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Pensions bulletin

Pensions Bulletin 2019/42

Pensions & benefits Policy & regulation

What got through and what didn’t during wash up

“Wash up” is that short period between a General Election being announced and the dissolution of Parliament during which some essential parliamentary business is resolved, usually with the consent of all the major political parties. 2019 is no different and as this exceptionally short Parliamentary session came to a close the following legislation was completed:

A curiosity is the Pensions (Amendment) Bill that was introduced on 30 October by Lord Balfe and which is intended to do two things:

  • Remove the PPF compensation cap, seemingly for those currently receiving PPF compensation, as well as those due to receive it – and for any future recipients of PPF compensation; and

  • Require Pensions Regulator and scheme trustee approval before corporate dividends are agreed

This will not progress any further, not even having its second reading in the House of Lords before dissolution.

The Divorce, Dissolution and Separation Bill, which was carried forward from the previous Parliamentary session (see Pensions Bulletin 2019/40) failed to complete its passage through Parliament and is now lost for the second time.


Depending on the result of the General Election a number of the Bills that have now been lost are likely to be re-introduced at some point in 2020 – including the Pension Schemes Bill.

HMRC provides update on GMP equalisation

HMRC’s latest pension schemes newsletter contains an update on the progress that its GMP equalisation working group has made so far and its plans going forward, along with articles on unrelated topics.

In December HMRC is aiming to publish its first tranche of guidance, specific to the dual record system of GMP equalisation (the so-called methods B and C). This will cover the lifetime allowance, LTA protection regimes (including enhanced, fixed, primary and individual protection) and the annual allowance.

HMRC warns schemes seeking to equalise through GMP conversion that the tax issues are proving more complicated to resolve, but they will continue to explore them. HMRC says that the working group is continuing to explore the payment of crystallised lump sums, such as serious ill-health lump sums, small pots and trivial commutation. It is aiming to provide, in its December release, a further update on its progress on these issues and let everyone know when it plans to provide more guidance on them.

Turning to other matters, HMRC reports:

  • A slight fall in the number of applications received to register a new pension scheme – noting that 11% of applications have been refused

  • The latest quarterly release of official statistics on flexible payments from pensions – this shows that HMRC handed back nearly £55m in overpaid income tax to pension savers

  • An early release of updated guidance on moving pension recipients from one payroll to another

  • Some issues arising in relation to the annual return of information for 2018/19 for schemes operating relief at source; and

  • The publication of a new addition to HMRC’s plain English guide on annual allowance ‘scheme pays’ – which attempts in particular to explain the difference between ‘mandatory’ and ‘voluntary’ scheme pays


The firming up on a likely December date for the first part of HMRC’s guidance on GMP equalisation is good news. This is a complex topic and one for which guidance is much needed.

There are some challenges to conversion under current pensions tax legislation, but it is good that that HMRC is still working to find solutions and is helping to provide some clarity. It is important that HMRC keeps up the work on this because its guidance will be a critical factor in helping schemes choose the best method to adopt for equalisation.

In relation to the ‘scheme pays’ guidance most employers that continue to provide good levels of benefit accrual are likely to have concluded that in order to make the annual allowance manageable to their members, the scheme needs to provide a ‘voluntary’ scheme pays offering (because the minimum scheme pays requirement under law is very limited in scope – more so than the guidance might suggest).

But members do have to do the grappling with understanding the annual allowance, working out if they have a tax charge and, if so, choosing whether taking up scheme pays suits them best.

Next year’s State pension announced

Some weeks earlier than usual, the DWP has announced that the basic and new State Pensions will be increased by 3.9% next year, being the increase in the average of May to July average weekly earnings. This announcement was trailed in time for the Sunday newspapers, along with news that the inflation link will be restored to working-age benefits, and then formally made in the House of Commons on 4 November.

This means that the Basic State Pension will rise to £134.25 per week whilst the full rate of the new State Pension will rise to £175.20 per week.


State pensions have grown significantly since the triple lock was introduced by the Coalition Government, with all three components of it (price inflation, earnings growth and 2.5%) applying at one time or another. But for how long will this continue? Something to watch out for in the party manifestos.

