1 Preparing for Brexit – whilst uncertainty continues to surround the timing and nature of Brexit, as far as pensions law and regulation is concerned, there is unlikely to be any direct impact from Brexit this year. Nevertheless, pension plan trustees and sponsors should continue to monitor the economic effect of Brexit (and the uncertainty surrounding it) and the impact on macro-economic policy, financial markets and the strength of their sponsor covenant.
Action: Continue to monitor impact of Brexit on your plan and sponsor. Consider setting up a Brexit sub-committee to respond quickly to developments. Read more.
2 PPF levy deadlines approaching – trustees and sponsors of DB plans wishing to reduce their 2017/18 PPF levy will need to take action early in 2017, especially if they wish to put in place contingent assets for the first time or re-certify existing contingent assets. The PPF’s strict levy deadlines for the 2017/18 levy year are set out on its website.
Action: Ensure actions to reduce your plan’s PPF levy are taken by the relevant deadlines, as these are applied strictly.
3 Cybersecurity threat – as several recent high-profile examples have illustrated, the threat of cybersecurity is real and can cause significant damage to individuals and to an organisation’s reputation. The Pensions Regulator is urging trustees to understand the information security arrangements in place for their plan (including those operated by third party service providers) and to ensure they are adequate.
Action: Review the information security arrangements for your plan and put in place a comprehensive information security policy.
4 DB regulation and sustainability – high-profile sponsor failures combined with rising deficits for a number of DB plans in 2016 fuelled the debate about the suitability of DB pensions regulation and the sustainability of DB plans. This debate is set to continue in 2017 following publication by the Work and Pensions Select Committee of its report at the end of last year. The Government is also due to publish a Green Paper shortly. This is expected to examine the valuation process and methodology for DB plans, inflation protection, consolidation and DB regulation.
Action: Interested parties should ensure their views are represented in the current debate about the sustainability of DB plans and the suitability of DB regulation.
5 Don’t forget GMPs – trustees of plans that were contracted-out on a DB basis and open to accrual on 6 April 2016 only have until 5 April 2017 to make use of the statutory modification power to provide for GMP fixed rate revaluation to apply from the ending of pensionable service, rather than from 6 April 2016. The Government is also consulting on proposals regarding equalisation, conversion and indexation of GMPs in private and public service plans.
6 Proposed changes to IFRIC14 could remove ability to recognise surplus – under proposed changes to IFRIC14 sponsors of DB plans would be prevented from recognising any IAS19 surplus in their plan where, amongst other things, the trustees have a unilateral right to buy out or to augment members’ benefits.
Action: Review your plan rules and assess the potential impact of the proposed changes on the sponsor’s accounts. Consider potential options for mitigating this.
7 Reviewing your IDRP – trustees should review their plan’s internal dispute resolution procedure (IDRP) in light of the High Court’s decision in Webber v Department for Education as a two-stage process may no longer be suitable in all cases. The Pensions Ombudsman is also encouraging trustees to move to a one-stage process to speed up dispute resolution.
Action: Review the suitability of your plan’s IDRP process. Read more.
8 Reduction in money purchase annual allowance may impact staff – the money purchase annual allowance (which applies to most individuals who have flexibly accessed their DC savings after age 55) is due to be reduced from £10,000 to £4,000 from 6 April 2017. This may impact staff in pension plans where the employer contribution is more than the long-term auto-enrolment minimum of 8% of qualifying earnings (£5,824 to £43,000 for 2016/17).
Action: Assess the potential impact of the reduced money purchase annual allowance on your staff and/or members. Read more.
9 Tax free pensions advice allowance to be increased – the Government is set to increase the tax free pensions advice allowance for advice made available to employees generally from £150 to £500 in each tax year from 6 April 2017. This is part of the Government’s plan to enable more people to access advice to help them make decisions about their retirement savings.
Action: Assess how you can best support your staff in planning for their retirement and consider the merits of making use of this enhanced allowance.
10 Trustee competence and plan governance regulatory priorities – in the response to its discussion paper on 21st century trusteeship, the Pensions Regulator has indicated that it expects all plans to have effective trustee recruitment processes in place alongside regular performance reviews and trustee training and development plans. The Regulator has also said that it will take tougher enforcement action against trustees who fail to meet the required levels of competency and plans that fail to meet the required governance standards.
Action: Ensure your plan has suitable processes in place to ensure good governance and to assess and maintain trustee competence.