EB News

A fortnightly summary of the important changes in employee benefits law & practice  13/02/2012 - 26/02/2012

29th February 2012, London:

News

Treasury Chief Secretary suggests further cuts to pensions tax reliefs

Danny Alexander, the Chief Secretary to the Treasury, has said that higher earners should not receive marginal rate tax relief on their pensions and has called for tax relief on the schemes to be cut from 40% to 20%. He also set out plans for workers on minimum wage to pay no income tax.

It has also been suggested that the government is looking at cutting the amount of tax free cash which can be taken as a lump sum from pension pots, as part of ongoing discussions on cutting pensions tax relief.  Under the proposals, tax free cash could be limited to a monetary amount as opposed to a percentage of the Lifetime Allowance on tax privileged pension savings.

Trade bodies warn against new EU-wide rules on pension solvency

The National Association of Pension Funds (NAPF), the Confederation of British Industry and the Trades Union Congress have written to Jose Manuel Barroso, the president of the EC, warning that proposed new pension fund rules will have a ‘catastrophic' impact on British jobs, business and savers.

Proposals (see below) being considered by the EC would require companies with defined benefit schemes to inject billions of pounds in extra contributions into these schemes in order to reduce their deficits.

EU White Paper on pensions published

The European Commission is planning to review the Institutions for Occupational Retirement Provision (IORP) to maintain a level playing field with 'Solvency II' and encourage the growth of cross-border pensions, according to the final version of pensions White Paper.

The Paper says: "The Commission will, in 2012, present a legislative proposal to review the IORP directive. The aim of the review is to maintain a level playing field with Solvency II and promote more cross-border activity in this field and to help improve overall pension provision in the EU. This will help address the challenges of demographic ageing and public debt".

Other key paragraphs from the White Paper are:

  • In 2012, the Commission will take initiatives to ensure a more effective protection of workers' occupational pension rights in the event of insolvency of their employer on the basis of Article 8 of Directive 2008/94/EC.
  • And, with regard to responses to the earlier consultation -
  • The issue of a solvency regime for pension funds was mostly addressed by employers associations, pension funds and service providers, with little input from members and beneficiaries. Most respondents were supportive of risk-based supervision, suggesting that substance should be favoured over form. The right approach needs to focus on the nature and duration of pension liabilities, taking account of the additional risk-mitigating security mechanisms available to pension funds.
  • Respondents agree on the need for protection against insolvency of sponsoring employers, but only the European Parliament and a minority want further EU legislation.

See - http://europa.eu/rapid/pressReleasesAction.do?reference=IP/12/140&format=HTML&
aged=0&language=EN&guiLanguage=en

Cases

Buy-out provider liable for incorrect benefit statement (Smith, 83772/1)

In this case, a deferred member of a pension scheme, whose benefits had been 'bought out', took out a mortgage in reliance on an overstatement of his benefits by the buy out provider.

The member, Mr Smith, was bought out in 1991. He had acquired a property with a 57-year lease in reliance on a £3,000 overstatement of his yearly pension. His actual pension meant that he was unable to use other savings to pay off his mortgage or extend the short lease that made the property hard to sell.

Accepting that the member would find it very difficult to get himself out of the resulting position, the Ombudsman directed the insurer to pay him the £10,500 which was outstanding on the original £20,000 mortgage.

Research

Only 48% of employees belong to a workplace pension scheme

The Annual Survey of Hours and Earnings is a key source of information on workplace pensions in the UK as it collects information on all types of workplace pension: occupational pension schemes, group personal pensions and group stakeholder pensions. Key points include:

  • In 2011, the proportion of employees who belonged to a workplace pension scheme was 48 per cent, below half for the first time since the series began. In 1997, 55 per cent of employees belonged to a workplace pension scheme.
  • In 2011, 83 per cent of public sector employees and 33 per cent of private sector employees were members of a workplace pension scheme.
  • The fall in the proportion of employees with a workplace pension between 1997 and 2011 has been driven mainly by the fall in membership of defined benefit occupational pension schemes over the same period, from 46 per cent to 30 per cent.
  • Membership of defined contribution occupational pension schemes also fell slightly, from 9 per cent in 1997 to 6 per cent in 2011.
  • Membership of group personal and group stakeholder pensions was 10 per cent in 2011, compared with 1 per cent in 1997 (before stakeholder pensions were introduced).
  • Young employees are less likely to be members of a workplace pension scheme than employees in their forties and fifties.
  • Membership rates fall in the age bands around State Pension Age because many employees in these age bands are no longer contributing to a pension.
  • Employees in professional occupations are most likely to have a pension (76 per cent of those in such occupations had a workplace pension in 2011).
  • Employees in sales and customer service occupations are least likely to have a pension (19 per cent of those in such occupations had a workplace pension in 2011).
  • In 2011, nearly two-thirds (64 per cent) of employees with workplace pensions were in a ‘contracted out' pension. This compares with 88 per cent in 1997, when this information was first collected.
  • In 2011, just over three-quarters of employees in defined benefit occupational pension schemes contributed over 5 per cent of their pensionable earnings, compared with around one-third of those in defined contribution occupational pension schemes and one-quarter of those with group personal and stakeholder pensions.

"Raising household saving"

This paper, by the Institute for Fiscal Studies examines in detail what is known - and what is not known - about the effectiveness of various policies designed to increase saving by households. It offers a critical review of the literature in four main areas: financial incentives; information, education and training; choice architecture or 'nudge'; and social marketing.

The IFS found that employees auto-enrolled into pensions are likely to stick to default contribution rates and investment strategies as they will perceive them to be the "recommended" options.

