so there is a long way for Pension Wise to go.

We understand that Pension Wise is trialling some “nudge” initiatives so that interactions with individuals by pension providers and Pension Wise result in a greater likelihood of a Pension Wise appointment being taken up.  This research may in turn influence the shape of the regulations to come on the “appropriate pensions guidance” referral requirements under the Financial Guidance and Claims Act 2018 (see Pensions Bulletin 2018/19).

Irish pension protected on bankruptcy by UK Court thanks to EU law

In an interesting case heard before the High Court, the judge has provisionally ruled that an Irishman who came to work and live in the UK, after making a substantial contribution to an Irish pension scheme, should enjoy the same level of protection in relation to his Irish pension on his bankruptcy in the UK as the UK law provides in relation to a pension provided through a UK-registered pension scheme.

In the UK, when an individual becomes bankrupt a trustee in bankruptcy is appointed.  Under UK insolvency law all assets to which the bankrupt is beneficially entitled vest automatically in this trustee.  However, the Welfare Reform and Pensions Act 1999 excludes from the bankruptcy estate the rights of a bankrupt under an “approved pension arrangement” and this includes rights under any UK pension scheme that has been registered with HMRC.

As the Irish scheme was not UK-registered, it appeared to fall to be treated as an unapproved scheme for which there is limited protection, despite the scheme being approved by the Irish tax authorities.

But Mr Justice Nugee held that this different treatment vis-à-vis a UK registered pension scheme was unlikely to be permissible under EU law and that subject to a referral to the European Court of Justice on this very point, there should be a “conforming interpretation” of the UK law.  Under this, the UK law should be read as if it extended to include a pension scheme established in an EU member state other than the UK, which was recognised for tax purposes in that member state within the meaning of certain UK regulations.

Comment

This case was decided by reference to Article 49 of the Treaty on the functioning of the EU, which is concerned with the freedom of movement of individuals around the EU.  It is interesting to speculate how this case might have been decided had it been brought after the end of the UK’s implementation period, as there may not then be a need to “conform” the UK legislation with the possible result that the individual in question could lose his pension rights to the trustees in bankruptcy.

Brexit and State Pension – Government extends the uprating promise

Now that the UK is leaving the EU with a withdrawal agreement in place, the Government has extended the uprating promise on the UK State Pension for state pensioners living in the EEA (which includes the EU27) and Switzerland.

In an announcement on 24 January the Government is now promising that UK nationals living in an EEA State or Switzerland on 31 December 2020 will continue to have their UK State Pension uprated each year for so long as they live there.  However, there is no such promise for those newly moving to such states from 1 January 2021, other than UK or Irish nationals moving to Ireland.

The announcement covers other matters such as whether or not future social security contributions count towards meeting the qualifying conditions for the UK State Pension and entitlement to other UK social security benefits whilst being abroad.

Parallel guidance has also been issued explaining the rights of EEA and Swiss citizens to UK benefits and pensions after the UK has completed its implementation period on 31 December 2020.

Comment

This will be a welcome development for the many UK state pensioners living in the EU27, some of whom were fearful of losing their uprating promise after the Government announced in October that it could only promise uprating for a further three years if the UK left the EU without a deal.

State Pension Age for 1950s born women – more developments

There have been two developments in recent days on this subject.  First, we understand that the campaign group that lost its case at the High Court in October (see Pensions Bulletin 2019/38) has been given permission to go to the Court of Appeal.  Second, the investigation by the Parliamentary and Health Service Ombudsman, which had been paused whilst the Back to 60 group was seeking judicial review at the High Court, is being resumed.

In its statement, the Ombudsman makes clear that its role is not to overturn the current law, or ask DWP to make the payments that Back to 60 say have been lost as a result of the increase in State Pension Age.  What the Ombudsman will do, via examination of submissions from six complainants, is see whether there was any maladministration in communicating the changes, which led to injustice.  If it finds this to be the case it can make recommendations to the Government which might include compensation.

Comment

The Ombudsman’s statement links to its guidance on the level of compensation that it may recommend.  A cursory reading of it suggests that even if it finds that there has been injustice, the level of compensation it is likely to recommend will fall far short of the state pension payments that Back to 60 say have been lost.

HMRC consults further on anti-money laundering

HMRC has launched a new technical consultation on extending the Trust Registration Service (TRS) now that the Fifth Money Laundering Directive has effectively come into force in the UK (from 10 January 2020)

The new consultation (which closes on 21 February 2020) sets out the Government’s proposals on the types of express trusts that will be required to register, as well as what data collection and sharing will be required and what the penalties for non-compliance will be.

The Government proposes to define the scope of affected trusts in a way that is proportionate to the risk and not to bring into scope trusts where their purpose and structure mean payments to beneficiaries are predetermined and highly controlled and they are already supervised by HMRC or other regulatory bodies.

The consultation goes on to state that pension scheme trusts that are not registered with HMRC on Pension Schemes Online or “Manage and Register Pension Schemes” will be required to register on the TRS.

Comment

Based on the proposals in this consultation we expect that the vast majority of occupational pension schemes will continue to be exempt from the need to register with the TRS.

Its DB scheme return time once more

DB and hybrid schemes will be gearing up to make their annual return to the Pensions Regulator via the Exchange system and to assist with this exercise the Pensions Regulator has published a checklist.

Comment

This checklist is no different to that published last year except that it highlights two issues with the Exchange system, relevant for schemes seeking to implement risk reduction measures in order to reduce their PPF levy – they relate to contingent assets and deficit reduction contributions.