DWP proposes reform to DC annual benefit statements

On 1 November the DWP launched a consultation on three related issues with regard to the pension benefit statements issued annually by DC schemes.

  • How the use of simpler and more consistent annual pension benefit statements across the pensions industry through greater standardisation of structure, design and content could help improve engagement with pensions

Whilst acknowledging the activity taking place across the pensions industry on a voluntary basis, the DWP would like to see how progress can happen more quickly. Three voluntary options are put forward - adoption of either: the simpler statement template finalised last year; design principles; or descriptors – with the possibility of a regulatory approach being used on whichever is the favoured route instead.

The DWP’s focus in this strand is on those DC schemes being used as auto-enrolment vehicles – whether occupational or personal pensions. Subject to the outcome of the consultation, the DWP will consult on the detail of draft regulations or guidance that may place additional obligations on trustees.

  • Proposed amendment of the Disclosure Regulations to require “relevant schemes” (broadly occupational DC schemes including the DC sections of hybrid schemes) to include member level charges and transaction costs information in pounds and pence on the annual benefit statement

The DWP points to the recent regulatory initiatives relating to the disclosure of charges and transaction costs, suggesting that the next step is to provide such disclosure in annual benefit statements. It recognises some challenges that may arise and looks for some assistance with this, via the consultation, before it exposes the draft regulations themselves for consultation.

  • Amendment of the Disclosure Regulations so that the guidance requirement underpinning Statutory Money Purchase Illustrations (SMPIs) is transferred from the Financial Reporting Council to the Secretary of State for Work and Pensions

The SMPI guidance (known as TM1) used to be owned by the Institute and Faculty of Actuaries but was transferred to the FRC a number of years ago who have never really felt that they should own it. Now that the FRC itself is to be abolished it needs a new ‘responsible owner’.

The DWP proposes its Secretary of State, but the successor to TM1 is likely to be much shorter and to have assumptions aligned with the Financial Conduct Authority’s rules for the production of key features illustrations, except where there are strong reasons to do something different.

The DWP goes on to spell out what the assumptions may look like. These include nominal maximum growth rates that vary by asset class and conversion at retirement so that 25% is taken as a tax-free lump sum and 75% as a single life non-escalating annuity.

Subject to the outcome of the consultation, DWP intends to consult on draft regulations and some of the lower level detail of the assumptions in the statutory guidance in due course.

Consultation on all of these proposals closes on 20 December 2019.


It is clear that something needs to be done with DC annual benefit statements as, with a few exceptions, they are simply not hitting the mark. Simpler statements that are consistent with each other, disclose costs and charges and which project future outcomes on consistent and standardised assumptions are all welcome.

This work will need to dovetail with that being carried out on the dashboard as it may only be that when this is up and running that the desired far greater engagement with retirement savings can come about.

Regulator hails new authorised master trust market

The Pensions Regulator has marked the occasion of the ending of the process of existing DC master trusts seeking authorisation by publishing some facts and figures about the 37 now authorised master trusts and their 16 million pension pots.

New safeguards were introduced on 1 October 2018, as a result of which the number of market participants has substantially reduced. The Regulator points to the protections provided by the authorisation and supervision regime, drawing out some of the changes that successful applicants made in order to be granted authorisation.

The Regulator goes on to say that it expects these schemes to set an example for the rest of the pensions industry – such as by having their data in shape ready for the pensions dashboards, to be at the forefront of considering climate change in their investments, and ensuring that savers are getting value from their pensions.


So a process that was challenging for a number of schemes and too much for many has drawn to a close. But the challenge now passes to the Regulator as it will need to prove that it can be an effective supervisor.

Actuaries estimate how much the PLSA’s retirement livings standards will cost to deliver

Following on from the PLSA’s retirement living standards initiative (see Pensions Bulletin 2019/40), the Institute and Faculty of Actuaries has published a report setting out the monthly contributions required throughout working life in order to deliver the three levels of the PLSA’s retirement living standards – ‘minimum’, ‘moderate’ and ‘comfortable’.