See - http://www.britac.ac.uk/policy/Raising-household-saving.cfm

Young people and savings report

According to new research from the Institute for Public Policy Research, only 13% of young people say that they or their employer paid into a personal or occupational pension. The research revealed also found that those aged between 22 and 29 years were more likely to have a pension. See - http://www.ippr.org/publications/55/8650/young-people-and-savings-polling-results

ONS Pension Trends - Chapters 2, 3 and 4 updated

The Office for National Statistics (ONS) has updated its Pension Trends report. Chapter 2, "Population Change", reveals that between 2010 and 2051, the proportion of people aged 65 and over is estimated to increase from 17% to 24%. Chapter 3, "Life expectancy and health ageing", reveals that between 2012 and 2051, life expectancy at state pension age is expected to increase gradually for both men and women. Chapter 4, "Labour Market and Retirement", reveals that 8.2% of women aged 55 to State Pension Age (SPA) were classified as retired in April to June 2011, compared with 20.4% of men aged 60 to SPA.

See - http://www.ons.gov.uk/ons/about-ons/our-statistics/publications/pension-trends/index.html

Research reveals a demand for 'Pensions through ATMs'

Using ATMs to allow people to deposit cheques and cash into their pensions- or transfer funds from their bank accounts - could encourage millions more to save for their old age and help the UK avoid the looming savings crisis, according to a study.

The idea is one of several mooted in the report for Friends Life - 'Pensions- The solutions' - by think tank Future Foundation into how to address the national pensions black hole.

The provider is also recommending a 'Channel Changer Pension', which would enable savers to manage their retirement pots through the red button on their TV remote controls, following research that suggested the public was ready for such technologies.

A third option is a 'Pensions Meter', a smartphone app that would allow users instant access to real-time information on how much their pension was worth.

'Other'

FRC to consult on Actuarial Standards for Pension Incentive Exercises

The FRC's Board for Actuarial Standards (BAS) has announced that the FRC will consult on bringing actuarial work on pension incentive exercises into the scope of its technical actuarial standards (TASs). The consultation will also consider whether the TASs should include specific principles to be followed when providing actuarial advice on incentive exercises.

The FRC's move is one of several initiatives being undertaken by regulators and industry groups in order to address concerns expressed by the Pensions Minister, Steve Webb, that members of defined benefit schemes may be overly influenced by financial incentives being offered, without appreciating the value of the benefits they are giving up.

DWP Consultation on Automatic Enrolment and European Employers

This seeks views on the draft Occupational and Personal Pensions Schemes (Automatic Enrolment) (Amendment) (No. 2) Regulations 2012, which set out proposals to exempt employers who employ individuals who work both in the UK and in other member states from automatically enrolling individuals who are subject to the social and labour laws of EEA member States relevant to the field of occupational pension schemes other than the UK. The regulations are intended to come into effect from 1 July 2012.

Announcing the consultation, the Minister of State, Department for Work and Pensions (Steve Webb) said: This addresses an issue that could place an unnecessary burden on employers to find a pension scheme into which they can automatically enrol dual-status workers-those who are simultaneously jobholders and qualifying persons.

A jobholder is a worker who is working or ordinarily works in Great Britain under the worker's contract. A qualifying person is an individual whose place of work under contract is sufficiently located in an EEA state other than the UK so that the relationship with the employer is subject to the social and labour law relevant to the field of occupational pension schemes of the other EEA state.

The consultation proposes an exemption for employers from having to automatically enrol dual-status workers.

See - http://www.dwp.gov.uk/consultations/2012/auto-enrol-european-employers.shtml

PPF Bulletin Issue 10

PPF Bulletin Issue 10 contains all the essential levy deadline dates, plus all the key information needed to ensure that schemes do not pay unnecessarily high bills - such as:

  • providing all the correct information on the Regulator's Exchange System and to Dun & Bradstreet
  • paying particular attention to the information provided about the assets held by a scheme, and
  • considering whether the bespoke investment risk approach may be appropriate.

The PPF also reminds scheme actuaries that there are a number of things that they can consider to help manage their clients' bills- such as:

  • securing payments into the scheme and having these recognised through deficit reduction contributions, or
  • putting in place a range of contingent assets.

HMRC Updates

PAYE for employers: E12(2012) PAYE and NICs rates and limits for 2012-13 and E13(2012) Day-to-day payroll

In anticipation of the new tax year, HM Revenue & Customs has amended the contracted-out National Insurance contributions (NIC) table on page 5 of the Helpbook E12 and the Employer's NIC rebate example in the right hand column on page 12 of the Helpbook E13. See -

http://www.hmrc.gov.uk/news/helpbook-amendments.htm

Fixed protection for pension savings

HMRC has published information about fixed protection for pension savings, which allows you to take benefits worth up to £1.8 million, instead of the reduced lifetime allowance of £1.5 million, without paying the lifetime allowance charge, on the condition that they no longer actively contribute to their pension or actively accrue pension benefits. See -

http://www.hmrc.gov.uk/pensionschemes/fixed-protection.htm

Employer asset-backed pension contributions - Ministerial Statement

The Treasury has announced that, following draft legislation published for the Finance Bill 2012, further legislation is being made which will limit the circumstances in which upfront relief can be given to asset-backed arrangements unless the whole total of all asset-backed payments to the pension scheme are to be of fixed amounts. For the full Written Ministerial Statement, see -  www.parliament.uk/documents/commons-vote-office/February_2012/22-02-12/1-Chancellor-EmployerAssetBackedPensions.pdf

Draft regulations - National Employment Savings Trust (NEST)

Draft regulations have been published in connection with the authorised employer payments that the National Employment Savings Trust may make. See -

http://www.hmrc.gov.uk/pensionschemes/draft-nest.htm

 

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