THE PENSIONS DEBATE

Ian Neale, Aries Director, is a frequent contributor to the debate in the national pensions press.  Read Ian's incisive commentary, and share his unique insights into the problems and opportunities of pensions in the UK.  Here is a recent sample to get you copied in. Ian welcomes your response - just click here to send him an email.

  THE NET PAY SCANDAL

in Professional in Payroll, Pensions & Reward (CIPP)

There has been a growing scandal around low earners auto-enrolled into pension schemes using the net pay arrangement. It is a scandal that many have been aware of, yet no action is taken and the problem continues to grow, with the numbers potentially affected having just increased dramatically.

From 6 April 2019, the minimum level of contributions based on qualifying earnings into a defined contribution scheme has increased to 8%, of which 3% must be paid by the employer and the rest may be paid by either the worker or the employer.

This increase is a significant step-up from the 5% (minimum 2% from the employer) that applied from April 2018. Optimism that this will not trigger a spike in opt-out rates might be justified as the Pensions Regulator (TPR) reports that at the end of June 2018 rates of opt-out and cessation remained consistent with levels before the first planned contribution increase in April 2018 (http://bit.ly/2WL15gO).

However, there is a particular group of workers who might be more likely to opt out (i.e. low-paid employees in a scheme that uses the net pay arrangement), and this is the core issue at the heart of this growing scandal.

There are two methods by which an employee can receive tax relief on their contributions:

  • Net pay arrangement – where contributions are deducted from the employee's pay before their tax liability under pay as you earn is calculated. The correct amount of tax relief is, in almost all cases, given automatically as the contributions are paid.

  • Relief at source (RAS) – this method operates by allowing the member to make their contribution after deducting an amount equal to the basic rate of tax relief. . . .

    May 2019   Read the full article

 
 
  IF THE CAP FITS

in Pension Funds Insider

Tackling the complexities of the charge cap

In pensions – as in life generally – it's almost a truism that rarely is anything as simple as it might at first seem. It's often difficult to make a clear statement without feeling a need to recognise exceptions. The ongoing debate about charging is a case in point.

"Transparency" is a keyword in our industry at the moment; particularly in the context of communications to pension scheme members. We should be better informed, not only about the value of our pension, but also about the cost of saving. This is true not only with members but within the industry itself, with complex regulations and rules surrounding the charge cap. This issue came to the fore with the advent of auto-enrolment, where success depended partly on minimising opt-out rates, and low charges were seen as a key factor in this.

Many of those auto-enrolled for the first time have joined money purchase occupational pension schemes; particularly master trusts. Consequently, since 6 April 2015, the Occupational Pension Schemes (Charges and Governance) Regulations 2015 have applied charge controls to the default arrangements of certain occupational pension schemes that provide money purchase benefits, used to meet automatic enrolment duties in relation to at least one jobholder ('relevant schemes').

Such schemes cannot require a jobholder to make any choices, such as about fund investments, so they have to provide a default fund for those who do not express an option or choice.

Trustees must ensure no member's funds in a default arrangement are subject to charges in excess of the cap. . . .

16 Apr 2019   Read the full article

  PENSIONS COMPLIFICATION

in Trafalgar House Viewpoiints

The volume of pensions legislation in force has been increasing exponentially in the last fifteen years with annual Finance Acts, six Pensions Acts and two Pension Schemes Acts, plus hundreds of sets of regulations. The twin drivers have been a Treasury obsession with tax relief and the potential for its abuse, and a DWP passion to protect pension scheme members seemingly almost regardless of cost.

The rise of the Regulators has added to the burden. Initially triggered by the Maxwell scandal in the early nineties, first we got Opra and then from 2004 The Pensions Regulator. Guidance proliferated; not only explaining the requirements of legislation, but also setting out what was expected from trustees and administrators in terms of governance and compliance.

From HMRC, the few hundred pages of IR12 were replaced in 2006 by several thousand pages in the Registered Pension Schemes Manual (and now the Pensions Tax Manual). What had begun as a brave new world labeled 'simplification' rapidly became 'complification' instead.

In large measure the burden heaped upon administrators has resulted in the first place from political over-reaction to bad behavior by a few, and then the failure of attempts such as David Cameron's 'Red Tape Challenge' to reverse the tide of new legislation. The whole sad history has been entertainingly described in leading pensions lawyer Robin Ellison's magisterial survey "Red Tape".

Constant tinkering with the legislation by politicians who cannot leave things alone is not the only problem: the consequences of major policy errors can take decades to overcome. Take contracting-out for example. This failed experiment . . .

12 Mar 2019   Read the full article

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Aries Insight Features
Aries House
29 Station Road, Desborough, Northants NN14 2RL
Tel 01536 763352
email: ian@ariesinsight.co.uk

 
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