The report finds that auto-enrolment minimum contributions will only fund a ‘minimum’ retirement lifestyle (when taken together with the State pension), a ‘moderate’ retirement lifestyle will require an individual to save £799 a month on average over their entire working life (around one quarter of average full-time earnings), whilst £1,755 a month is needed for that same individual to enjoy a ‘comfortable’ retirement.

The figures for couples are significantly lower per person. Although perhaps surprising, if they both have a full national insurance record their combined State Pensions makes it so.

The report goes on to set out some practical steps that can be taken by individuals, government, employers and the pension industry in order to help individuals reach the retirement they want.


These estimates usefully add to the PLSA’s work although the numbers are likely to be a shock to pension savers. A large proportion of the population are not on course for anything other than the minimum and it is clear that more needs to be done by all parties; not just individuals.

Statutory revaluation and indexation confirmed

The Order has now been made setting the statutory minimum revaluation of deferred pensions other than GMPs for those reaching normal pension age in 2020. The same Order also sets, indirectly, the statutory minimum increases for pensions in payment in 2020.

The revaluation percentages within The Occupational Pensions (Revaluation) Order 2019 (SI 2019/1433) reflect the overall rise in the Consumer Prices Index from September 2010 to September 2019 and movements in the Retail Prices Index prior to this.

The one-year Order for revaluations subject to both the 2.5% and 5% caps is 1.7% (the CPI rose by 1.7% in the twelve months to September 2019). These one-year Orders also form the basis for so-called Limited Price Indexation for pensions in payment and so the 2.5% and 5% LPI increases will also be 1.7%.

Schemes established outside the UK can apply to be UK registered pension schemes

HMRC has laid an Order whose purpose is to make clear that pension schemes do not need to be resident in the UK in order to become “registered pension schemes” and benefit from the Finance Act 2004-based tax law applicable to such schemes. This follows a recent First-tier Tribunal decision where the judge interpreted the Finance Act 2004 in the opposite manner, also holding that this was contrary to EU law.

The Finance Act 2004 (Specified Pension Schemes) Order 2019 (SI 2019/1425) enables pension schemes established by or under an enactment of parliament of a country or territory, or sub-division of a country or territory, other than the UK to apply to become a registered pension scheme through being regarded as a ‘public service pension scheme’.


HMRC notes that it has always been the intention to allow foreign equivalents of UK pension schemes to apply to become registered pension schemes and so this change is intended to clarify legislation and deliver policy intent.

Costs and charges templates – Government may legislate

The Government is “actively considering” a consultation on regulations, the effect of which would be to provide for the calculation of charges and transaction costs incurred by DC schemes to be made by the schemes’ asset managers using templates being promoted by the Cost Transparency Initiative.

This is one of the key insights arising from the Government’s response to the House of Commons’ Work and Pensions Committee’s August report on pension costs and transparency (see Pensions Bulletin 2019/31).

The Cost Transparency Initiative finalised its templates in May (see Pensions Bulletin 2019/20) and since then has been pushing for widespread voluntary adoption by asset managers.


Many of the other recommendations set out in the Committee’s report have either been turned down or side-stepped – most notably the provision of State Pension data via dashboards, for which the promise is only to “make this available at the earliest opportunity”.

ACA calls again for pensions tax simplification

Using as evidence the latest extract from its pension trends survey, the Association of Consulting Actuaries asks for properly considered and major revisions to the pensions tax regime that are robust and enduring, enabling employees to plan for long-term pension saving.

The survey found 75% of employers want the pension tax regime simplified, with 67% saying more help should be targeted on lower earners even if this means reducing relief for higher income groups. 69% want the tapered annual allowance to be abolished even if this means a reduction in the general annual allowance.

Of real concern is the level to which pensions tax policy is negatively influencing the behaviours of workers – 21% of employers note that skilled staff are retiring earlier or working fewer hours and 44% said the tax restrictions have caused senior/higher income employees to leave their firms’ pension schemes, disconnecting more decision-makers from personal interest in pensions.


