Singapore court’s cryptocurrency decision
Implications for cryptocurrency trading, smart contracts and AI
Essential Pensions News covers the latest pensions developments each month in an “at a glance” format.
The DWP has published guidance on “alternative quality requirements” that formerly contracted-out schemes providing defined benefits must meet to be qualifying schemes for auto-enrolment purposes. Prior to 6 April 2016, a contracted-out DB scheme automatically satisfied the statutory quality requirement by virtue of its contracted-out status. After that date, and the abolition of DB contracting-out, a DB scheme or section will be required to satisfy the quality requirement in an alternative way.
The two options available are to:
The main basis for meeting the alternative will be by satisfying a cost-of-accruals test that assesses the cost to the scheme of providing for the future accrual of active members' benefits. Generally, the test must be applied at scheme level, unless there is a material difference in the cost of providing benefits between different groups of active members, in which case the test must be conducted at benefit scale level.
The new guidance is aimed primarily at professional advisors and focuses on the technicalities concerning the cost-of-accruals test.
View the DWP guidance.
Of interest to all contracted-out DB schemes open to accrual is the introduction of a new scheme modification power in relation to the revaluation of Guaranteed Minimum Pensions (GMPs) for early leavers. Under the Occupational and Personal Pension Schemes (Modification of Schemes - Miscellaneous Amendments) Regulations 2016, trustees have one year from 6 April 2016 to use the modification power.
The introduction of the new flat-rate State Pension from 6 April 2016 means that contracting-out of the additional State Pension has ended, as the additional State Pension no longer exists.
The DWP has introduced new legislation that enables formerly contracted-out DB schemes which are open to accrual to modify their rules in relation to the revaluation of GMPs for early leavers. The modification may be made by resolution.
Formerly, legislation provided that a scheme may provide fixed rate revaluation of GMPs for early leavers. This was triggered by reference to the revaluation rate applicable in the year in which contracted‐out service ended.
With effect from 6 April 2016, schemes are able to modify their rules, in relation to members who ceased contracted-out employment on 6 April 2016 (as a result of abolition), to choose:
The changes have been implemented in response to concern that, when contracting-out ended on 6 April 2016, fixed rate revaluation would have been triggered automatically simply because members would have left contracted-out service, as it then no longer existed.
The new modification power has retrospective effect to allow changes to apply from 6 April 2016 but is available for one year only, so changes must be made before 6 April 2017. Schemes which use fixed rate revaluation of GMPs, and wish to continue to do so, may wish to seek advice on passing the necessary resolution. Such a change would not be considered a “listed change” under the consultation regulations.
In a move that will be welcomed by schemes providing DB benefits, the European Insurance and Occupational Pensions Authority (EIOPA), the European pensions regulator, has made the welcome announcement that is ending its work on a solvency-based funding regime for such pension schemes. The disappearance of the threat of Solvency II legislation removes the related hazard of huge increases in deficits for DB schemes.
For more than a decade, the threat of a new pension funding system based on the insurance industry’s Solvency II legislation has been one of the biggest regulatory concerns for DB schemes. If implemented as was originally envisaged, with a risk-free discount rate to calculate liabilities, the ‘Holistic Balance Sheet’ would have caused enormous deficit increases and considerable disruption to pension investment.
EIOPA has been consistently lobbied by industry bodies such as the PLSA (formerly the NAPF) over its proposals to legislate for the new funding regime, and the announcement on 14 April 2016 of EIOPA’s conclusion that ‘a one-size-fits-all solvency regime would not be appropriate’ is seen as a significant coup for pension schemes.
View the PSLA press release.
Of interest to all schemes providing GMPs is the publication by HMRC on 5 and 13 April 2016 of additional Countdown bulletins. These provide information on its GMP Checker facility, which is available from 6 April 2016, and which was formerly known as the GMP Micro Service.
The GMP Checker is available online to all scheme administrators and provides GMP calculations, contributions and earnings information in respect of individual pension scheme members. The GMP Checker service replaces CA1629 statements for individuals who reach State Pension age on or after 6 April 2016, as CA1629 statements are no longer being issued.
