Welcome to the March/April 2017 issue of our Bulletin for Pensions Managers. This issue broadly covers developments to the end of April 2017. In this issue: Pensions news 1 Pensions finance 3 Pensions litigation 4 Mayer Brown events 5 Dates to note over the next 12 months 6 Pensions news FINANCE ACT 2017 This Act has received Royal Assent. Amendments were made to the Act to ensure that it could complete its passage through Parliament before Parliament was dissolved ahead of the general election. Among the provisions removed were: • reduction of the money purchase annual allowance to £4,000; and • replacement of the existing £150 tax and National Insurance exemption for employer-funded pensions advice with a new £500 exemption that also covers advice on general financial and tax issues relating to pensions. Both changes were due to take effect from 6 April. According to the Treasury, these measures remain government policy, and the government will legislate for their introduction as soon as possible after the election (if the same government is in power after the election). The pensions-related provisions that remained in the Act include: • changes to the tax treatment of overseas pensions from 6 April; and • introduction of the 25% QROPS transfer charge from 9 March. Action If they have not done so already, schemes should update their overseas scheme transfer procedures and associated member communications as a matter of urgency to reflect the new QROPS transfer charge. Action Schemes should continue to be administered on the basis of the £10,000 money purchase annual allowance, but trustees should consider whether any communications to members are required to let them know that there is a significant possibility that the allowance will be reduced to £4,000 with effect from 6 April. PENSION SCHEMES ACT 2017 This Act has received Royal Assent. The authorisation and supervision framework for master trusts that it introduces is expected to come into force in October 2018. However, the transitional supervision regime for existing master trusts has immediate effect. Action Existing schemes which fall within the Act’s definition of a “master trust” should ensure that they are aware of, and comply with, the transitional supervision regime. TRANSFERS OF CONTRACTED-OUT RIGHTS IN PAYMENT – NEW REGULATIONS Regulations will come into force on 3 July that allow transfers of GMPS and contracted-out rights in payment with member consent to schemes that have never been contracted-out where: • the transferring scheme is in PPF assessment; or • a regulated apportionment arrangement has been entered into. The DWP has confirmed that it will consider further changes in relation to transfers without consent to schemes that have never been contracted-out later in 2017. Action No action currently required. March/April 2017 2 Bulletin for Pensions Managers MULTI-EMPLOYER SCHEMES – EMPLOYER DEBT The DWP has published a consultation on draft regulations introducing a new option for employers in multi-employer schemes who suffer an employment cessation event to defer payment of the s75 debt thereby triggered. A number of conditions would need to be met, including a funding test. The deferred employer would remain an employer for scheme funding purposes. The consultation closed on 18 May. If the proposed changes go ahead, they will come into force on 1 October. Action No action currently required. DC SCHEMES – EARLY EXIT CHARGES AND MEMBER-BORNE COMMISSION The DWP has published a consultation on draft regulations that: • introduce a cap on early exit charges in DC schemes; and • extend the ban on member-borne commission arrangements in qualifying schemes for automatic enrolment purposes to arrangements that were in place before 6 April 2016. The regulations will come into force on 1 October. The consultation closes on 31 May. Action Trustees should consider whether any charges levied by their scheme will be caught by the cap on early exit fees. Action Trustees of qualifying schemes should also consider whether any further notifications will need to be made to service providers in connection with the extended ban on member-borne commission arrangements. DB FUNDING – 2017 REGULATOR STATEMENT The Regulator has published its 2017 DB funding statement. This is targeted at schemes undergoing valuations with effective dates between 22 September 2016 and 21 September 2017. Themes covered include affordability and managing deficits, risk management, and fair treatment of schemes. Action Schemes with 2017 valuations should review the statement and bear its messages in mind when negotiating their funding packages. PPF – THIRD LEVY TRIENNIUM The PPF has published a consultation and accompanying documents on the draft framework for the next levy triennium (2018/19 – 2020/21). The changes proposed include: • revising how employers are allocated to scorecards; • introduction of two new scorecards; • adoption of credit ratings for some large employers and a specific methodology for regulated financial services entities; • a requirement for a guarantor strength report for very high value parent/group company guarantees; and • new standard form documentation for all contingent assets (including existing assets). The consultation closed on 15 May. A further consultation on detailed draft rules for 2018/19 will follow this autumn. The PPF has