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Pensions Bulletin 2020/23

Our viewpoint

Employers to contribute to Coronavirus Job Retention Scheme from August

On 29 May the Chancellor outlined how employers will need to contribute to the financing of the Coronavirus Job Retention Scheme, as part of a package of measures including further details on the Scheme and its equivalent for the self-employed.

Under the Scheme, first announced in March (see Pensions Bulletin 2020/14), the Government pays to employers a grant equal to 80% of the furloughed employee’s usual monthly salary, up to a cap of £2,500, along with the employer national insurance and 3% minimum auto-enrolment pension contributions on this capped salary.  The employer must, as a minimum, pay the furloughed employee this capped salary, less the normal deductions that would apply, such as income tax, employee national insurance and any employee pension contributions.

The Scheme, which is currently scheduled to end by 31 October, is now to be tapered down ahead of this date as follows:

  • In August employers will have to meet the employer national insurance and pension contribution aspect of the Scheme
  • In September, employers will additionally have to pay 10% of the furloughed employee’s usual monthly salary, up to a cap of £312.50
  • In October, the employer salary contribution rises to 20% of the furloughed employee’s usual monthly salary, up to a cap of £625

The Scheme will also close to new entrants on 30 June, with the last possible date at which an employee can be furloughed being 10 June.

Employers can bring an employee back from furlough at any point.  In addition, from 1 July, employers can elect to bring furloughed employees back to work on a part-time basis of their choosing, with employers responsible for paying wages whilst such employees are at work and the Government remaining responsible for making payments under the Scheme for such employees’ furloughed hours.

Comment

We will have to await a further Treasury Direction to see the full details but it seems clear that the Chancellor envisages that the Scheme will start to wind down from August when the grant will no longer cover the minimum DC pension or national insurance contributions.  The press release states that these amount to around 5% of the gross employment costs for the average claim.  Whether this will be enough to trigger significant redundancies remains to be seen.

Treasury Direction No.2 confirms furloughed employees may continue to act as pension trustees

On 22 May 2020 the Chancellor made a further Treasury Direction relating to the Coronavirus Job Retention Scheme.  This follows one made in April (see Pensions Bulletin 2020/17).  These directions comprise the statutory framework for the Scheme and appear to be in a state of rolling consolidation so that we should expect a Treasury Direction No 3 in due course to legislate for the changes covered in the article above.

The change of main interest in Treasury Direction No 2 is to provide welcome confirmation that employees may continue to act as pension scheme trustees when furloughed.  There had been some doubt previously that carrying out trustee duties could fall foul of the Scheme’s requirement that to be eligible employees cease to carry out all work.  The Direction also makes it clear that independent trustees employed by an organisation providing independent trustee services are not covered by this easement.

Guidance on the physical risks of climate change issued by investor group

The Institutional Investors Group on Climate Change (IIGCC), the pan-European body for investor collaboration on climate change, has launched two guidance documents for investors, setting out how they can integrate the risks and opportunities presented by the physical impacts of climate change into their investment processes.

The guidance comprises a detailed document entitled “Understanding Physical Climate Risks and Opportunities” which is a comprehensive and practically-focussed guide, and a shorter summary document entitled “Addressing Physical Climate Risks: Key Steps for Asset Owners and Asset Managers” which is an entrance point for investors to begin assessing, managing and reporting on physical climate risks in their portfolios.

Two main sorts of climate impacts are examined – acute ones such as storms and wildfires, and chronic ones such as changing precipitation patterns.  A wealth of detail is provided in the main report including relevant case studies.

The summary suggests the following five steps for investors to get started in managing physical climate change risk:

  • Understand physical climate risks and how they are measured
  • Assess the significance of these risks at the asset or fund level
  • Review the aggregate effects of these risks at the portfolio level
  • Decide on the actions to take to manage or mitigate these risks
  • Monitor, review and report on actions taken

Comment

Investors, including pension schemes, are increasingly conscious of climate risks but sometimes an appreciation of the risks posed by the actual physical manifestations of climate change lags awareness of the transition risks arising from climate change mitigation policies and low carbon technologies.  The IIGCC guidance is a welcome resource for trustees who want to address these issues.

DC Chair’s Statement – new template launched to reduce compliance costs

The DC Governance Group of the Pensions and Lifetime Savings Association has published a template for the DC Chair’s Statement.  This has been drafted by leading pension lawyers and consultants and aims to reduce the time taken in production of the statement and so reduce costs.  The PLSA is encouraging trustees and providers to use this template as a starting point for producing their own scheme-specific version and the Pensions Regulator is supporting the template.

The Group was chaired by Laura Myers, Head of DC at LCP.

Comment

The idea behind producing a DC Chair’s Statement is to demonstrate good governance to members.  However, the production cost has ballooned out of control due to concerns about how the regulations can be interpreted, caused in part by a mandatory penalty regime, and accompanying naming and shaming, causing nervousness in the industry.  This has led to more focus on producing a statement than good governance itself.  Hopefully the existence of this template will mark a turning point.

DB schemes present the greatest data challenge for the Pensions Dashboard

This is, unsurprisingly, the key finding of a survey of members of the Society of Pension Professionals, set out in a short report covering a number of aspects of the provision of information to the dashboard.

SPP members believe that 80% of DB schemes and 40% of DC schemes are not currently in a position to provide an “estimated retirement income” to the dashboard – a vital piece of information in order for the dashboard to provide meaningful assistance to pension savers.  And whilst 69% of SPP members thought that only a limited amount of work would need to be done for DC schemes in order that they could provide this information, 70% of SPP members thought that a significant amount of work would be required for DB schemes.

