Pensions Update December 2017 Wishing you peace and joy for the holiday season CONTACT US | FORWARD | WEBSITE In This Issue Regulation of Master Trusts Revaluation Order published Select Committee proposes strengthening of Pension Wise signposting New guidance on DC chair's statement Reduction of money purchase annual allowance to £4,000 becomes law PPF issue revised approach to bridging pensions Trustees fail in challenge on VAT treatment Regulation of Master Trusts Over 7 million people are saving through Master Trusts following the introduction of auto-enrollment, and the Government considers that Master Trusts require additional supervision in order to ensure that the public has confidence in the pensions system. The DWP has issued draft regulations under the Pension Schemes Act 2017 (May 2017 Update) that set out further detail (and some limited exemptions) in respect of the regulation of Master Trusts. Under the new framework the Pensions Regulator (the "Regulator") will authorise and supervise Master Trusts, and this new regime is expected to commence from October 2018. The regime is broadly applicable to occupational pension schemes used by unconnected employers and which provide money purchase benefits (either alone or with other benefits). Further information on the consultation on the draft regulations can be found here. Revaluation Order published The Occupational Pensions (Revaluation) Order 2017 comes into force on 1 January 2018, and specifies a higher revaluation percentage of 3.0% and a lower revaluation percentage of 2.5% for the year 1 January 2017 to 31 December 2017. Select Committee proposes strengthening of Pension Wise signposting The Work and Pensions Select Committee has proposed strengthening the current signposting requirements for Pensions Wise. The Select Committee found that while there is a 94% satisfaction rate with Pensions Wise, there is only a 20% take up rate. In order to improve this the Select Committee recommended that the legislation is strengthened so that, rather than plans simply notifying individuals of the availability of Pensions Wise, trustees would need to ensure that an individual receives or expressly refuses guidance before being granted access to their pension pot. The Select Committee report can be viewed here. New guidance on DC chair's statement The Regulator has published a 'Quick Guide' to assist trustees with the preparation of a DC Chair's statement. It includes examples of what information would be included in a good Chair's statement and what a poor Chair's statement looks like. The Quick Guide is based on real-life Chair's statements received by the Regulator, and we recommend Trustees check the Quick Guide before submitting their next Chair's statement to see whether any changes are needed to reflect the Regulator's best practice. A copy of the Quick Guide can be viewed here. Reduction of money purchase annual allowance to £4,000 becomes law The suspension of Parliament for the UK general election earlier this year delayed two changes to pensions tax legislation: • the reduction in the money purchase annual allowance (applicable to individuals who have flexibly accessed their pension benefits) from £10,000 to £4,000 • £500 income tax exemption for employer funded pension advice in certain circumstances Due to the delay there was a question mark over when the changes would come into effect and if this could be effected retrospectively. However, the Finance (No. 2) Act 2017 became law in November 2017 and takes effect retrospectively from 6 April 2017, which is the date from which the changes were originally intended to be made. PPF issue revised approach to bridging pensions We reported in our September Update (click here) on the Pension Protection Fund ("PPF")'s consultation on options for taking account of bridging pensions in PPF compensation. The PPF has issued a further consultation and draft regulations that will permit PPF compensation to be reduced, which the PPF says will more closely reflect the approach taken by pension schemes. The consultation can be viewed here and draft regulations can be viewed here. Trustees fail in challenge on VAT treatment The Trustees of the United Biscuits defined benefit pension scheme have failed in their argument that fund management services supplied by their investment managers should not be subject to VAT. The basis for their argument was a VAT exemption under UK law for insurance and reinsurance transactions. Due to this exemption, HMRC does not require VAT to be applied to fund management services provided by insurers, and the Trustees argued that on the basis of 'fiscal neutrality' that this should also apply to the provision of fund management services by noninsurers. The High Court rejected the argument and upheld the distinction between services provided by insurance companies and those provided by non-insurance companies. However, the distinction will not be maintained beyond April 2019 as HMRC has recently announced the withdrawal of this favourable treatment. Contact us If you wish to discuss any of these issues further, please contact your usual Baker McKenzie lawyer. Jeanette Holland Robert West Arron Slocombe Chantal Thompson Editor: Tracey Akerman Disclaimer - Baker & McKenzie International is a global law firm 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. This may qualify as “Attorney Advertising” requiring notice in some jurisdictions. Prior results do not guarantee a similar outcome.