The Month In Pensions - October 2020 - Where will you be in 15 years' time?

Ian Chapman-Curry: Hello, and welcome to the Month In Pensions for October 2020, brought to you by the pensions team at Gowling WLG.

I'm Ian Chapman-Curry and I'll be looking at one of the themes that has excited the pensions industry in October before taking you through the key points of this month's main legal and policy pensions developments. 

We'll then take a look at what is coming down the tracks for the industry in November 2020.

Before we start, just a quick reminder that you can find out more about the pensions team at Gowling WLG and get all of our pension Insights on our webpage.

Theme for October 2020 - Where will you be in 15 years' time?

Where will you be in 2035? This month, The Pensions Regulator (TPR) issued 'Pensions of the future - a discussion on our strategy'. As we are living in a particularly volatile period of time, it is impressive that TPR has found space to focus on the future as well as reacting to today's demands. If we go back in time 15 years, TPR had only just been established and the genesis of workplace pension reform was being set out in the Turner Pension Commission. In the world of pensions, the next 15 years will see pension dashboards, digital disruption, further workforce fragmentation, even longer working lives and a continuing trend away from defined benefit schemes towards defined contribution pensions.

TPR's strategy paper sets high-level goals that will guide the organisation over the next 15 years. In doing so, TPR has examined the needs of savers in four different age groups (baby boomers, Generation X, Millennials and Generation Y) and across three bands of income (high-middle, middle-low and low-very low). TPR's strategy is intended to be a starting point for discussion and also a living document, evolving with changes in society, the economy and government policy.

Whilst the priorities for different age and income groups differ, there are some common themes. TPR is focused on ensuring members achieve value for money and that their savings are secure, enabling savers to make good decisions, encouraging participation in workplace pensions and working with regulatory partners to tackle pension scams. In addition, TPR will encourage broader trends such as innovation and consolidation in the hope of driving positive change in the pensions industry. TPR is seeking feedback from stakeholders, with feedback requested by 16 December 2020.

• The Pension Regulator's 'Pensions of the future - a discussion on our strategy (16 October 2020)'.

This month's main developments

DWP gives green light to standardised simpler annual benefit statements for DC auto enrolment pension schemes

On 19 October 2020, the DWP published its response to its 2019 consultation on simpler annual benefit statements. The DWP intends to make it mandatory for all DC pension schemes used for automatic enrolment to use simpler annual benefit statements. The DWP will now work with the pensions industry to develop the detailed design of a template for this purpose, building on the two-page statement originally developed during the course of the 2017 Automatic Enrolment Review. Benefit statements will have to focus on three key areas:

• how much money is in a member's pot;
• how much money could the member have when they retire; and
• what could that member do in order to have more money in retirement.

In addition, the benefit statement template will signpost where members can find a detailed assessment of the member costs and charges that apply to their pension pot (something schemes are already required to do) as well as the information that is available on the scheme's investment strategy. The DWP will consult later this year on regulations to implement these requirements. Whilst focusing on DC auto enrolment schemes initially, the Government intends to look at how these requirements could be extended to other pension schemes in the future.

• The DWP's response to its consultation 'Simpler annual benefit statements for workplace pensions'.

PPF consults on the 2021/22 levy

The PPF has published its consultation on the 2021/22 levy year. The consultation is essentially divided into two parts, one focusing on COVID-19 related matters and the second on other developments. Despite the immediate impact of COVID-19 on schemes and sponsors, the PPF does not expect COVID-19 to have a significant impact on 2021/22 levies (broadly because of the insolvency risk model applied and the accounts information it uses).

The PPF expects the main effect of COVID-19 to be seen in the levy invoices for the 2022/23 levy year. The consultation goes on to cover the PPF's proposals for helping schemes and employers in these uncertain times, including a small scheme levy adjustment, a reduction in the risk-based levy cap and an extension of current payment flexibilities. The PPF is setting its levy estimate at £520 million (which is £100 million lower than the equivalent figure for 2020/21). According to its analysis, the PPF expects this to mean that the "great majority" of schemes (around 90%25 of those paying a risk-based levy) will see a reduction in levy relative to their 2020/21 levy invoice.

