- New pension freedoms (DC) – Freedom and choice is here. Where they haven’t already done so, DC trustees and providers should review and, if necessary, update their default funds to ensure they are still suitable. They should also monitor member behaviour to ensure they remain so. Trustees also need to consider how they can help to ensure good member outcomes during decumulation.
Action: Review default fund, monitor member behaviour and consider steps to help ensure good member outcomes during decumulation.
- New pension freedoms (DB) – Members of DB plans can transfer to a DC plan to take advantage of the new freedoms. However, for transfer values over £30,000, trustees must check the member has received “appropriate independent advice” before they transfer. Procedures for authorising transfers (including internal transfers between DB and DC sections) must be updated to ensure they comply with the latest guidance from the Regulator and the FCA. Trustees should also review the basis on which transfer values are calculated and their member communications to ensure they remain suitable.
Action: Update transfer procedures. Review transfer value calculation basis and member communications. Keep pace with regulatory developments in this context as more are expected. Read more
- Value for money – Trustees that run DC plans are now required to assess and report on the extent to which member-borne charges and transaction costs under their scheme represent “good value”. Similarly, independent governance committees (IGCs) are required to assess the ongoing “value for money” of workplace personal pension plans for members. These terms are not defined in the legislation, so trustees and IGCs need to determine how they will assess this.
Action: Decide approach to assessing “good value”/“value for money” and draw up value for money policy to record this.
- DC governance – Trustees of DC plans are now required to design default funds in members’ best interests and regularly review them, prepare a statement of investment principles for their default funds and ensure core financial transactions are processed promptly and accurately. Chairs of trustees are required to prepare and sign an annual governance statement on these and other matters.
Action: Identify and implement actions needed to comply with new governance requirements for DC plans. Read more
- New charge cap – Member-borne charges and deductions (excluding transaction costs) under default funds of qualifying schemes are now capped at 0.75% of funds under management. Trustees and providers are responsible for ensuring that the default fund(s) under their plan(s) meets this cap.
Action: Ensure default funds under qualifying schemes meet the new charge cap. Read more
- Preparing for automatic re-enrolment and responding to simplification – Larger employers are approaching their first automatic re-enrolment date and there are several actions they need to take. Employers must also decide how to respond to recent legislative changes including simplified communication requirements and four new exemptions from auto-enrolment (including for workers with protection against the lifetime allowance tax charge and those serving a notice period).
Action: Prepare for re-enrolment. Update auto-enrolment communications, as appropriate, and decide how to implement new exemptions. Read more
- VAT recovery on pension costs – HMRC’s current approach to VAT recovery on pension costs (including fees for investment services) ends on 31 December 2015. In future, sponsors will need to be a party to agreements between trustees and third party service providers and advisers in order to be able to recover VAT on the relevant fees.
Action: Assess impact of HMRC’s new approach and identify actions that need to be taken before the end of the year to enable VAT to be recovered. Read more
- New scheme funding guidance – Trustees and sponsors preparing an actuarial valuation for their scheme should have regard to the Pensions Regulator’s Annual defined benefit funding statement 2015, which reiterates the need for trustees to adopt an integrated approach to funding, understand their scheme’s sensitivity to different risks and undertake contingency planning. Where affordability is an issue, trustees are expected to undertake a higher level of due diligence and schemes with a 2014 valuation date are expected to consider the impact of post valuation experience when finalising their valuations.
Action: Read Regulator’s annual funding statement and consider impact on your scheme.
- Abolition of DC short service refunds – From 1 October 2015, DC occupational pension plans will only be able to pay refunds of contributions to a member who has not be automatically enrolled where the member leaves the scheme within 30 days of joining (rather than two years, as at present). This could have cost implications for employers with such schemes, particularly those with a high turnover of staff.
Action: Sponsors should assess cost implications and options for offsetting this. Trustees should update scheme rules, communications and admin processes.
- End of DB contracting-out: 10 months and counting – Sponsors of contracted-out DB pension plans need to decide how to respond to the abolition of DB contracting-out in April 2016. Changes to their plan may be needed to offset the loss of their national insurance rebate and to change benefits that refer to the state pension. These changes will take time to implement and require careful planning.
Action: Affected sponsors should assess the impact of the end of DB contracting-out on their pension costs (and benefits) and seek advice on options for offsetting this.