also published recordings of three recent webinars on its proposals. Action No action currently required. GENERAL ELECTION 2017 – PENSION PROPOSALS The Conservatives’ proposals include: • a right for pension schemes and the Regulator to scrutinise, clear with conditions, or in extreme cases stop corporate transactions or large financial commitments that threaten a scheme’s solvency; • new Regulator powers to issue punitive fines; and • creation of sovereign wealth funds in which pension schemes will be encouraged to invest. Labour’s proposals include: • changes to the Takeover Code to require every takeover proposal to have a clear plan in place to protect workers and pensioners; • rejection of proposals to increase state pension age further and commissioning of a new review of state pension age; • ending hidden fees and charges in workplace pensions; and • enabling the development of large and efficient pension funds. The Liberal Democrats’ proposals include commissioning a review to consider the case for introducing a single rate of pensions tax relief. Action No action required. mayer brown 3 BREXIT – ARTICLE 50 TRIGGERED The Government has published a white paper on its proposed approach to legislating for Brexit. Among other things, this explains the approach that the Government will take to: • EU legislation that will fall away when the European Communities Act 1972 is repealed; and • EU case law. Action No action required. AUTOMATIC ENROLMENT – GUIDANCE AND ENFORCEMENT ACTION The Regulator has updated its detailed guidance notes to reflect among other things, the September 2017 end of the transitional period for DB and hybrid schemes, and the April 2018 increase in the minimum contribution levels for DC schemes. The DWP has also updated its guidance on certifying money purchase schemes for automatic enrolment purposes. In addition, the Regulator has published a regulatory intervention report detailing the circumstances in which an employer that failed to comply with its automatic enrolment duties received an escalating fine that eventually totalled £40,000. Action Employers may find the revised guidance useful. REGULATOR – FINES AND PROFESSIONAL TRUSTEE STANDARDS The Regulator has published a consultation on a draft policy for monetary penalties and a revised description of a professional trustee. The draft policy outlines the approach that the Regulator will take towards exercise of its discretion to impose fines, including the factors that the Regulator will take into account. The consultation closed on 9 May. Action No action required. STATE PENSION AGE – INDEPENDENT REVIEW The DWP has published the final report of the independent review into state pension age. Among other things, the report recommends increasing state pension age to 68 between 2037 and 2039, and removing the state pension triple lock. Action No action required. PENSION SCHEMES NEWSLETTER 86 HMRC has published issue 86 of its Pension Schemes Newsletter. Among other things, this contains a summary of HMRC’s position on the tax treatment of in specie contributions to registered pension schemes. Action No action required. COUNTDOWN BULLETIN 24 HMRC has published issue 24 of its Countdown Bulletin. Among other things, this includes various “hints and tips” on GMP reconciliation. Action No action required. Pensions finance DB INVESTMENT – REGULATOR GUIDANCE The Regulator has published guidance for trustees of DB schemes on setting and monitoring investment strategies. Action Trustees of DB schemes may wish to review the guidance and consider whether any aspects should be reflected in their scheme’s investment strategy. EUROPEAN MARKET INFRASTRUCTURE REGULATION (EMIR) – PROPOSED REFORMS The European Commission has announced a package of proposed amendments to EMIR, including a further three year exemption for pension schemes from EMIR’s central clearing requirements. (The current exemption is due to expire on 16 August 2018.) Action No action required. 4 Bulletin for Pensions Managers COMPENSATION FOR DELAYS IN PROCESSING A TRANSFER The High Court has held that when considering whether administrator delays in processing a transfer warranted compensation for financial loss, the Ombudsman should not assume that no compensation was payable if the member contributed to the delays. The Ombudsman should instead consider whether, “but for” the administrator’s delays, the transfer would have been processed by the relevant date. The Court also commented that the Ombudsman should consider increasing its upper limit for compensation for maladministration that does not infringe a legal right to £1,600. OMBUDSMAN DETERMINATION – TRANSFERS AND PENSIONS LIBERATION CONCERNS The Ombudsman has decided that it was reasonable for an administrator to have refused to process a transfer in 2013 where it had legitimate concerns about the receiving scheme. The member was not in receipt of earnings from the receiving scheme’s employer, and the administrator’s refusal to process the transfer was therefore in line with the Ombudsman’s views prior to the February 2016 High Court decision in Hughes. It would be inequitable to find against the administrator for an incorrect interpretation of the law prior to that judgment as an incorrect interpretation of the law does not necessarily constitute maladministration. The administrator should review its