This edition of snapshot summarises some of the key legal and regulatory developments that occurred up to the end of May 2016 in relation to occupational pension schemes. The topics covered in this edition are:
The Parliamentary Work and Pensions Committee issued its report on automatic enrolment (AE) on 15 May 2016. The report covers a number of themes and makes various recommendations. It also takes into account the recent Lifetime ISA (LISA) initiative from the Government. A number of key points from the report are:
- A tremendous success - the Committee considered that AE has been a tremendous success so far but it is now at a "crucial and risky stage of its development", with regulatory gaps in Master Trust arrangements and the LISA initiative being highlighted as two primary risk factors.
- A focus on Master Trusts - the Committee recommended that the Government focuses harder on alleged legal and regulatory gaps in the AE Master Trust arena to protect pension savers. In particular, it recommended that the Regulator be given powers to:
- Enforce minimum financial and governance standards;
- Enforce ongoing requirements and, perhaps, mandatory compliance with a Master Trust assurance framework; and
- Protect member assets in the event of a Master Trust winding up.
- We need to talk about LISA - the Committee warned that LISAs should not be presented as a direct alternative to AE and that opting out of AE to save for retirement in a LISA would leave people worse off. It recommended that the Government clearly communicates the differences between LISAs and workplace pensions and suggested that urgent research be carried out on any effect of the LISA on pension saving through AE.
- Clarifying employer exposure - the Committee considered that the Government should make it clear what employers would be liable for where their employees or former employees suffer bad retirement outcomes as a result of the employer's nominated workplace pension scheme performing poorly.
- Looking forward - the Committee earmarked the 2017 AE review as a point for considering potential changes to the AE regime for implementation in or after 2018 when the so-called AE duties will be fully implemented. It has its sights on scrapping the lower earnings trigger for AE and implementing mandatory increases to the minimum employer and employee contribution rates.
The Supreme Court (by a 3-2 majority) has dismissed an appeal by Airtours Holidays Transport Limited (Airtours) against a Court of Appeal decision that Airtours was not entitled to deduct VAT as input tax in respect of fees it paid to PricewaterhouseCoopers LLP (PwC) for a report prepared for Airtours' lenders.
The Court stated that, in order for the VAT charged by PwC to be reclaimable as input tax, it must be "… VAT on the supply to Airtours of any goods or services". The majority view was that the PwC contract relating to the preparation of the report was a contractual commitment for PwC to provide the services described in the contract to the lenders. The contract did not give Airtours the right to require PwC to supply the services (despite Airtours having both signed the contract and paid PwC's fees) and PwC had no corresponding obligation to Airtours. This would be a necessary prerequisite for Airtours to be considered as the recipient of the services.
The 3-2 majority highlights that the courts continue to find it difficult to determine who is actually the recipient of services supplied under tripartite contracts. However, what this and other recent cases show is that contracts need to be carefully drafted to ensure the parties can clearly demonstrate who services are being supplied to. The judgment is helpful in this respect as it makes it clear that, where the supplier is obliged to the payer to supply the services to another party, that will be sufficient for the payer to be regarded as the recipient of the supply (except, perhaps, where the contract does not reflect economic reality).
The Queen delivered her speech to mark the State Opening on 18 May 2016, outlining legislative proposals for the new Parliamentary session. Little was said in the Queen's Speech about pensions, except a nod towards the recently announced LISA.
However, further information on the Government's proposals was provided after the Queen's Speech. It was announced that there will be a new Pensions Bill, providing further reform to private pensions by introducing a regulatory framework for Master Trusts and a cap on early exit fees charged by trust-based occupational pension schemes, and consolidating the services of Pensions Wise, the Pensions Advisory Service and the pensions aspects of the Money Advice Service into one pensions guidance body. The Pensions Regulator will be provided with new powers to authorise, supervise and take action against Master Trusts.
HMRC has published edition 78 of its Pension schemes Newsletter. The Newsletter covers a number of practical points arising from changes to pensions taxation:
The Pensions Tax Manual will be updated to reflect modified reporting requirements in relation to the annual allowance taper. In the meantime, HMRC has confirmed that, for 2016 to 2017, a scheme administrator is only required to provide a standard pension savings statement to a member where that member's pension input amount exceeds the general untapered annual allowance (£40,000), rather than the member's personal tapered annual allowance.
- Individuals who are subject to the tapered annual allowance are not prevented from using mandatory scheme pays provided, broadly, their annual allowance charge exceeds £2,000 and their pension input amount exceeds the general untapered annual allowance.
- Individuals who have applied for 2016 individual or fixed protection using the interim application process but who have failed to follow this up with an online application will continue to be protected.
- The circumstances in which a serious ill-heath lump sum may be taken were extended by the Finance Bill. Those who have accessed part of their pension arrangement are able to take a serious ill-health lump sum from the remaining uncrystallised funds in that arrangement. However, HMRC have made it clear that the change does not extend to allowing a serious ill-health lump sum to be taken from crystallised funds of any kind, including drawdown and flexi-access drawdown funds.