Pensions Update October 2014 In this issue Taxation of Pensions Bill published Government's proposals on guidance guarantee published DC quality standards and charge capping: further Command Paper on Better Workplace Pensions published, together with draft Regulations PPF publishes its conclusions on its plan for the PPF levy over the next three years, the Levy Estimate for 2015/16 together with a consultation on the Levy Rules for 2015/2016 IORP II – Revised Text Published Walker v Innospec – Appeal Granted HMRC Updates the RPSM This newsletter is for information purposes only. Its contents do not constitute legal advice and should not be regarded as a substitute for detailed advice in individual cases. If you wish to discuss any of these issues further, please contact your usual Baker & McKenzie lawyer. Jeanette Holland [email protected] Robert West [email protected] Chantal Thompson [email protected] Arron Slocombe [email protected] Taxation of Pensions Bill published The Taxation of Pensions Bill was published this month, following the release of the draft Bill in August (see our August Update for details). The purpose of the Bill is to implement the defined contribution ("DC") pension flexibilities which were announced in the 2014 Budget. The Bill is expected to come into force on 6 April 2015. The Bill includes some minor amendments made since the August draft, but also contains some new additions. The two principal developments are: 1. The Chancellor recently announced a new flexibility for pension scheme members, whereby individuals will be able to pass on their unused DC pension to a nominated beneficiary when they die. In place of the current 55% tax charge on a pension pot passed on at death, the Bill provides that: o Where an individual dies before age 75, their DC pension pot can pass to a nominated beneficiary completely tax-free, as long as it is paid out as a lump sum or is taken through a flexi-access drawdown fund. However, this does not apply to annuities or scheme pensions; o Where an individual dies age 75 or over, their DC pension pot can pass to a nominated beneficiary, who will then have two options: either to draw it down and pay tax at their marginal rate, or to receive the pension as a lump sum, subject to a tax charge of 45%. 2. There will be new reporting requirements for trustees, scheme administrators and individuals, to ensure that, where an individual has accessed their pension savings flexibly: o Any scheme of which the individual is a member is aware of this; o The individual gets the right information to declare on their self-assessment tax return and calculate the annual allowance charge due; and o HMRC has sufficient information to ensure the correct amount of tax is paid. > Back to Top Government's proposals on guidance guarantee published On 23 October 2014, the Government published its latest set of proposed amendments to the Pension Schemes Bill. These include proposals to implement the guidance guarantee. The Government has decided that face
to face guidance will be delivered by the Citizens Advice Bureau, with telephone guidance being provided by the Pensions Advisory Service. The Government also announced that it will be designing an online service. The proposed amendments will be discussed during the committee stage, which lasts until 6 November. The Treasury press release can be viewed by clicking here. > Back to Top DC quality standards and charge capping: further Command Paper on Better Workplace Pensions published, together with draft Regulations The DWP has published a further Command Paper on its proposals for better workplace pensions, introduced by a statement from Pensions Minister, Steve Webb. This builds on its March Paper by publishing the Government’s response to its consultation on minimum governance standards and transparency issues. It also launches a consultation on draft regulations on governance and charges in occupational pension schemes: the draft Occupational Pension Schemes (Charges and Governance) Regulations 2015. These will, amongst other things, implement the charge capping measures in respect of qualifying schemes for auto-enrolment which were announced in the March Command Paper. Further detail on the key measures contained in the in the March Command Paper can be found in our April Update. Subject to Parliamentary approval, the majority of the measures are intended to come into force from April 2015. Trustees of occupational pension schemes will need to assess, in conjunction with employers, whether their schemes will be impacted by the changes and, if they are, assess whether any changes are required to ensure that schemes comply with the requirements. Key aspects of the October Command Paper include: New quality standards will apply across all money purchase workplace pension schemes. Trustees of money purchase occupational schemes will be required to: o design default arrangements in members’ interests and keep them under regular review; o ensure that core financial transactions are processed promptly and accurately; o assess the value of costs and charges borne by scheme members; and o have a chair of trustees who will be responsible for signing off an annual statement on how the governance requirements have been met Trustees of occupational pension schemes must not be restricted in their choice of service providers and any conflicting provision in the scheme rules will be overridden. Providers of workplace personal pension schemes (contract-based schemes) will be required to set up and maintain Independent Governance Committees (IGCs) to provide independent oversight on behalf of scheme members. There will be additional requirements to strengthen the independent oversight of master trust arrangements. Restrictions on charges: these will apply to money purchase schemes and the money purchase benefits accrued in non-money purchase qualifying schemes, except where certain exclusions apply. The