decision now if the member still wished to proceed with the transfer. OMBUDSMAN DETERMINATION – RECOVERY OF OVERPAYMENTS AND CHANGE OF POSITION The Ombudsman has decided that payments made by a member to her children were not sufficient to demonstrate a change of position in relation to an overpayment recovery claim. It was not a question of whether the member had made the payments in good faith, but whether or not she would have made them had she not received the overpayments. Pensions litigation OPERATION OF PENSION INCREASE UNDERPIN The Court of Appeal has ruled on how a pension increase underpin should operate. The rules of the scheme in question originally provided for annual increases of 3% compound. In 1991, a new rule providing for annual increases of RPI capped at 5% was introduced with prospective and retrospective effect. However, the scheme’s amendment power prohibited amendments which had a prejudicial effect on accrued rights, thereby creating the underpin. The High Court ruled that pensions accrued in respect of service prior to 1991 were to be increased annually by the higher of 3% and RPI capped at 5%. The Court of Appeal however held that this would give members with pre-1991 service more than they would have been entitled to under either the original rule or the new rule. Members with pre-1991 service had an accrued right not to a 3% annual increase in the abstract, but to a 3% increase applied to a figure which had itself been increased by 3% and not by any higher figure. The pre-1991 element of a pension to be paid each year should therefore be calculated by looking at the entire period from the date of retirement and taking the higher of: • the value of that element as at the date of retirement increased each year by 3% compound; and • the value of that element as at the date of retirement increased each year by RPI capped at 5% compound, subject to a floor of 0% to avoid the effects of any negative retail prices increase. POWER TO CHANGE INDEXATION MEASURES The High Court has held that: • the introduction of a specially tailored house prices index (UK HPI) into RPI constituted a material change/other alteration to RPI; but • as a matter of interpretation, RPI as altered by the introduction of UK HPI is the nearest alternative index to RPI as it stood prior to the introduction of UK HPI. mayer brown 5 Mayer Brown events If you are interested in attending any of our events, please contact Katherine Carter (kcarter@ mayerbrown.com) or your usual Mayer Brown contact. Other than our drinks party, all events take place at our offices at 201 Bishopsgate, London EC2M 3AF. • Trustee Foundation Course 12 September 2017 5 December 2017 Our Foundation Course aims to take trustees through the pensions landscape and the key legal principles relating to DB funding and investment matters, as well as some of the specific issues relating to DC schemes, in a practical and interactive way. • Trustee Building Blocks Class 13 June 2017 – DC governance 14 November 2017 – topic to be confirmed Our Building Blocks Classes look in more detail at some of the key areas of pension scheme management. They are designed to be taken by trustees who have already taken our Foundation Course. • Annual Pensions Conference 3 October 2017 Our Annual Pensions Conference will look at some of the challenges facing employers and trustees of occupational pension schemes in the current economic and regulatory environment. • Pensions Group Drinks Party 2 November 2017 Our drinks party for clients and other industry contacts will be held at the Tower of London and will include a tour of the Crown Jewels. Please speak to your usual contact in the Pensions Group if you have any questions on any of the issues in this Bulletin. Ian Wright Partner, London E: firstname.lastname@example.org T: +44 20 3130 3417 THE VIEW FROM MAYER BROWN – PENSIONS PODCASTS Every month Richard Goldstein, a partner in our Pensions Group in London, places a spotlight on key developments that could affect your scheme in a podcast. Just 10-15 minutes long and available on iTunes, the podcasts provide a quick and easy way to stay on top of the current issues in pensions law. Listen to or subscribe to The View from Mayer Brown Pensions Podcasts via iTunes here: Please note – subscribing above will only work on a device with iTunes installed. Alternatively if you don’t have iTunes you can access the podcasts via our website. mayer brown 6 Dates to note over the next 12 months For information Important dates to note Key: • End of transitional period during which 70%/30% split of combined investment and administration invoices can continue to be applied for VAT purposes • Annual allowance deadline for schemes to include details of tax due under “scheme pays” in scheme’s AFT return (2015/2016 tax year) • Automatic enrolment - 2% employer contributions required for DC schemes • CPI indexation of lifetime allowance to be introduced 8 June 2017 3 July 2017 6 July 2017 2017 • Government review of automatic enrolment, including review of level and scope of DC charge cap • Introduction of new valuation and risk warning requirements for transfers and conversions of safeguardedflexible benefits General Election New rules on transfers with member consent of GMPs and contracted-out rights in payment to schemes that have never been contracted-out come into force Annual