First ‘section 89’ report on auto-enrolment
The Pensions Regulator has published its first ‘section 89’ report in relation to automatic enrolment (under section 89 of the Pensions Act 2004, the Pensions Regulator may, if it considers it appropriate to do so in any particular case, publish a report of its considerations in relation to the exercise of its functions). This report relates to automatic enrolment failings by Dunelm Soft Furnishings Ltd.
Dunelm’s staging date for automatic enrolment was 1 April 2013 so they were required to complete registration, indicating that they had fully complied with their employer duties, by 31 July 2013. The company did not complete registration and were contacted by the regulator. When Dunelm did complete registration, the regulator received information which led it to believe that the company may not have fully completed their employer duties.
Following a statutory inspection at the company’s head office, the regulator found that Dunelm had failed to enrol a number of its employees on time and as a result had not paid across sufficient contributions to its pension provider. The reasons for the failings were a flawed payroll solution, key members of staff leaving at critical times and data quality issues.
Dunelm is now compliant with its automatic enrolment duties, but the regulator wants other employers to learn from Dunelm’s experience www.thepensionsregulator.gov.uk/docs/section-89-dunelm.pdf).
NAPF research on Budget reforms
Over a quarter (28%) of consumers are now more likely to start saving or save more into a pension following the reforms announced in the Budget, according to research by the National Association of Pension Funds (NAPF). The research found that young people (age 18 to 24) were the most likely group to save into a pension. Lower income respondents (a combined household income of less than £14,000 a year) also said they felt more attracted to pension saving.
In a separate poll asking defined contribution (DC) pension schemes about the proposed ‘guidance guarantee’, more than three quarters (78%) said they did not understand what the Government expects them to deliver. 57% said they would struggle to deliver the service ahead of the April 2015 deadline.
LGPS investment changes
The Department for Communities and Local Government (DCLG) has issued a consultation paper proposing that all £85bn of listed assets held by the Local Government Pension Scheme (LGPS) should be switched to passive management, accessed through a common investment vehicle. In addition, all ‘fund of funds’ arrangements should be replaced by a common investment vehicle for alternative assets. These proposals would save up to £660m per year in investment costs.
The proposals do not go as far as replacing the 89 separate funds that currently make up the LGPS with a smaller number of merged funds. The DCLG was concerned that this would result in a loss of local accountability on key matters such as asset allocation. However, Edmund Truell, chairman of the London Pension Fund Authority, accused the Government of being “driven into a blind alley by vested interests and the forces of conservatism”.
Company news
The Court of Appeal has upheld a High Court decision that employees of Honda of the UK Manufacturing Ltd (HUM) are entitled to the higher level of benefits earned by their colleagues at Honda Motor Europe Ltd (HME) between 1986 and 1998. HUM were meant to receive a lower level of benefits on joining the Honda Group UK Pension Scheme but the deed of adherence did not mention this. The cost is estimated to be £47m on a scheme funding basis.
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Lamborghinis and life expectations
Following the radical pension changes announced in the budget, there have been a number of associated documents produced, including from the Pensions Regulator, HMRC and FCA. The treasury also announced that people who have recently taken a tax-free lump sum from their defined contribution (DC) pension will be given 18 months rather than 6 months to decide what they wish to do with the rest of their retirement savings so that they do not miss out on the new flexibilities.
Not to be outdone, Pensions Minister Steve Webb announced that, following the recent consultation, a 0.75% cap on charges will be introduced for the default funds of all qualifying DC schemes with effect from April 2015. Trustees and, for contract-based schemes, Independent Governance Committees (IGCs) will have new duties to consider and report on costs and charges. In an interview, Mr Webb went on to suggest that pensions and tax relief should be levied at a flat rate of 30% rather than an individual's marginal rate, although he did point out that this was not yet Government policy.
