Bulletin for Pensions Managers Welcome to the July/August 2017 issue of our Bulletin for Pensions Managers. This issue broadly covers developments to the end of August 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 BREXIT – WITHDRAWAL LEGISLATION The European Union (Withdrawal) Bill has been laid before Parliament. Among other things, it: • repeals the European Communities Act 1972 with effect from the date that the UK leaves the EU; and • converts EU law as it stands at exit into domestic law. The Bill also provides that existing EU case law will have the same binding, or precedent, status in UK courts and tribunals as existing decisions of the Supreme Court, but the Supreme Court will not be bound by retained EU case law. Accompanying explanatory notes have also been published. Action No action required. DELAYED SPRING BUDGET MEASURES – LEGISLATION LAID BEFORE PARLIAMENT The Finance Bill has been laid before Parliament. Among other things, this contains provision for the following measures which were removed from the Finance Act 2017 during its passage through Parliament: • reduction of the money purchase annual allowance from £10,000 to £4,000; and • replacement of the current £150 income tax and NICs 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 measures will be introduced with retrospective effect from 6 April 2017. Accompanying explanatory notes have also been published. Action Schemes should let members with DC benefits know that the money purchase annual allowance will be reduced to £4,000 with retrospective effect from 6 April 2017. DC SCHEMES – CAP ON EARLY EXIT FEES Regulations have been laid before Parliament that: • introduce the cap on early exit fees in occupational pension schemes providing DC benefits; 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 come into force on 1 October. The Government has also published statutory guidance on the cap on early exit fees. Action Schemes should ensure that they have put arrangements in place to comply with the cap and the extended ban by 1 October. July/August 2017 2 Bulletin for Pensions Managers SCOTTISH LIMITED PARTNERSHIPS – NEW FILING OBLIGATIONS Regulations came into force on 24 July which, among other things, impose a requirement on Scottish limited partnerships to file details of their registrable persons with significant control and relevant legal entities with Companies House within 14 days of 24 July. Action Trustee companies who are members of a Scottish limited partnership (e.g. in connection with an assetbacked contribution arrangement) may wish to check that the partnership’s general partner has made the necessary filings. DATA PROTECTION – GOVERNMENT STATEMENT The Government has published a statement of intent setting out details of the Data Protection Bill that it will lay before Parliament to implement the EU General Data Protection Regulation (GDPR). Among other things, the Bill will include the derogations from aspects of the GDPR that member states are entitled to set out in national law under the GDPR. Action Schemes should already have begun their preparations for compliance with the GDPR which will come into force (irrespective of the proposed Data Protection Bill) on 25 May 2018. For more information on the GDPR, please see our legal update. PENSIONS SCAMS – RESPONSE The Government has published a response to its consultation on pension scams. The response confirms that the following measures will be implemented: • a ban on cold-calling in relation to pensions; • changes to statutory transfer rights; and • introduction of a requirement for pension schemes to have an active company as sponsoring employer in order to register with HMRC – draft legislation has been published in this respect (see below). Action No action currently required. SCHEME REGISTRATION – NEW HMRC POWERS HMRC has published draft legislation giving it powers to register and de-register: • master trusts; and • schemes with dormant companies as their sponsoring employer. Accompanying explanatory notes and a policy paper have also been published. The new powers will take effect from 6 April 2018. PPF – BRIDGING PENSIONS The Government has published a consultation on draft regulations which would enable the PPF to take account of bridging pensions by smoothing the amount of PPF compensation over an individual’s lifetime. The consultation closes on 1 October. Action No action required. AUTOMATIC ENROLMENT – CALL FOR EVIDENCE As part of its automatic enrolment review, the Government has published a call for evidence on: • the alternative quality requirements for DB schemes; and • the regulations dealing with the treatment of seafarers and offshore workers under the automatic enrolment regime. The call for evidence closed on 30 August. Action No action required. DB SECURITY AND SUSTAINABILITY – WHITE PAPER Following its Green Paper on security and sustainability in DB schemes earlier this year, the Government has announced that it will publish a White Paper later this year which will set out proposed next steps on what reform is needed to support the sector. Action No action required. mayer brown 3 REGULATOR – MONETARY PENALTIES AND PROFESSIONAL TRUSTEES The Regulator has published a response to its consultation on a draft policy on how it will exercise its powers to impose monetary penalties and a revised description of who it considers to be a professional trustee. The Regulator has also published the finalised monetary penalties and professional trustee description policies. The fact that an individual is