UK pensions update - April 2015

1 Pensions Update April 2015 In this issue Regulator publishes guidance on DB to DC transfers Finance Act 2015 becomes law Technical changes to treatment of AVCs under the charge cap HMRC publishes guidance for scheme administrators on new DC flexibilities HMRC publishes further Brief on deduction of VAT on DB pension fund management costs Regulator publishes determination notice in relation to pensions liberation Court of Appeal rules in Box Clever case Articles on the new pension flexibilities and trustee investment decisions 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] Regulator publishes guidance on DB to DC transfers Trustees of defined benefit ("DB") schemes should note that the Pensions Regulator (the "Regulator") has published the final form of its guidance on DB to DC transfers and conversions. As reported in our February 2015 Pensions Update, the Regulator consulted on this guidance earlier this year. The guidance is intended to assist trustees of DB schemes in managing transfer requests and their impact. In particular, it gives a helpful overview of the requirements for transfers and internal conversions of benefits following the 6 April 2015 changes to legislation, and sets out the requirement for trustees to check that DB members wishing to transfer benefits have obtained appropriate independent advice before a transfer is processed. It is proposed that the guidance will be reviewed in 2016 in light of experience. The guidance can viewed here. > Back to Top Finance Act 2015 becomes law The Finance Bill 2015 received Royal Assent on 26 March 2015 and is known as the Finance Act 2015 ("FA 2015"). The FA 2015 extends the category of people who can receive annuity payments on the death of the member or previous beneficiary. It also provides that, where the death occurs before age 75, annuity payments to a beneficiary can be made tax free. Two sets of draft Regulations have been published which relate to the changes introduced by the FA 2015:  the Registered Pension Schemes (Provision of Information) (Amendment No. 2) Regulations 2015 will amend the reporting requirements in connection with the payment of death benefits. They will also impose new requirements on insurance companies in connection with transfers of annuities; and  the Registered Pension Schemes (Transfer of Sums and Assets) (Amendment No. 2) Regulations 2015 will ensure that nominees' or successors' annuities may only be transferred to another nominee's or successor's annuity respectively. Both sets of regulation are subject to consultation until 29 May 2015. > Back to Top Technical changes to treatment of AVCs under the 2 charge cap New legislation regarding the governance of defined contribution ("DC") pension schemes (the Occupational Pension Schemes (Charges and Governance) Regulations 2015) came into force on 6 April 2015. Amongst other changes, this legislation introduced a charge cap that applies to default investment arrangements of pension schemes used for automatic enrolment. As reported in our March 2015 Pensions Update, the Department for Work and Pensions (the "DWP") launched a last minute consultation on a technical change to this legislation to ensure that no arrangement solely receiving Additional Voluntary Contributions will be subject to the charge cap. However, the DWP has not addressed another issue which has given rise to concern - the question of whether funds which have been substituted for funds selected by the member are caught by the cap. The DWP has now published its response to the consultation (which can be viewed here), and the amending regulations (the Occupational Pension Schemes (Charges and Governance) (Amendment) Regulations 2015) came into force on 6 April 2015 (the same date as the original legislation). > Back to Top HMRC publishes guidance for scheme administrators on new DC flexibilities HM Revenue & Customs ("HMRC") has published Newsletter 68, which contains useful guidance for administrators dealing with payments made under the new DC flexibilities. The Newsletter can be viewed here. The Newsletter also highlights that a new Pensions Tax Manual has been published in draft. The Pensions Tax Manual is due replace the current Registered Pension Schemes Manual ("RPSM") later this year. According to HMRC, the reason for the change is that the transition of HMRC pension content to the GOV.UK website has given the opportunity to provide some of the guidance aimed at pension scheme members and their advisers, employers and pension scheme administrators (which is currently included in the RPSM) on the pension pages of GOV.UK. The new Pensions Tax Manual will focus on providing technical guidance on the pensions tax rules. The Pensions Tax Manual has been published in draft form now to allow for comments to be made. The draft can be viewed here. > Back to Top HMRC publishes further Brief on deduction of VAT on DB pension fund management costs A further Brief has been issued by HMRC in relation to VAT and DB pension funds. Brief 8 (2015) specifically addresses the question of the deduction of VAT on pension fund management costs and the potential application of tripartite agreements in this context. It follows two earlier Briefs which we reported on in our December 2014 Pensions Update. In summary, HMRC accepts that tripartite contracts can be used to demonstrate that the employer is the recipient of a supply of DB pension fund management services and may therefore be able to deduct VAT incurred on these services. The Brief includes details of the points that must, as a minimum, be covered by the tripartite contract. 