• The PPF's consultation 'Have your say on our 2021/22 levy rules'.

Public sector exit payment caps to come into force

Regulations capping the maximum size of exit payments for public servants were made on 14 October. They are due to come into force on 4 November 2020. These measure will be of huge importance for public sector employers, as these regulations affect the level and type of exit package which can be negotiated with an individual, mostly to reduce the size of payment. There is a £95,000 cap on the total pre-tax aggregate value of exit payments, with some limited exceptions and exemptions. The cap includes employer pension contributions, including any top up payments to fund a pension enhancement.

• 'Public sector exit cap in force from 4 November 2020 (15 October 2020)'.

TPR publishes new guidance on superfunds

This month, The Pensions Regulator published new guidance for trustees and sponsoring employers of defined benefit (DB) pension schemes considering transferring to a DB superfund. TPR notes that the market for superfunds and other business models enabling risk transfer is developing rapidly.

TPR's guidance sets out their approach to regulating transfers to superfunds, as well as the approach TPR expect trustees and employers to take when considering whether to transact. As the market evolves TPR will provide further guidance. One key message from the guidance is that employers and trustees will be encouraged to engage with TPR at an early stage in the process.

In addition, earlier in the month, the Pensions Minister spoke at the annual conference of the Pensions and Lifetime Savings Association and said that he expects there to be a further pensions bill in this Parliament after the Pension Schemes Bill 2019-21 becomes law. Defined benefit superfunds are expected to constitute a significant element of that second bill.

• TPR's guidance 'Superfund guidance for prospective ceding trustees and employers (21 October 2020)'.

Action Fraud reveals extent of pension scam activity in wake of COVID-19

On 1 October 2020, the Home Office published its response to a written question concerning the number of pension scams reported during the COVID-19 pandemic. In it, the Minister of State for Security, James Brokenshire MP, confirmed that Action Fraud had received 166 reports of pension scams in the period 24 March 2020 to 25 September 2020. He also highlighted new government guidance on COVID-19 and fraud and cyber-crime.

ECJ decides on VAT and pension management services case

On 8 October 2020, the European Court of Justice decided in the case of United Biscuits (Pension Trustees) v Commissioners for HMRC on whether VAT is applicable to pension management services.

The ECJ decided that the provision of pension fund management services that do not involve any element of indemnity from risk do not constitute insurance transactions and therefore do not fall within the VAT exemption for insurance transactions (as set out in Article 135(1)(a) of Council Directive 2006/112/EC).

Therefore, the supply of pension fund management services, whether such services are provided by insurers or non-insurers, are subject to standard rate VAT. This decision is only applicable to DB schemes.

• The judgment of United Biscuits (Pensions Trustees) Ltd. and another v Commissioners for HM Revenue and Customs (C‑235/19).

November 2020 in pensions

Now it is time to look forward to what the coming month will bring in pensions.

• 1 November 2020 - JSS opens - the Job Support Scheme will begin and is expected to operate for six months.
• 3 November 2020 - Pension Schemes Bill starts committee stage - the Pension Schemes Bill 2019 - 21 is scheduled to proceed to the Commons Committee stage on 3 November 2020, with the Committee scheduled to report by 5 November 2020.
• 4 November 2020 - public sector exit payment restrictions begin - The Restriction of Public Sector Exit Payments Regulations 2020 go into force on this date.

Subscribing to The Month In Pensions

And that is nearly all from The Month In Pensions for October 2020. We always finish off with a non-pensions recommendation - something a little lighter than reading the DWP's consultation response on simpler annual benefit statements.

Before we get to that, just a reminder that you can get in touch if there are any items you'd like to see covered in future episodes of The Month In Pensions - just contact me, Ian Chapman-Curry and you can get more from the pensions team on our website.

If you liked this podcast, please rate or review it and, if you hit the subscribe button, The Month In Pensions will appear in your podcast feed each month. Finally, please feel free to share the podcast with colleagues or anyone who might be interested in staying on top of developments in the pensions world.