EB News
A fortnightly summary of the important changes in employee benefits law & practice 02/01/2012 - 15/01/2012
16th January 2012, London:
News
All FTSE 100 schemes are now closed to new entrants
Royal Dutch Shell is closing its final salary pension scheme to new employees and replacing the scheme with a defined contribution plan from early 2013. The scheme was the last remaining FTSE 100 final salary scheme still open to new entrants.
According to Shell, the closure of the scheme, which has 6,500 active and 30,000 pensioner members, was intended to "reflect market trends in the UK".
Finance Bill 2012 to be published on 29 March
According to Written Ministerial Statement, this year's Finance Bill will be published on Thursday 29 March 2012.
Regulator will rely on 'whistle-blowers' to police auto-enrolment
The Pensions Regulator has said that it plans to rely on "intelligence-led spot checks" and an anonymous whistle-blowing procedure when policing compliance with the new auto-enrolment regime.
Charles Counsell, TPR executive director said, when speaking before the House of Commons Work and Pensions Committee, that he did not "want to generate an excess demand for information from the pensions industry," but expected the "triangle of employer, employee and scheme to work together on this". He added that, instead of routinely collecting contributions data from providers, TPR would watch for worrying trends.
Bill Galvin, TPR chief executive, said that TPR's focus would be on wilful non-compliance and not administrative matters.
Cases
Ombudsman finds that it was reasonable for member to rely on incorrect pension statement (Major, 82840/1)
In this case, involving the British Steel pension scheme, the Pensions Ombudsman held that, if a pension benefits statement contains an error, it may be reasonable for a member to rely on it, even if the error would be obvious to a pensions expert.
The Pensions Ombudsman found that, in deciding to take voluntary redundancy, Mr Major reasonably relied on an estimate that significantly overstated his pension entitlement on redundancy. To appreciate the error, the member would have needed to know the basis for a redundancy pension and checked the figures manually. The Ombudsman also held that a previous estimate, which overstated pensionable service, had not been sufficiently clear for a layman to identify a potential error and question it.
The Ombudsman directed that the scheme trustee pay Mr Major a lump sum equal to his net lost earnings and an additional pension to bring his benefits up to the level he would have received on retirement at age 65.
Research
The sustainability of pension schemes
In this paper, published by the Bank for International Settlements, it is observed that poor financial market returns and low long-term real interest rates in recent years have created challenges for the sponsors of defined benefit pension schemes. At the same time, lower payroll tax revenues in a period of high unemployment, and rising fiscal deficits in many advanced economies as economic activity has fallen, are also testing the sustainability of pay-as-you-go public pension schemes.
Amendments to pension accounting rules that require corporations to regularly report the valuation differences between their defined benefit pension assets and plan liabilities on their balance sheet have made investors more aware of the pension risk exposure for the sponsors of such schemes.
The paper sheds light on what effects these developments are having on the design of occupational pension schemes, and also provides some estimates for the post-employment benefits that could be delivered by these schemes under different sets of assumptions. In the paper, which concludes by providing some policy perspectives, it is interesting to note that average annual contributions to DC plans as a percentage of salary are higher in the UK than the US -
See - http://www.bis.org/publ/work368.htm
People forced to work into their 70's
A study for Friends Life, by think-tank Future Foundation, has found that many older people could be forced to work into their seventies and beyond due to hardships caused by the looming pensions crisis.
Effectively ruled out of employment by age, a generation of 'Wearies' - Working, Entrepreneurial and Active Retirees - will set up their own businesses, according to the study. Many of tomorrow's OAPs will look to supplement their retirement savings by become self-employed in their later years.
Many are likely to supplement their income buying and selling goods on websites like eBay, while others will turn their front rooms into offices or cottage industry workshops or a nursery. Those with manual skills might set up gardening or home help businesses to make money helping neighbours.
People from across Britain were asked about their attitude to working in retirement as part of the study, entitled "Pensions: Crisis and Reforms".
Over half (51%) of those who are already retired said they would be prepared to do part-time work to boost their pensions. But the figure rises to three-quarters (75%) among those who are yet to retire.
Of those currently working:
- 59% said they would consider selling "unneeded or little-used possessions online"
- 34% said they would "run a small, one-person business from home"
- 21% would consider "gardening for elderly neighbours or for the Council"
- 18% would be prepared to do "social services work for the community".
Asked to consider housing options:
- 14% of current workers said they would consider "moving in with other family members" and 12% "moving in with my children"
- Of those still working, 33% said they would rent out a spare room to a lodger and 29% of those retired agreed.