Delivered shortly before the Budget was due to be held we will now need to wait until the other side of the General Election to see what action the new Government intends to take, particularly in relation to the tapered annual allowance.

And in relation to the NHS the Academy of Medical Royal Colleges has published a letter to the Government outlining its concerns about the impact of pensions taxation on the provision of medical services, to which the NHS Providers have added their voice, calling for a “full, fair and immediate solution”.

Investment Association points to excessive director pensions again

The Investment Association has published its latest executive pay guidelines “Principles of Remuneration” where, as last year (see Pensions Bulletin 2018/48) it calls for pension contribution rates for directors to be aligned with those available to the workforce, but this time with a focus on incumbent directors.

The Association also expects the Remuneration Report to set out the pension contribution rate that is considered to be given to the majority of the workforce, with an explanation of how this has been derived.

In its latest letter to the Chairs of Remuneration Committees, bringing to their attention the above document, the Association references its September 2019 position paper (see Pensions Bulletin 2019/37) saying that it expects Remuneration Committees to set out a credible action plan to reduce the pension contributions of incumbent directors to the majority of the workforce level by the end of 2022.


The Association’s messaging on director pensions for this year’s reporting season is consistent with the UK Corporate Governance Code settled last year (see Pensions Bulletin 2018/29). It will be interesting to see how companies react and whether we see any more shareholder rebellions when director and workforce pension contribution rates are compared.

The return of mortality improvement?

The latest edition of the Institute and Faculty of Actuaries’ mortality monitor reports that there has been ‘relatively light’ England & Wales population mortality in the third quarter of 2019, continuing a period of relatively light mortality observed in the second half of 2018 and the first half of 2019.

The report also illustrates how mortality rates in England & Wales have been fairly flat from 2011 until the middle of 2018, having fallen (ie improved) steadily in the decade prior to this.


Although the average mortality rate so far for 2019 is lower than for previous years, it is too early to know whether 2019 marks a resumption in mortality improvements, or a reflection of how volatile mortality rates can be year on year.

NEST panel asks for phased reduction in the auto-enrolment earnings trigger

Concerned that Government policy to remove the earnings trigger for auto-enrolment contributions in the ‘mid 2020s’ might drift, the NEST member’s panel is calling, in its 2018/19 annual report, for the Government to announce a phased reduction in the earnings trigger to kick in now before ‘contributions from the first pound’ are introduced.

The Panel points out that all this is possible through secondary legislation as the earnings trigger (and the qualifying earnings band) are determined annually.


The Panel is right to be concerned about policy drift. It is nearly two years since the Government published its then long-awaited review of the auto-enrolment system (see Pensions Bulletin 2017/53) and the Pension Schemes Bill is completely silent on the issue.

But reducing and potentially eliminating the earnings trigger is something that can be done without an Act of Parliament. We hope that the Government will start plotting a course in this respect as part of the review of the auto-enrolment parameters for 2020/21 which must be underway right now.

EMIR exemption made to work over here

Regulations to ‘onshore’ the 2012 European Market Infrastructure Regulation (EMIR) and related EU legislation which HM Treasury issued in draft in February (see Pensions Bulletin 2019/08) have now been laid before Parliament.

Amongst other things the EU Regulation requires certain types of “over-the-counter” derivative contracts to be “centrally cleared”, but there is a time-limited exemption for pension schemes before they must start clearing derivatives with central counterparties.

The Over the Counter Derivatives, Central Counterparties and Trade Repositories (Amendment, etc., and Transitional Provision) (EU Exit) (No. 2) Regulations 2019 (SI 2019/1416) maintain the exemption after the UK’s exit from the EU, and set it to expire on 18 June 2023. They also enable HM Treasury to further extend the exemption by up to two years at a time if a workable technical solution for pension scheme clearing has not been found.


This is yet another set of EU Exit regulations set up to come into force on “exit day” (currently 31 January 2020), but whose effect will be stayed until the end of the transitional period should we leave having ratified the withdrawal agreement.