On 13 April 2016, HMRC published issue no. 16 of its bulletin on the end of contracting-out. This bulletin notes that the GMP Checker will continue to be developed after 6 April 2016 (the date contracting-out on a DB basis ceased) and the intention is to implement a bulk facility will follow, allowing scheme administrators to obtain calculations in respect of multiple members.
Information is also provided for those having problems accessing the Checker service, or wishing to query a GMP calculation.
The bulletin also notes that as the date for registration to use the Scheme Reconciliation Service has now passed (5 April 2016), the online link has now been removed. However, HMRC will consider late expressions of interest in exceptional circumstances.
The answers to various queries arising during the HMRC scheme reconciliation forums are also provided.
Of interest to all schemes offering DC benefits is the publication by the Pensions Regulator (TPR) of a consultation document on its proposed revised compliance and enforcement policy. Views are sought on the new policy which incorporates requirements imposed by the Occupational Pension Schemes (Charges and Governance) Regulations 2015 and sets out TPR’s procedures and general guiding principles in relation to penalties for non-compliance.
The consultation closes on 3 May 2016.
The draft policy also sets out how TPR will determine the mandatory fine for breach of the requirement to prepare a chair's statement. The minimum penalty will be £500 (unless there are exceptional circumstances) with an additional 10 pence for each member with money purchase benefits, up to a maximum of £2,000. The additional 10 pence component will be doubled where there has been a breach of the same requirement within the last three years. The fine for schemes with a professional trustee in place will be £2,000.
In relation to TPR's approach, the current DC compliance and enforcement policy focuses on thematic reviews. TPR proposes to broaden its proactive approach, engage with schemes on a regular basis and target its actions where it considers the greatest risks to non-compliance with legal requirements and good member outcomes exist.
The draft policy sets out the guiding principles TPR will consider when setting the amount of a civil penalty or making a recommendation to the Determinations Panel as to the amount of a penalty:
In relation to financial penalties, TPR may take into account representations that payment of the penalty amount within the specified period would result in undue financial hardship.
The list of relevant factors for TPR to consider when determining its enforcement action has been expanded to include whether the trustee is a professional trustee. This reflects the DC Code of Practice which sets out TPR's expectation that professional trustees should meet a higher standard of care and demonstrate a greater level of knowledge and understanding than lay trustees. Additional relevant factors include the extent to which a third party may have contributed to the trustees’ non-compliance, and whether or not the scheme is being used to meet an employer's auto-enrolment duties.
View the consultation paper.
Of interest to all schemes providing DC benefits is TPR’s publication of six new guides to accompany the revised DC Code published in November 2015, and on which we reported in our December 2015 update. While the Code sets out the standards TPR expects schemes to meet when complying with the law, the guides provide information on how those standards might be met in practice. Consultation on the guides closes on 11 May 2016, with the final versions being published alongside the new Code in July 2016 when it comes into force.
Each of the six guides focuses on one key area of the new, shorter DC Code, as set out below:
The trustee board (15 pages). This guide covers matters such as assessing the fitness and propriety of prospective trustees, the role of the chair, composition of the trustee board and establishing sub-committees. The guide also includes a section on the requirements in relation to trustees of master trusts. In relation to the chair of trustees, the guide states that although they “should have a good overall knowledge of pensions” they “do not need to be an expert in every area”.
Scheme management skills (20 pages). This guide includes sections on obtaining and improving knowledge and skills, evaluating trustees' knowledge and understanding and evaluating the effectiveness of the trustee board as a whole. The guide also covers the selection and appointment of advisers and service providers (including a checklist for reviewing contracts for services) and sections on monitoring performance, conflicts of interest and risk management.
Administration (24 pages). This guide deals with the importance of facilitating a working relationship between the employer and the scheme administrator together with administration reporting (including details of what the administration report should contain as a minimum). Also included are sections on processing core financial transactions promptly, putting in place service level agreements, transfers and record-keeping.