a professional trustee is a factor that the Regulator will take into account when deciding what level of monetary penalty to impose. The Regulator considers a professional trustee to include any person, whether an individual or a company, who acts as a trustee in the course of the business of being a trustee. The fact that a trustee is remunerated will not in itself mean that a trustee is a professional trustee. Action Trustees should be aware of the two policies and the implications of classification as a professional trustee for the level of competence expected of them by the Regulator, and the potential consequences of any failure to comply with their duties or to meet the required standard of competence. REGULATOR – AUTOMATIC ENROLMENT ENFORCEMENT ACTION The Regulator has announced a new approach of naming employers who have received escalating penalty notices for automatic enrolment breaches. The Regulator has also announced its first prosecution of an employer for failure to comply with the employer automatic enrolment duties. Action No action required, but employers should ensure that they comply with their automatic enrolment duties. REGULATOR – CRIMINAL PROSECUTIONS The Regulator has announced its first successful criminal prosecutions for failure to provide information requested under the Pensions Act 2004. Action No action required, but trustees and employers should ensure that they comply with any statutory requests for information from the Regulator. STATE PENSION AGE – REVIEW The DWP has announced that state pension age will increase to 68 between 2037 – 2039, seven years earlier than originally planned. Action No action required. PENSION SCHEMES NEWSLETTERS 89 AND 90 HMRC has published issue 89 and issue 90 of its Pension Schemes Newsletter. Among other things, these include updates on the lifetime allowance look-up service for administrators and the new online service for pension scheme registration and administration that HMRC is developing. Action No action required. COUNTDOWN BULLETINS 25 HMRC has published issue 25, issue 26 and issue 27 of its Countdown Bulletin. Among other things, these state that HMRC will now accept late expressions of interest in the Scheme Reconciliation Service in exceptional circumstances. Action Schemes that failed to register for the Scheme Reconciliation Service by the deadline of 5 April 2016, have not yet submitted a late expression of interest, and wish to do so, should do so as a matter of urgency. AUTOMATIC ENROLMENT – END OF TRANSITIONAL PERIOD The transitional period for employers using a DB or hybrid pension scheme to meet their automatic enrolment obligations comes to an end on 30 September. During the transitional period, employers are entitled to defer automatic enrolment for jobholders who: • were employed by the employer before the employer’s staging date; • became entitled before the employer’s staging date to become an active member of a DB qualifying scheme or the DB section of a hybrid qualifying scheme; and • are, and since then always have been, entitled to become an active member of a DB qualifying scheme or the DB section of a hybrid qualifying scheme. 4 Bulletin for Pensions Managers PENSIONABLE PAY CAPS – COURT GUIDANCE The Court of Appeal has held that a cap on pensionable pay that had been achieved by the employer determining what pay increases would count towards pensionable pay was valid as the employer had power under the rules of its pension scheme to determine the extent to which future pay increases were pensionable. The Court also expressed the view that the cap did not breach s91 Pensions Act 1995 or the employer’s duty of good faith. ILL-HEALTH EARLY RETIREMENT PENSION – CALCULATION BASED ON PART-TIME SALARY WAS NOT DISCRIMINATION The Court of Appeal has held that a member was not treated unfavourably as a consequence of his disability where, in accordance with the scheme rules, his ill-health early retirement pension was calculated by reference to the part-time salary he was earning when he retired rather than a full-time equivalent salary. (The member had previously moved from full-time employment to part-time employment due to his disability.) The Court held that a provision which treats a disabled person more advantageously as a consequence of his or her disability, but less advantageously than would be the case had the disability arisen more suddenly (with the result that the disabled person retired from fulltime employment), does not amount to unfavourable treatment. CALCULATION OF A WEEK’S PAY – INCLUSION OF EMPLOYER PENSION CONTRIBUTIONS The Employment Appeal Tribunal has held that a week’s pay for the purposes of calculating the cap on compensation for unfair dismissal under the Employment Rights Act 1996 includes employer pension contributions. OMBUDSMAN DETERMINATION – RECOVERY OF OVERPAYMENTS The Ombudsman has decided that a scheme could not recover overpayments from a member where she had been assured, following a previous pension calculation error, that the revised pension payments she was receiving were correct, and she had spent the overpayments in good faith on items she would not otherwise have purchased. Pensions finance INVESTMENT CONSULTANCY AND FIDUCIARY MANAGEMENT SERVICES – MARKET INVESTIGATION The Competition and Markets Authority has launched a market investigation into investment consultancy and fiduciary management services provided to institutional investors (in particular, pension schemes). The investigation was launched following a market investigation reference