NEST research shows pension jargon could put people off saving
NEST has published a new version of ‘The NEST phrasebook: Clear communication about pensions', as new research shows that very few people think pensions are 'straightforward' (6 per cent), 'easy to understand' (4 per cent), 'simple' (3 per cent), 'interesting' (5 per cent) or 'engaging' (2 per cent).
According to the research by NEST, only one in seven respondents (15 per cent) finds the language used to describe pensions straightforward and easy to understand and only one in 14 (7 per cent) thinks information from pension providers is better quality than other types of financial information they have seen.
The words people more strongly associate with pensions are 'confusing', 'complicated' 'boring', 'difficult' and 'off-putting'.
The research results, released by NEST alongside a new version of its jargon-busting phrasebook, also shows that more than half (57 per cent) say that sometimes pensions seem so complicated they can't understand the best options available, while one in three people (29 per cent of all respondents and 39 per cent of NEST's target group) are putting off thinking about saving for retirement because they find pensions confusing.
See - www.nestpensions.org.uk/schemeweb/NestWeb/includes/public/docs/NEST-phrasebook,PDF.pdf.
Latest ECB data shows decline in pension fund assets
According to the European Central Bank (ECB), pension funds and insurance companies in Europe saw assets under management fall sharply in the third quarter of last year, with total asset value dropping by more than €13bn over the period.
Latest ECB pension fund and insurance company statistics also found that the insurance technical reserves - the main liabilities of insurance corporations and pension funds - fell slightly from €5,987bn to €5,973bn due to valuation changes between June and September last year, with total assets under managements amounting to €6.9trn.
The ECB also found that households in the euro-zone were holding 76.6% of their pension fund reserves in defined benefit (DB) schemes, 17.9% in defined contribution (DC) schemes and 5.5% in hybrid schemes. The breakdown shows a slight shift toward DC and hybrid schemes over the three months to September.
'Other'
HMRC
Amendments to Registered Pension Scheme Manual
Important changes include -
- Annual allowance 'pension savings statements'. The RPSM confirms that there is no requirement that information sent to members who have more than one arrangement under a registered pension scheme must be provided in a single statement that aggregates all of their arrangements under the scheme.
- Flexible drawdown and auto-enrolment. If a member who has taken flexible drawdown opts out of scheme membership within one month of being auto-enrolled (or re-enrolled) under the Pensions Act 2008 (PA 2008) then HMRC confirms he will still meet the flexible drawdown conditions (i.e. no further contributions).
- Flexible drawdown and drawing benefits more than once. An individual can draw amounts more than once from the same arrangement under flexible drawdown, without being obliged to provide a further flexible drawdown declaration.
- Death benefits and life cover lump sum. The list of authorised lump-sum death benefits that may be paid since 6 April 2011 has been expanded to include a life cover lump sum (a small sum that could have been paid under a previously approved scheme before A-Day to cover, for example, funeral expenses. Payment of a life cover lump sum can only be made if a member died after reaching the age of 75 and the payment does not count as a benefit crystallisation event.
- Fixed protection and provision of information to HMRC. A member who has registered for fixed protection must as a minimum give the scheme administrator the reference number for his fixed protection certificate when he draws his benefits. In addition, the administrator may want to see the certificate itself.
- Fixed protection and giving up enhanced protection. If a member wishes to give up enhanced protection in order to register for fixed protection instead, he must tell HMRC in writing (members with Primary Protection cannot give this up).
See - http://www.hmrc.gov.uk/manuals/rpsmmanual/updates/rpsmupdate090112.htm
Guidance for pension payers who are paying pension income to student loan borrowers
Revised guidance has been published for pension payers who pay occupational pensions to individuals who are repaying a student loan. See - http://www.hmrc.gov.uk/paye/payroll/pensions.htm
National Audit Office publications work in progress: Financial services regulation - Defined contribution pension schemes
The NAO is to conduct a study which will focus on whether the regulation of defined contribution schemes by the Pensions Regulator effectively addresses the key risks to scheme members, while taking into account the overlapping responsibilities of the Financial Services Authority with regard to contract-based schemes.
NAO aim to publish this report in spring 2012.
HM-Treasury: New contractual collective investment vehicle
HM Treasury is consulting on proposals to introduce a new form of FSA-regulated tax-transparent contractual collective investment scheme. This is primarily being introduced to enable UK-domiciled UCITS funds to pool their investments cross-border in master-funds (under the UCITS IV Directive), but the Treasury believes it will also appeal to pension funds, life offices and other investors attracted by the economies of scale that accompany pooled investments.
Consultation on the proposals runs until 19 March 2012. The legislation implementing the plans is likely to be introduced during summer 2012.
See - http://www.hm-treasury.gov.uk/d/consult_contractual_schemes090112.pdf
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