Investment governance (26 pages). This guide deals with investment governance structures, designing investment arrangements (including default arrangements), selecting individual funds and monitoring and reviewing the default strategy and the performance of the default arrangement. It also includes sections on reviewing the longer term performance of individual funds, changing investment funds and security of assets.
Value for members (19 pages). In this guide, TPR notes that, although trustees are required to carry out a full review of value for members at least once a year, they should also have arrangements in place to enable the ongoing monitoring of services provided to the scheme. In addition, value for members should be a rolling agenda item for board meetings. To assist trustees in the process, the guide includes a detailed illustrative approach to assessing value for members.
Communicating and reporting (24 pages). This guide includes sections on communicating with members as they approach retirement, including a good practice process for providing information at retirement, the requirements in relation to the annual chair's statement and the provision of risk warnings. An example of generic risk warning wording is given, reflecting the new post-6 April 2016 disclosure requirements concerning DC flexibility.
TPR has also produced a video providing an overview of the guides. In addition, there is a scheme assessment template which will be retained online. It is intended for use by trustees to assess their scheme against the standards of practice and conduct set out in the new Code and to support the development of an effective Chair’s statement. The assessment tool does not reference the 31 quality features which were the framework for the previous code, but TPR states that schemes which put in place processes to reflect those features will find they remain relevant.
The revised, shorter Code was welcomed generally as it was seen as a simpler version than the predecessor Code in which much of the content had been rendered out of date by legal developments. TPR’s clear distinction between legal requirements and its actual expectations was also viewed positively.
Although we sounded a note of caution about the potential length and complexity of the forthcoming guidance to accompany the new Code, it seems TPR has divided this into fairly manageable chunks. It is stated that the guides are not intended to be prescriptive, although TPR does indicate what it considers to be best practice, and provides examples of approaches that could be taken and factors to be considered, which trustees will welcome. The intention behind keeping the guides separate from the new Code is to enable new or revised guidance to be produced as the need arises or in response to industry demand, which seems sensible given the speed of change generally in the pensions arena.
Of general interest is a new consultation on calculating pension loss for compensation purposes. Over the last few years, the 2003 booklet on Compensation for Loss of Pension Rights in the Employment Tribunals has become increasingly out of date. The President of the Employment Tribunals has issued a consultation paper introducing instead Presidential Guidance involving a distinction between simple and complex pension loss cases.
Responses are sought to the consultation by 20 May 2016.
In 1991, guidelines were published on how to assess loss of pension rights in cases brought before the employment tribunals. The guidelines were revised periodically, with the most recent edition being published in 2003. The guidelines sought to provide help when assessing the value of lost pension rights. In brief:
As these were only guidelines, the parties would sometimes decide to suggest their own approach, but this involved commissioning expert actuarial advice.
In Griffin v Plymouth Hospital NHS Trust , (and as reported in our October 2014 update), Underhill LJ noted that the guidelines had not been updated for more than a decade and called for priority to be given to producing a revised version. The guidelines were subsequently amended to state that they had been withdrawn.
On 30 March 2016 the President of the Employment Tribunals issued a consultation paper which was the result of the work done by the working group convened by the Presidents in England & Wales and Scotland.
The consultation notes that there is no funding available to support the ongoing involvement of GAD, which means that the approach adopted by the guidelines is not feasible and a different approach is needed.
The working group recommends moving away from the guidelines and adopting the approach outlined below.
It is welcome news that there is proposed revised guidance, given previous concerns that the existing guidelines had outlived their practical use. Generally, the proposals seem sensible and, as the vast majority of claimants (outside the public sector) are now members of DC schemes, the contributions method will be appropriate for calculating pension loss in the majority of cases.
Unsurprisingly, the position is less clear-cut for members of DB schemes. In such cases, the contributions method is unlikely to give an accurate estimate of future loss. In addition, even if the “complex” approach is used, there are technical issues in that the Ogden tables do not reflect increased benefit accrual due to future salary increases. Additionally, the tables are themselves arguably out of date, as the discount rate on which they are based is set at 2.5 per cent. This rate no longer seems appropriate in the current financial environment, and its continued use is likely to lead to significant under-compensation in some instances.