allowance deadline for employers to provide schemes with information to calculate pension input amounts incurred by members in pension input periods ending in the 2016/2017 tax year Annual allowance deadline for member requests for “scheme pays” (2015/2016 tax year) Automatic enrolment – end of transitional period for DB and hybrid schemes Deadline for passing trustee resolution to remove protected rights provisions from scheme rules • Cap on early exit charges in DC occupational pension schemes and extension of ban on member-borne commission arrangements in qualifying schemes expected to come into force • Proposed new deferral option for s75 debts in multi-employer schemes expected to come into force Annual allowance deadline for schemes to provide members with pension savings statements for the 2016/2017 tax year 31 July 2017 30 September 2017 5 April 2018 1 October 2017 6 October 201731 December 2017 6 April 2018 14 February 2018 Annual allowance deadline for schemes to pay tax due under “scheme pays” (2015/2016 tax year) 0501pen About Mayer Brown Mayer Brown is a global legal services organization advising clients across the Americas, Asia, Europe and the Middle East. Our presence in the world’s leading markets enables us to offer clients access to local market knowledge combined with global reach. We are noted for our commitment to client service and our ability to assist clients with their most complex and demanding legal and business challenges worldwide. We serve many of the world’s largest companies, including a significant proportion of the Fortune 100, FTSE 100, CAC 40, DAX, Hang Seng and Nikkei index companies and more than half of the world’s largest banks. We provide legal services in areas such as banking and finance; corporate and securities; litigation and dispute resolution; antitrust and competition; US Supreme Court and appellate matters; employment and benefits; environmental; financial services regulatory and enforcement; government and global trade; intellectual property; real estate; tax; restructuring, bankruptcy and insolvency; and wealth management. Please visit www.mayerbrown.com for comprehensive contact information for all Mayer Brown offices. Mayer Brown comprises legal practices that are separate entities (the “Mayer Brown Practices”). The Mayer Brown Practices are: Mayer Brown LLP and Mayer Brown Europe-Brussels LLP, both limited liability partnerships established in Illinois USA; Mayer Brown International LLP, a limited liability partnership incorporated in England and Wales (authorized and regulated by the Solicitors Regulation Authority and registered in England and Wales number OC 303359); Mayer Brown, a SELAS established in France; Mayer Brown Mexico, S.C., a sociedad civil formed under the laws of the State of Durango, Mexico; Mayer Brown JSM, a Hong Kong partnership and its associated legal practices in Asia; and Tauil & Chequer Advogados, a Brazilian law partnership with which Mayer Brown is associated. Mayer Brown Consulting (Singapore) Pte. Ltd and its subsidiary, which are affiliated with Mayer Brown, provide customs and trade advisory and consultancy services, not legal services. “Mayer Brown” and the Mayer Brown logo are the trademarks of the Mayer Brown Practices in their respective jurisdictions. © 2017 The Mayer Brown Practices. All rights reserved. Americas | Asia | Europe | Middle East | www.mayerbrown.com XXXX Mayer Brown is a global legal services provider advising many of the world’s largest companies, including a significant portion of Fortune 100, FTSE 100, CAC 40, DAX, Hang Seng and Nikkei index companies and more than half of the world’s largest banks. Our legal services include banking and finance; corporate and securities; litigation and dispute resolution; antitrust and competition; US Supreme Court and appellate matters; employment and benefits; environmental; financial services regulatory and enforcement; government and global trade; intellectual property; real estate; tax; restructuring, bankruptcy and insolvency; and wealth management. Please visit www.mayerbrown.com for comprehensive contact information for all Mayer Brown offices. Mayer Brown comprises legal practices that are separate entities (the “Mayer Brown Practices”). The Mayer Brown Practices are: Mayer Brown LLP and Mayer Brown Europe-Brussels LLP, both limited liability partnerships established in Illinois USA; Mayer Brown International LLP, a limited liability partnership incorporated in England and Wales (authorized and regulated by the Solicitors Regulation Authority and registered in England and Wales number OC 303359); Mayer Brown, a SELAS established in France; Mayer Brown Mexico, S.C., a sociedad civil formed under the laws of the State of Durango, Mexico; Mayer Brown JSM, a Hong Kong partnership and its associated legal practices in Asia; and Tauil & Chequer Advogados, a Brazilian law partnership with which Mayer Brown is associated. Mayer Brown Consulting (Singapore) Pte. Ltd and its subsidiary, which are affiliated with Mayer Brown, provide customs and trade advisory and consultancy services, not legal services. “Mayer Brown” and the Mayer Brown logo are the trademarks of the Mayer Brown Practices in their respective jurisdictions. © 2017 The Mayer Brown Practices. All rights reserved. Attorney advertising. Prior results do not guarantee a similar outcome.