restrictions only apply to qualifying schemes used for auto-enrolment. The key measures and the timetable for their introduction are: From April 2015 o A charge cap will be introduced in the default arrangements of qualifying schemes, set at 0.75 per cent of funds under management, or equivalent to 0.75 per cent for schemes with combination charge structures. This will cover all Member-Borne Deductions ("MBD"s), excluding transaction costs, and costs resulting from pension sharing, complying with court orders and scheme wind-up. o Any Active Member Discount structures ("AMD"s) in qualifying schemes must not result in the level of charges faced by members who cease to contribute going over the default arrangement charge cap. o Between April 2015 and April 2016, any commission payments must be counted as MBDs for the purposes of the charge cap. o Member-borne payments for advice to employers – consultancy charges – in all qualifying workplace personal pension schemes will be banned from April 2015. o The DWP intends to consult in 2015 on regulations to ban commission charges in occupational pension schemes used as qualifying schemes from April 2016. From April 2016 o Member-borne adviser commission and consultancy charges will be banned from qualifying schemes. o AMDs will be banned from qualifying schemes. In 2017 o The level of the default arrangement charge cap will be reviewed, to see whether the level should be lowered and whether it should include some or all transaction costs. Responses are not being invited on most of the Command Paper (as the majority of the Command Paper is technically a response to previous consultations). Responses are, however, being invited on the draft Occupational Pension Schemes (Charges and Governance) Regulations 2015. The consultation runs until 14 November. > Back to Top PPF publishes its conclusions on its plan for the PPF levy over the next three years, the Levy Estimate for 2015/16 together with a consultation on the Levy Rules for 2015/2016 In May the PPF consulted on plans for the PPF levy over the next 3 years, including the move to a new insolvency risk provider, Experian, and a new model for assessing insolvency risk. Further details on the proposed changes can be found in our June Update; The PPF has now published a policy statement confirming that it will be implementing the changes as planned and outlining a range of
changes to the original proposals. The policy statement can be accessed here. The PPF has also published its Levy Estimate for 2015/16. This has been set at £635m, a reduction from 2014/15 of nearly 10%, along with the draft Levy Rules for 2015/16. The draft Levy Rules for 2015/2016, together with the associated draft guidance and appendices can be accessed here. The consultation on the draft Levy Rules for 2015/2016 runs until 13 November 2014. A draft of the updated standard form agreements in relation to contingent assets can be accessed here. The final form agreements will be published alongside the final 2015/16 Determination later this year. The PPF has announced some minor amendments to the above documents since they were initially published in early October. The documents in the links above should therefore be read in conjunction with this announcement. The list of minor amendments can be accessed by clicking here. Schemes wishing to enter into a contingent asset agreement before the final 2015/2016 Determination is published should continue to use the currently in force versions of the agreements available here. > Back to Top IORP II – Revised Text Published In September, amendments to the proposed reforms to IORP II were published. There are several points of interest in the revised text: The original aim of the European Commission was for each member state to have adopted the changes into national law by 31 December 2016. This date now seems to have been removed and left blank; therefore the final implementation date is not currently clear; The requirement for cross-border pensions schemes to be fully funded at all times has been removed. Such plans would still need to be fully funded when they first become cross-border arrangements, but the new wording would give flexibility for any deficit which later arises to be paid off over a recovery period. This may make it somewhat easier for corporations to merge pension schemes across different EU countries, although there would still be significant hurdles to overcome; The proposals are likely to require EU member states to implement minimum governance standards for pension schemes in their countries, including a "fit and proper" persons test for those running an IORP. There have been some minor changes to this requirement since the original IORP Directive was published in March this year. However, as currently drafted, it would still require trustees to hold professional qualifications, and it seems doubtful whether non-professional trustees could be appointed to pension schemes. It is not yet clear what such a requirement would mean in a UK context, for example in relation to "member nominated" trustees. We expect there to be continued lobbying in this area, given the differences between this aspect of IORP II and the UK system of trusteeship; Article 29, which relates to pension scheme risk evaluation, has been significantly extended. The text of the Article now sets out in far more detail what the risk evaluation must cover. However, this will now only take place every three years rather than annually. > Back to Top
Walker v Innospec - Appeal Granted We reported in February that the Employment Appeal Tribunal had ruled that pension schemes are entitled to limit dependants' benefits in respect of civil partners by reference to service after 5 December 2005. We understand that leave to appeal this decision to the Court of Appeal has been granted and a hearing will take place between 23-26 February 2015. > Back to Top HMRC Updates the RPSM HMRC has published details of its recent amendments to the RPSM. These include changes made in response to the Finance Act 2014, for example in relation to HMRC’s new powers to prevent the registration of pensions liberation schemes and in relation to the trivial commutation limits. > Back to Top Baker & McKenzie International is a Swiss Verein with member law firms around the world. In accordance with the common terminology used in professional service organizations, reference to a "partner" means a person who is a partner, or equivalent, in such a law firm. Similarly, reference to an "office" means an office of any such law firm. Before you send an e-mail to Baker & McKenzie, please be aware that your communications with us through this message will not create a lawyer-client relationship with us. Do not send us any information that you or anyone else considers to be confidential or secret unless we have first agreed to be your lawyers in that matter. Any information you send us before we agree to be your lawyers cannot be protected from disclosure.
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