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Pensions Bulletin 2020/15

Our viewpoint

Covid-19 emergency generates more pension announcements

Since last week’s Pensions Bulletin amongst the many announcements and posts in the world of pensions influenced by the Covid-19 health emergency are the following:

  • On 31 March, in a “Dear CEO letter”, the Financial Conduct Authority announced that it had referred the 1 August 2020 implementation deadlines for its settled investment pathway rules (see Pensions Bulletin 2019/30) to the FCA Board for further consideration.  It also said that its policy statement on DB pension transfer advice, including on contingent charging, had been delayed to Spring 2020 (see Pensions Bulletin 2019/30) and that it had paused the follow-up work on assessing the suitability of advice, which was focused on retirement income advice (see Pensions Bulletin 2020/03)
  • Also on 31 March the Government put back the consultation response deadline on expanding the dormant assets scheme (see Pensions Bulletin 2020/08) from 16 April 2020 to 16 July 2020
  • On 1 April, in what was clearly not an April Fool, the Pensions Regulator, along with the Financial Conduct Authority, supported by the Money and Pensions Service, exhorted pension savers to keep calm, look to the long-term and not take rash decisions now that they could come to regret later, especially if by so doing they fall into the clutches of those operating scams.  This was backed up by a blog from David Fairs, Executive Director of Regulatory Policy, Analysis and Advice at the Regulator
  • Also on 1 April HMRC issued a very brief Countdown Bulletin that put off until the end of April its promise to deliver by the end of March a timeline for the issue of “final data cuts” of HMRC’s GMP data records.  These records are needed so that administrators can complete the GMP reconciliation exercise necessitated by the ending of contracting out over four years ago, before going on to rectify the member’s benefits if appropriate and, where necessary, equalise 1990-97 benefits for unequal GMPs.  This is the latest in the long saga of delays by HMRC (see Pensions Bulletin 2020/02)
  • On 1 April the deadline to respond to the DWP-sponsored climate change draft guidance (see Pensions Bulletin 2020/12) was put back from 7 May 2020 to 2 July 2020
  • On 2 April the Regulator added to its Covid-19 microsite some guidance for trustees in their dealings with scheme administrators.  This expanded on earlier guidance, asking for a focus on critical processes, with changes to existing processes as necessary.  It also acknowledged that service level agreements may not be met and there could be legislative breaches in certain areas.  The Regulator guidance also links to and supports PASA-produced Covid-19 guidance for administrators that was published on 30 March
  • The Pensions Ombudsman announced that it had closed its shutters to new enquiries from an undated “today”, with its staff working from home, but only on existing cases.  There is also a promise to take into account the latest guidance from the Regulator when reaching its decisions
  • The Pensions Regulator put back by three months the closing date for responses to the consultation on its DB funding code proposals.  Launched on 3 March 2020 (see Pensions Bulletin 2020/09), consultation will now close on 2 September 2020.  This may put in doubt the Regulator’s plan to undertake the second stage of its consultation later this year.
  • On 3 April the PASA Board Directors blogged a note on how pension scheme administrators are implementing their business continuity policies whilst working in isolation from home
  • On 4 April HMRC updated its employer guidance on the coronavirus job retention scheme (see Pensions Bulletin 2020/14).  There is now greater clarity on what constitutes an employee’s usual monthly wage that forms the basis of the furloughing arrangements.  In particular, “benefits provided through salary sacrifice schemes (including pension contributions) that reduce an employee’s taxable pay should…not be included in the reference salary”.  HMRC also goes on to say that Covid-19 counts as a “life event” that could warrant changes to salary sacrifice arrangements, if the relevant employment contract is updated accordingly
  • On 7 April the FCA made an announcement covering a number of related areas.  The 1 August 2020 implementation deadlines for the investment pathway rules mentioned right at the top of this article were put back by six months to 1 February 2021.  The FCA also said that it would show some understanding if there was a short delay (until 31 May 2020) in implementing its rules published in January 2019 (see Pensions Bulletin 2019/04) relating to changes to the information that firms give consumers entering pension drawdown or taking an income for the first time (including uncrystallised fund pension lump sums) and the annual information given to these customers.  These were due to come into force on 6 April 2020.  Finally, the FCA published guidance for DC providers and DB transfer advisers to support their conversations with customers as the pandemic develops, and information explaining how firms can avoid straying into making personal recommendations when bringing out the implications for customers of realising their investments or cancelling life assurance
  • Also on 7 April the FCA published its 2020/21 Business Plan acknowledging that it was very much a moving feast in the current climate.  In particular, the FCA noted that it would be “Reviewing our work plans to delay activity which is not critical to protecting consumers and market integrity in the short-term, allowing firms to focus on supporting their customers during this time”