DB pension costs research
The pensions Regulator has published the findings of research examining how define benefit (DB) schemes could not identify what they were paying in investment charges, even though these represent the second largest expense for such schemes.
The regulator has also developed a charges checklist and a web tool to help trustees assess how the costs of their scheme compare with those of a typical scheme of a similar size.
www.thepensionsregulator.gov.uk/trustees/db-scheme-costs-tool.aspx
NEST appointments
The Department for work and pensions has announced the appointment of three new Trustee Members to the National Savings Trust (NEST) to replace three retiring members. The Trustee Members from the Trustee of the NEST Scheme.
The new Trustee Members are Carolan Dobson (most recently chair of the Bespak Pension Scheme), Iam Armfield (PwC) and Karen Silcock (deloitte). The Chair of NEST is Lawrence Churchill CBE.
www.nestpensions.org.uk
Company News
UK Coal has announced the "managed closure" of its business by late 2015. This is despite the agreement reached in July 2013 under which the Pension Protection Fund (PPF) took on the company's pension schemes, covering 7,000 members, while enabling the business to continue trading. The PPF expects to be no worse off than if the company had passed onto the immediate liquidation last July.
Budget 2014
“The most fundamental change in the way people access their pension in almost a century” has been announced by the Chancellor of the Exchequer, George Osborne, in his Budget speech.
The Chancellor announced that, from April 2015, people will be able to access their defined contribution pension savings as they wish during retirement, subject to their marginal rate of income tax. The 25% tax free lump sum will continue to be available.
Alongside this, the government is introducing a new requirement for pension providers to make sure that everyone retiring with a defined contribution pension pot receives free and impartial face-to-face guidance on the choices they have.
In the meantime, from 27 March 2014:
• The overall limit for a ‘trivial commutation’ lump sum is increased from £18,000 to £30,000;
• The individual pot limit for commutation as a ‘small’ lump sum is increased from £2,000 to £10,000. The number of personal pension pots that can be taken this way is also increased from two to three;
• The maximum income available from a ‘capped drawdown’ arrangement is increased from 120% to 150% of an equivalent annuity;
• The guaranteed income needed be able to access ‘flexible drawdown’ is reduced from £20,000 per year to £12,000 per year.
The consultation on the 2015 changes closes on 11 June 2014 and can be found at www.gov.uk/government/consultations/freedom-and-choice-in-pensions.
Rise in workplace pension saving
Latest figures from the Office for National Statistics (ONS) show that participation in workplace pensions increased in 2013 for the first time since 2006. The rise was also the largest since records began in 1997.
50% of all employees belonged to a pension scheme compared to 47% the previous year. The proportions were 85% in the public sector and 36% in the private sector.
In the private sector, 51% of employees in the largest companies (those with over 5,000 employees) were members of a scheme, a jump from 36% in 2012.
The data was collected in April 2013 when only 500,000 people had been automatically enrolled. This figure has now risen to over 3 million.
New appointments
The Department for Work and Pension has announced that Mark Boyle will be the new Chair of the Pensions Regulator from 1 April 2014 replacing Michael O’Higgins. Mr Boyle is currently the independent Non-Executive Chairman of HM Land Registry.
Separately, HM Treasury has announced that Martin Clarke has been appointed as the new Government Actuary. He is currently Executive Director of Financial Risk at the Pension Protection Fund (PPF).
Company news
Members of the Lloyds Bank pension scheme are to have their pensionable salaries frozen at April 2014 levels which will reduce the scheme’s liabilities by around £1bn. Affected workers will receive a lump sum payment worth 3% of salary.
The GKN Group Pension Scheme has insured £123m of pensioner liabilities with Rothesay Life, who recently announced an agreement to acquire MetLife’s £3bn UK bulk annuity portfolio. Rothesay Life is jointly owned by Goldman Sachs, Blackstone, GIC and MassMutual.
This Update should not be relied upon or taken as an authoritative statement of the law. For more information, please contact us using the details shown.