3 The Brief also confirms that current VAT treatment will remain available until 31 December 2015. The Brief can be viewed here. Issues relating to VAT and UK pension schemes will be discussed at our Breakfast Briefing on 28 April 2015. > Back to Top Regulator publishes determination notice in relation to pensions liberation The Regulator recently published a determination notice in an alleged pensions liberation case. The Regulator's Determinations Panel decided to appoint Dalriada Trustees Limited as trustee of a number of pension schemes in place of the existing trustees, all of whom have been prohibited from acting as trustees of trust schemes in general. The Determinations Panel considered that the trustees were not fit and proper persons to act as trustees due to a number of breaches of duty and failures, including:  lack of knowledge and understanding: there was confusion in the trust deeds as to whether the schemes were occupational or personal pension schemes, breaches of duty in relation to the appointment of member nominated trustees, failure to appoint an auditor and several of the schemes were not registered with the Regulator;  investment failures: the trustees had decided to invest a substantial proportion of the schemes' assets in a single high risk, illiquid investment without taking adequate investment advice;  fees failures: the fees charged by the trustees were inappropriate, excessive and in breach of trust; and  liberation failures: the payment of over £11 million of funds into the schemes within 7 months of the first sponsoring employer being set up suggested pension liberation activity, which any trustee should have known. > Back to Top Court of Appeal rules in Box Clever case The Court of Appeal has handed down its decision in a case concerning the extent to which, following a warning notice, the Regulator can rely on grounds it did not mention in the warning notice if its action is challenged. By way of reminder, a Financial Support Direction ("FSD") can be issued by the Regulator where a scheme's employer is either a service company or is insufficiently resourced. It requires the recipient to ensure that reasonable financial support is put in place for the pension scheme. The first step in the Regulator's procedure is to issue a warning notice to persons who appear to the Regulator to be directly affected by the regulatory action it is considering. An FSD can then only be issued if the Regulator's Determinations Panel so decides. In this case, warning notices were issued in 2011 to a number of companies in the 4 ITV group in respect of the Box Clever Pension Scheme. The Determinations Panel subsequently concluded that it would be reasonable to issue FSDs to the targets. The targets exercised their right to refer the determination of the Determinations Panel to the Upper Tribunal and, following a procedural hearing, the Upper Tribunal held that the Regulator could maintain allegations which were not asserted in the warning notices. The targets appealed this decision. The Court of Appeal has now decided that the Upper Tribunal does have a discretion to allow the Regulator to raise a new case not contained in the warning notice, but the exercise of this discretion should depend on a consideration of all the relevant factors in the case and not just the narrow question of whether the Regulator had good reason for seeking to enlarge its case (which was the test applied by the Upper Tribunal). The matter has been remitted back to the Upper Tribunal to re-consider the targets' application in the light of the Court of Appeal's judgment. > Back to Top Articles on the new pension flexibilities and trustee investment decisions Arron Slocombe, Partner, Jonathan Sharp, Senior Associate and Sarah Hickling, Professional Support Lawyer have written a feature article entitled "New pension flexibilities: opportunities & challenges". This article first appeared in the April 2015 issue of PLC Magazine, published by Practical Law, part of Thomson Reuters (Professional) UK Limited, and is reproduced by agreement with the publishers. The article considers the practical implications for DC pension schemes of the new flexibilities on accessing pension savings. The full article can be viewed by clicking here. Also published this month is an article by Senior Associate, Claire Collier entitled "Is it always about the money when trustees make investment decisions?" This article, which first appeared in the April 2015 edition of Pensions World, considers the latest guidance from the Law Commission. The article can be viewed by clicking here. > 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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