View the consultation paper.
Of general interest is the publication by HMRC of edition 77 of its pension schemes newsletter. Much of the newsletter is devoted to summarising the measures announced at the 2016 Budget on 16 March 2016, as reported in our March 2016 update. Other matters included in HMRC’s newsletter are detailed below.
View the newsletter.
Of general interest is HMRC’s publication on 20 April 2016 of its consultation document “Creating a secondary annuity market: tax framework”. The consultation runs until 15 June 2016.
In the Budget 2015, the Government signalled its intention to create a secondary market for individuals to sell their annuity income in exchange for a lump sum. The aim is to extend the new pension flexibilities to those who retired prior to April 2015 and had already purchased an annuity product, as this was the only option at the time.
This consultation paper lays out the proposed tax framework for the secondary market for annuities. We will set out the detail of the consultation in a future update. Meanwhile, the paper is available at the link below.
View the consultation.
Of general interest is the publication of the first version of the Finance (No.2) Bill 2015-2016 (FB 2016) on 24 March 2016, along with explanatory notes. The Bill had its first reading on 22 March, and the second reading is scheduled for 11 April 2016. The Bill is expected to receive Royal Assent in summer 2016, at which point it will become the Finance Act 2016. The key pension measures in the FB 2016 are set out below.
These provisions will take effect the day after Royal Assent and remove unintended consequences arising following the introduction of the new DC pension flexibilities in April 2015 and include the following:
Provisions are included relating to the transitional protections, fixed protection 2016 (FP16) and individual protection 2016 (IP16), following the reduction in the standard lifetime allowance (LTA) to £1 million with effect from 6 April 2016.
FP16 and IP16 will work in a similar way to the two previous transitional protection regimes, FP14 and IP14. Individuals must obtain a reference number from HMRC if they wish to rely on FP16 or IP16, before they take their benefits. Individuals with FP16 will have a personal LTA equal to the greater of £1.25 million and the standard LTA. Individuals with IP16 will have a protected LTA of the value of their pension savings on 5 April 2016 subject to an overall limit of £1.25 million.
Other provisions include:
Of interest to all multi-employer schemes is the implementation on 6 April 2016 of the Occupational Pension Schemes (Scheme Administration) (Amendment) Regulations 2016. These regulations are intended to simplify the DWP's occupational DC scheme governance requirements that were introduced in April 2015. The regulations provide that multi-employer group schemes are excluded from the additional governance requirements applying to commercial master trusts or industry-wide schemes (with changes to the definition of a “relevant multi-employer scheme”).
A statutory override is also introduced to ensure that the statutory requirements on relevant multi-employer schemes to have at least three trustees and a majority of non-affiliated trustees take precedence over any conflicting provisions in schemes' trust deeds and rules.
Additionally, a deputy chair or other person appointed by the trustees will be able to sign a scheme's annual governance statement if there is no chair in place for any reason.
Of general interest is the confirmation from the DWP, following its annual review, that the auto-enrolment earnings trigger will remain fixed at £10,000 for 2016/17.
For the qualifying earnings band, the DWP has decided to continue to set the lower and upper ends of the bands in line with the National Insurance Contributions lower and upper earnings limits respectively, that is £5,824 and £43,000 (up from £42,385 in 2015/16).
Implications for cryptocurrency trading, smart contracts and AI
Decree No. 228 of 2019 (Decree 228/2019) came into effect on 27 August 2019, which simplifies and revokes previous decrees of the Ministry of Employment (MoE) to widen the type of job titles allowed for foreign professionals to work in Indonesia.
The Indonesian Investment Coordinating Board (BKPM) enacted BKPM Regulation 5/2019 to amend last year’s implementing regulation on guidelines and procedures for licensing and facilities under Indonesia’s foreign direct investment (FDI). The new regulation particularly includes requirements on divestment obligations for foreign direct investment companies.