Welcome to your weekly update from the Allen & Overy Pensions team, covering all the latest legal and regulatory developments in the world of occupational pensions.
This week we cover topics including: a blog post by the Pensions Regulator on managing liquidity risk; and a TPR Talks podcast on pensions dashboards.
- TPR blog post: managing liquidity risk
- Latest TPR podcast: pensions dashboards
- Benefit changes: tax and NI treatment of payment to member
- Pensions tax reform: government response
- FCA: guidance on publication of costs and charges
- ICO seeks input on draft guidance: anonymisation and pseudonymisation
TPR blog post: managing liquidity risk
TPR has published a blog post on the management of scheme liquidity risk, encouraging trustees to: better understand their scheme’s cashflow and liquidity dynamics (particularly in times of market stress); undertake active monitoring and mitigation; and carry out robust liquidity risk analysis.
The blog post also addresses the emerging tension between policy drivers to encourage investment in illiquid assets and wider principles around scheme funding and investment. TPR notes that although illiquid investments may present opportunities to capture an illiquidity premium or improve member outcomes, trustees should be considering factors including their scheme’s investment, risk management, governance and funding arrangements, the holding structure for those investments, and the degree of investor protection provided.
The blog post also refers to the statement in TPR’s draft single code of practice that ‘Unless there are exceptional circumstances, governing bodies should ensure no more than a fifth of scheme investments are held in assets not traded on regulated markets’. It notes that TPR does not want this expectation to limit the ability of trustees to invest in assets which may be illiquid and may offer improved scheme outcomes, where they have taken appropriate advice and understand their scheme’s liquidity risks. TPR acknowledges the concerns that have been raised over this draft expectation, and is considering what adjustments might be appropriate.
Read the blog post.
Latest TPR podcast: pensions dashboards
The latest TPR Talks podcast covers pensions dashboards. It discusses steps that schemes should be taking now to prepare for the dashboards rollout, including digitising records (if required), ensuring that sufficient data is held for matching, and ensuring data accuracy. TPR also commented that it would be providing more guidance and support to schemes on dashboards, and will be launching a communications and engagement exercise.
PASA has previously produced a short guide to preparing for pensions dashboards: read more here.
Listen to the podcast.
Benefit changes: tax and NI treatment of payment to member
The First-Tier tribunal has concluded that income tax and National Insurance contributions (NICs) were payable on a ‘Facilitation Payment’ to a member of a pension scheme, which was paid as part of a negotiated package between the employer and unions: E.ON UK plc v HMRC.
In 2018, changes were made to the employer’s pension arrangements (which included both a final salary scheme and a retirement balance arrangement), and scheme members received a one-off lump sum Facilitation Payment. The employer argued that these payments were exempt from income tax and NICs, but HMRC disagreed. The tribunal was asked to consider a test case about the payment to a member of the retirement balance arrangement; HMRC accepted that if the employer was successful, it would refund the tax and NICs paid in respect of the final salary members as well.
The employer argued (in the alternative) that the Facilitation Payment:
- was compensation for the loss of pension rights, and so was not ‘from’ the employment; and/or
- replaced a non-taxable sum, namely: more generous pension payments from the scheme; higher employer contributions; or earnings the employee would need to make the extra pension contributions necessary to obtain the same level of benefits; and/or
- was not ‘from’ the employment, because it was ‘from’ something else (a reduction in the employees’ pension rights).
HMRC argued that the Facilitation Payment was ‘from’ the employment because it was made in exchange for agreeing to a change in future employment conditions. The tribunal ruled in favour of HMRC, agreeing that the Facilitation Payment was ‘from’ the employment and therefore subject to income tax and NICs. It was part of an integrated package negotiated with unions (and could not be separated out from the rest of the package). That package included not only the Facilitation Payments and changes to future contributions, but also a pay deal, a commitment not to make further amendments to pension arrangements for a fixed period; and other ‘employment commitments’.
Pensions tax reform: government response
A recent report by the House of Commons Treasury Committee recommended that the government should urgently reform pensions tax relief, but the government’s response to the Committee indicates that it has no immediate plans to do so. Separately, the government is currently considering the responses to its call for evidence on pensions tax relief administration: read more about this.
Read the response.
FCA: guidance on publication of costs and charges
The Financial Conduct Authority (FCA) has issued new guidance on the publication of costs and charges information by FCA-regulated workplace money purchase schemes. This follows rules issued by the FCA in February 2020: read more here. The statement sets out the FCA’s expectations for the first year of the publication of data.
The FCA notes that there have been conflicting views in the industry about whether disclosures should be made at employer level, or at tax-registered scheme level. The FCA comments that, as it did not specifically state that an employer level disclosure was expected, and considering the time remaining before the deadline, it will provide an easement from regulatory action for this year, in the circumstances set out in the statement. It will also consider whether to make any changes to its rules to clarify that employer-level disclosure is expected.
The FCA also noted that the information does not need to be published in the same document as the independent governance committee’s annual report – the annual report can include a link to the publicly accessible website where the information is published.
Read the statement.
ICO seeks input on draft guidance: anonymisation and pseudonymisation
The Information Commissioner’s Office (ICO) is seeking input on draft guidance covering what anonymisation and pseudonymisation mean; when personal data can be considered anonymised; whether it is possible to anonymise data adequately to reduce risks; and the benefits of anonymisation and pseudonymisation.
A consultation will follow in the autumn on full draft guidance on anonymisation, pseudonymisation and privacy enhancing technologies. The current consultation closes on 28 November 2021.
Read the draft guidance.