by the FCA about the competitive functioning of the asset management industry, about which it expressed concerns in the final report on its asset management market study. The CMA will investigate whether there has been any adverse effect on competition in the market and, if so, what remedial action should be taken. For more information, please see our legal update. Action No action required. Pensions litigation EMPLOYER DUTIES – “REASONABLE EXPECTATIONS” The Court of Appeal has held that IBM’s actions in implementing a package of changes to its DB pension schemes which included closure of the schemes to further accrual and the signing of non-pensionability agreements by the members (known as Project Waltz) did not breach its duty of good faith. The High Court judge had erred in deciding that, where reasonable expectations had been engendered, those expectations could not be overridden unless there was no other reasonably possible course open to IBM. The correct test that should have been applied was one of irrationality – in other words, whether IBM’s decision to proceed with Project Waltz was one that no rational decision-maker could have reached. As the High Court judge had decided that, but for the special status he accorded to members’ reasonable expectations, the decision was one that a rational decision-maker could have reached, the Court held that the appeal had to fail. Although the statements made by IBM in connection with previous changes to the schemes may have created reasonable expectations among the members as to the scope of future changes to the schemes, those expectations were just one of the factors that IBM had to take into account (which it did) in its decisionmaking process. The weight to be given to those factors was a matter for the decision-maker and not the Court. mayer brown 5 OMBUDSMAN DETERMINATION – DUE DILIGENCE ON OVERSEAS TRANSFERS The Ombudsman has decided that a personal pension scheme provider undertook insufficient due diligence on the qualifying recognised overseas pension scheme (QROPS) to which a member had requested a transfer. The provider checked HMRC’s QROPS list, finding two similarly named schemes, and therefore assumed that one was the scheme to which the member was requesting a transfer. The member subsequently received her pension from the receiving scheme as a lump sum at age 53 and became liable to pay an unauthorised payment charge and surcharge. The Ombudsman directed the provider to pay the unauthorised payment charge and surcharge, less the amount of tax that the member would have paid had the full pension been taken as an uncrystallised funds pension lump sum. Mayer Brown events If you are interested in attending any of our events, please contact Katherine Carter (email@example.com) or your usual Mayer Brown contact. All events (other than our drinks party) take place at our offices at 201 Bishopsgate, London EC2M 3AF. • Trustee Foundation Course 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 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. 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 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. A Global Guide to Retirement Plans & Schemes We have recently launched the latest in our series of global guides, A Global Guide to Retirement Plans & Schemes. The Guide provides an overview of the laws relating to the regulation of retirement plans and schemes in 50 key countries. Each chapter provides a general outline of the country’s social security system and the main rules governing employer-sponsored retirement plans/schemes. The Guide draws on the input of lawyers from across our global Employment & Benefits Group, as well as our network of best friend law firms. It is available via the Mayer Brown website as an eBook/web reader and as an interactive PDF. 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 Head of UK Pensions E: firstname.lastname@example.org T: +44 20 3130 3417 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 • Introduction of new valuation requirements for transfers/ conversions of safeguarded benefits and new risk warning requirements for transfers/ conversions and lump sum payments of safeguardedflexible benefits 2017 Government review of automatic enrolment, including review of level and scope of DC charge cap Automatic enrolment – end of transitional period for DB and hybrid schemes Deadline for passing trustee resolution to remove protected rights provisions from scheme rules Introduction of cap on early exit fees in DC occupational pension schemes and extension of ban on memberborne commission arrangements in qualifying schemes Annual allowance deadline for schemes to provide members with pension savings statements for the 2016/2017 tax year 30 September 2017 5 April 2018 1 October 2017 6 October 2017 31 December 2017 6 April 2018 14 February 2018 Annual allowance deadline for schemes to pay tax due under “scheme pays” (2015/2016 tax year) Deadline for implementation of the Portability Directive into UK law 21 May 2018 EU General Data Protection Regulations comes into effect 25 May 2018 6 July 2018 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 2017/2018 tax year Annual allowance deadline for member requests for “scheme pays” (2016/2017 tax year) 31 July 2018 0508pen About Mayer Brown Mayer Brown is a global legal services organization advising clients across the Americas, Asia, Europe and the Middle East. 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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.