Comment

An extraordinary raft of announcements across the regulatory spectrum which we expect to continue for a little while.

Normal policy development and regulatory services are clear pensions casualties of the Government-ordered lockdown, now in its fourth week, and which is to continue well beyond Easter.  In addition to delayed response dates, we suspect that the conclusions of consultations that closed before the lockdown will be delayed, as will those that have been promised but have yet to be launched.

Simplifying and improving auto-enrolment

The Society of Pension Professionals has published a paper containing its ideas for simplifying and improving automatic enrolment.  These ideas came out of internal discussions within the Society and a short survey of its membership.  Eight key suggestions include:

  • Removing the age criterion: the membership survey showed that four-fifths (80%) favoured removing the minimum age criterion while two-thirds believed automatic enrolment should be extended to all employees up to age 75
  • Use pay in the previous pay period to determine eligibility for enrolment: more than four-fifths (85%) of survey respondents supported this proposal, under which eligible jobholders could be enrolled and start active membership based on prior period earnings if that works for an employer
  • Opt-out window should be extendable by up to three months after enrolment: three fifths (63%) of respondents believe that employers should be allowed to accept opt-out elections up to three months after enrolment
  • Increases to contribution requirements no later than the PLSA’s 2030 timetable: over four-fifths of respondents (84%) believe minimum employer contributions should increase over time from 3% to 6% of earnings.  The SPP notes that a sudden increase will likely result in a backlash, but believes the current requirements are unlikely to generate satisfactory outcomes for many

Comment

When the fallout from the Covid-19 epidemic settles down we expect that the DWP will refocus its attention on auto-enrolment policy.  This paper is a useful contribution to the debate about what needs to be done to keep the momentum going and to ensure that this policy will provide decent retirement outcomes for the general public.

HMRC makes its pension scheme accounting for tax return facility available online

On 1 April HMRC launched its Accounting for Tax (AFT) return on its Managing Pension Schemes service.  Our understanding is that schemes signed up to this service will have to submit AFT returns via it starting with that for the quarter ending 30 June 2020.

Details of how to operate the AFT return facility and an updated timeline for the delivery of further functionality in this online service for pension scheme registration and administration is contained in the April edition of HMRC’s Managing Pension Schemes service newsletter.

Comment

There is more solidity in the timescales for the Phase 2 roll-out compared to that previously reported by HMRC in January (see Pensions Bulletin 2020/02), but it looks as if it will not be until mid to late 2023 before the annual pension scheme returns can be submitted via it.

MaPS to get pension guidance funding boost

The Financial Conduct Authority has published its regulated fees and levies proposals for 2020/21 showing it expects to collect £130m on behalf of the Money and Pensions Service (MaPS) in the coming year of which £41.1m is to fund pensions guidance – a significant increase from the £30.7m allocated to pensions guidance in 2019/20.

£7.2m of this £41.1m is allocated to the pensions dashboard project.  The remaining money is intended to fund 230,000 pension freedoms guidance sessions, a more responsive customer appointments system and improved online services.

Auto-enrolment earnings parameters settled

The Automatic Enrolment (Earnings Trigger and Qualifying Earnings Band) Order 2020 (SI 2020/372), which gives effect to the 2020/21 earnings parameters announced in February (see Pensions Bulletin 2020/07), has completed its passage through Parliament.

The Order contains the annualised lower and upper limits of the qualifying earnings band (£6,240 and £50,000 respectively) and also tabulates them by reference to other pay reference periods.  As the earnings trigger remains unchanged at £10,000 this annualised figure is not mentioned, but the rounded figures for other pay reference periods are included in the table noted above.