The report concludes that schemes need sufficient clarity on data expectations as well as a realistic period of time to implement the final data requirements, once known.  SPP members believe that it could take up to two years for DC schemes and three years for DB schemes to be able to provide all the proposed basic information data to dashboards in an electronic format.

Comment

Covid-19 has delayed progress by the Money and Pensions Service in this vital area.  It is important that the data work can be brought to a conclusion, but this will first need MAPS to consult formally on the working paper it put out in April (see Pensions Bulletin 2020/16).

GMP rectification – HMRC now plans its “final data cut” by the end of July

HMRC’s latest Countdown Bulletin sets out a promised timeline for the issue of the GMP information held by it to enable schemes to complete their GMP rectification exercises following the ending of contracting out over four years ago.

The intention now is for these “final data cuts” to be supplied by the end of July to those schemes that engaged with the Scheme Reconciliation Service or have been reconciled as part of the Scheme Cessation process.

The Bulletin also states that HMRC’s online GMP checker service is accurately providing GMP figures – specific to the date the GMP is selected to be calculated to.  By contrast the GMP data provided in the final data cut may not always represent HMRC’s latest word on the subject (presumably because HMRC could have made corrections after the cut occurred).

Comment

This much-needed information has been coming through for some time now, but unfortunately, we at LCP have been discovering several issues with these listings as Alan Casey’s blog of 21 May 2020 makes clear.  Instead of achieving a final confirmation of GMP amounts and membership numbers it seems that the final listing can only be used for checking and agreeing scheme memberships and even this may not be as straightforward as had been hoped.

HMRC provides a reminder on how to raise pensions tax queries

HMRC’s latest pension schemes newsletter covers three topics, with the second – how to raise queries with HMRC on the pensions tax rules – being the most interesting.

HMRC reminds scheme administrators and practitioners that it expects potential enquirers first to try to resolve queries by referring to published guidance, such as the Pensions Tax Manual and Pension scheme administration pages.  If this doesn’t help then if it is a general query, there is a strong message to use HMRC’s standard central contact processes and not try to email individuals in the HMRC team.  If it is a specific query, then there is a strong steer to use the clearance process, with a warning that HMRC will only answer enquiries this way in cases of genuine uncertainty and so long as all the information required under the clearance service has been provided.

The newsletter also sets out some further temporary changes to pension processes as a result of Covid-19 (including as a result of a further suspension of the process for applying for a national insurance number), a reminder about the 5 July 2020 deadline for scheme administrators of “relief at source schemes” to submit the 2019/20 annual return of information; and notification of some small changes made to the annual statistical return (which can now be submitted without a signature).

Comment

It is not unsurprising that, having invested a lot of time in writing guidance over the years (with a lot of input from the pensions industry too), HMRC expects users to use it; and also says that HMRC “cannot provide financial or tax planning advice or answer hypothetical questions”.  Having said that it is not surprising that the complexity of pensions tax law itself and its interaction with other pensions law clearly continues to give rise to plenty of questions.

Covid-19 pension-related announcements

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

  • On 26 May the International Organisation of Pension Supervisors issued a statement summarising the actions taken by pension supervisors (such as the UK’s Pensions Regulator) in order to mitigate the consequences of the Covid-19 crisis.  IOPS supports the “flexible and pragmatic supervisory approach” taken by its members but warns against actions that may lead to “material worsening of the retirement outcomes of beneficiaries”
  • On 27 May the Institute and Faculty of Actuaries issued a note by a member of its Finance and Investment Board setting out some key investment risks faced by DB schemes along with some underlined actions that should be considered immediately
  • In late May the PASA Cybercrime and Fraud Working Group posted an update pointing to some additional guidance from the National Cyber Security Centre, detailing how malicious actors are exploiting the pandemic and setting out four considerations for pension scheme administrators when reviewing and upscaling their cyber protection.  Both of these are essential reading for anyone concerned with pension scheme cybersecurity
  • On 1 June the Pensions Research Accounting Group (PRAG) issued Covid-19 pensions guidance primarily aimed at the auditors of pension scheme accounts.  Recognising that it cannot be business as usual, the guidance (which is not available free to PRAG non-members) aims to provide a joined-up approach to addressing the impact of Covid-19 on the production of pension scheme accounts
  • On 2 June, HMRC’s Pension Schemes Newsletter 119 issued on 30 April was adjusted in respect of the “protected pension age” issue.  The 30 April newsletter contained an interpretation by HMRC of the tax rules to the effect that those, who having retired on pension, on returning to work to assist with the Covid-19 crisis, would not lose their protected pension age (see Pensions Bulletin 2020/19).  Until now, it had not been clear when this easement, first announced by Economic Secretary to the Treasury John Glen on 22 April, would come to an end.  It has now “been extended up to 1 November 2020”
  • On 2 June the Institute and Faculty of Actuaries’ Continuous Mortality Investigation published its eighth weekly report on mortality data.  This report, in contrast to that issued last week, shows a significant fall in adverse mortality, with ‘excess’ weekly deaths at the lowest level since late March.  The number of deaths in England and Wales in the week ending 22 May of 12,288 was 1,861 (18%) greater than expected, with 2,589 having Covid-19 mentioned on the death certificate.  The accompanying report suggests that by 1 June there could have been between 63,000 and 66,000 more deaths in the UK since the beginning of 2020 than expected

This Pensions Bulletin does not constitute advice, nor should it be taken as an authoritative statement of the law.  For further help, please contact David Everett at our London office or the partner who normally advises you.

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