Pensions update: regulatory

We have put together a briefing looking at regulatory developments over the past quarter.

HMRC and VAT Recovery

HMRC has extended the deadline for new treatment of VAT recovery in respect of services to occupational pension schemes to 31 December 2016.

The Association of Pensions Lawyers has previously written to HMRC expressing the concern within the industry about HMRC’s proposal to allow VAT recovery on pension schemes services by employers only where a tripartite agreement that meets certain conditions is in place between the service provider, the trustees and the employer.

On 26 October 2015, HMRC issued a further Brief regarding its latest position on the recoverability of VAT in respect of occupational pension schemes. As well as extending the deadline for the new treatment, HMRC has confirmed its position on the use of tripartite agreements as well as addressing some concerns regarding the implications of these arrangements on corporation tax deduction. HMRC has also addressed other options to allow the employer to continue to recover VAT in respect of pension scheme services.

US Safe Harbor

EU law prevents the transfer of personal data outside of the EEA unless the country in question provides “adequate protection” or there is a specific justification for the transfer.

Previously, if data was transferred to the US the justification has been that the recipient has signed up to “Safe Harbor”, which is a voluntary scheme allowing US companies to comply with the EU Directive on the protection of personal data if they fulfilled set principles.

However, the European Court of Justice has held that Safe Harbor does not protect against access by the US Government and is therefore invalid and cannot be used as a justification for transfers of personal data to the US.

The message from the UK Information Commissioner is “don’t panic!”. While tens of thousands of European companies have used Safe Harbor as a justification for the transfer of data to US companies that have signed up to it, pension schemes affected by this decision make up only a small part of the organisations affected.

The impact of the decision is still being reviewed by European regulators, and the position is still uncertain. The regulators have set a deadline of 31 January 2016 to set out a new and improved Safe Harbor.

Pension Protection Levy 2016/17

On 17 December last year, the PPF published the final determination for the 2016/17 levy and associated documents.

No major changes have been made to the PPF levy rules for 2016/17, but it should be noted that one of the points that came out of the consultation on the 2016/17 levy was in relation to “last man standing” schemes. As part of the consultation, the PPF took the opportunity to provide feedback on the latest “last man standing” exercise where multi-employer schemes were required to provide confirmation that they had received legal advice regarding their structure (as the PPF were concerned that structures had been misreported and schemes should not have received the levy reduction associated with a last man standing structure). Schemes which no longer report as last man standing as a result of this exercise will be contacted by the PPF with a view to the PPF re-invoicing schemes which have mistakenly claimed the last man standing discount.

Pension scams

The Pensions Regulator has published details of its investigation into a £13.7m pension scam.

The Pensions Regulator believes that a scam has taken place in which the funds belonging to 242 members had all but disappeared, including through the payment of “exorbitant fees and commission payments”.

The case featured many “hallmark” scam techniques, such as cold calling and texts promising unusually high investment returns, or promising early access to cash from the pension.

New draft DC Code of Practice

The Pensions Regulator has published a new draft DC code of practice for consultation (which will run until 29 January 2016). The new code is expected to come into force in July 2016. Although shorter than the existing code, the new code is supported by a number of guides (the Regulator intends to consult on these separately this Spring).

As well as simplifying the exiting code, the new draft code covers a number of new issues, such as providing guidance in relation to the governance and charges requirements and DC flexibilities.

One of the key messages coming out of the draft code is that it is “vital” that trustee boards possess and are able to demonstrate the right level of knowledge and understanding in relation to their scheme. This ties in with the contents of the recent report issued by the Regulator in its Trustee Landscape Quantitative Research.

Pensions Regulator publishes “integrating risk management guidance”

The Regulator has published new guidance for trustees of defined benefit pension schemes on integrating risk management

The guidance is not too prescriptive, but is intended to provide practical help to trustees on what a proportionate and integrated approach to risk management might look like and how trustees can use it as part of their plans for meting their scheme’s funding objectives.

Proposed changes to Financial Services Compensation Scheme (FSCS) Rules

The Financial Conduct Authority has recently issued a consultation paper proposing to make a number of changes to the rules relating to investment products which will extend the eligibility for FSCS protection to members of occupational money purchase schemes with large employers. An employer is “large” where it has net assets of more than £1.4m, and meets two of the following criteria: has more than 50 employees; has a turnover of more than £6.5m; has a balance sheet total of more than £3.26m. Currently only trustees of occupational pensions schemes where the employer is a “small” company are eligible to make FSCS claims.

The consultation ends on 29 February 2016.

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Every piece of content we create is correct on the date it’s published but please don’t rely on it as legal advice. If you’d like to speak to us about your own legal requirements, please contact one of our expert lawyers.

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