Pensions myth-busting – overseas transfers

Business man and traveling luggage

Transferring UK pension benefits overseas was already difficult enough, but the new rules announced in the 2017 Budget have added a further layer of complexity. An Overseas Transfer Charge (OTC) applies to overseas transfers that are requested after 9 March 2017 and is generally payable unless the member can show that certain exemptions apply.

The new regime has increased the burden on scheme administrators who were already finding it difficult to process pension transfers, given the requirements to check that independent advice has been received and that the receiving arrangement is not a scam. HMRC has issued some guidance but many areas of uncertainty remain.

Read on to see the top 4 overseas transfer myths that we’ve encountered recently.

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A Game of (Pensions) Thrones – winter is coming…


Well, the leaves are falling, there’s a bit of a chill in the air, and the shops are already trying to make us buy mince pies. That can only mean one thing…winter is coming. Whilst the hugely popular TV show “Game of Thrones” may be off UK TV screens again for a while, the drama continues within some of the major UK pensions institutions doing battle for supremacy. So who will prevail and what lies beyond the Wall?

  • The joining of three Houses: The government announced in the 2016 Autumn Statement a proposed merger of the Pensions Advisory Service, Pension Wise and the Money Advice Service to form a single public body offering advice on pensions, debt and personal finance generally. Following a recent consultation, it has now announced that the merger will be going ahead. There is certainly logic in having a single, convenient reference point for dealing with all financial questions. However, there is a risk that some of the good work in promoting Pension Wise following the introduction of the new DC pension freedoms may be undone, at least in the short term. Given the specialist nature of pensions advice (and advice in other areas for that matter, such as personal insolvency), concerns have also been expressed that the new service could become a “jack of all trades”. The new service will therefore need to ensure that its advisers are provided with adequate resources and training.

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“Another fine mess” – higher monetary penalties for professional trustees

Uncover The Facts

Are you considered to be a “professional trustee”? Well the answer to that question has just become a whole lot more important! The Pensions Regulator has recently published its “Professional trustee description policy”, which aims to provide clarity over who the Regulator would and would not consider to be a professional trustee. The Regulator’s definition can have significant consequences, as it expects higher standards of professional trustees and as a result higher monetary penalties will normally be applied where a professional trustee has failed in its duties. Professional trustees will need to have additional protection in place to reflect this increased risk, for example by way of insurance and indemnities.

Many trustees may therefore wonder “how do I know whether I am a “professional trustee” or not?”. The Regulator’s general description is fairly straightforward: “We consider a professional pension plan trustee to include any person, whether or not incorporated, who acts as a trustee of the plan, in the course of the business of being a trustee”.

However, after this the position becomes a little more complicated and the boundaries between a professional and a non-professional trustee become slightly blurred by the Regulator’s interpretation of “in the course of business of being a trustee”.

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How2 Do Pensions

How2 Do Pensions

To mark Pensions Awareness Day 2017, Squire Patton Boggs launches a series of free “How2 Do Pensions” guides! Each issue will provide a valuable speed brief on a key aspect of UK occupational pensions. The first two instalments summarise employer automatic enrolment duties and how to move to electronic member communications. Further instalments will follow each Tuesday. Watch out for the guides on our Insights page on the firm’s website or on Linkedin or Twitter.

Age ain’t nothing but a number

Pension Pounds

With a whirlwind of changes enforced in the last seven years the state pension age, which remained unchanged from the 1940s until 2010, is yet again in for a shake-up. On 18 July, David Gauke, Work and Pensions secretary announced plans to bring forward the increase in state pension age to 68 – this will come into force between 2037 and 2039. The government fiercely argues its proposals would reduce the expected rise in related spending by 0.4 per cent of GDP by 2039/40 and will make economic savings of £74 billion by 2046/2047 following the outcome of the Cridland report.

The changes fall against a pressurised backdrop of the continuous and rapidly rising life expectancy rate as well as an ageing population causing a surge in the number of people in receipt of a state pension.

What are the implications?

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A crisis of confidence or a question of short memories?

As the central bankers of the world gathered at Jackson Hole last weekend and considered how and when to taper quantitative easing programmes (“just how long do we have to hold these government bonds?” must have been one of their breakout sessions), a salutary reminder of the continuing reality of the financial crisis that began in 2007 came in the form of a very interesting Financial Times report highlighting a Which? survey about consumer trust in various financial products. The banking industry, for so long the unmentionable industry to confess to working in and the prime mover of the crisis, has recovered in consumer confidence in the Which? survey to the point where only 23% of consumers expressed confidence in long term savings, compared to 40% in high street banks. Even energy companies, renowned for being the bad boys of price controls, managed a 30% confidence score.

So what has happened in 10 years to cause this healing of the collective memory of the pain caused worldwide by the financial crisis? And why have pensions and savings fared so poorly?

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Hanging on the telephone

Cutting off the TelephoneIt’s time to hang up on cold callers! The loss of pension savings can have a devastating impact on an individual’s plans for retirement but this is an unfortunate reality for those who have fallen victim to pension scammers. The UK Government’s consultation response on pension scams shows its clear intention to ban cold calling in relation to pensions.

 A few thoughts

  • Although the ban should help to limit the number of pension scams, individuals and trustees will still need to be vigilant.
  • The Government intends to future proof the legislation but consideration will be needed as scammers become more sophisticated and find ways to overcome obstacles.
  • The Information Commissioner’s Office will have no powers outside of the UK’s jurisdiction so scammers may seek to manipulate this.

The legislation should be useful in terms of highlighting a problem to the general public (depending on the extent of any public awareness campaign that may accompany the ban) but a tightening of the transfer legislation is paramount. We look forward to the promised Government consultation on this issue.

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Quick reminder: large transfers need to be notified to the Pensions Regulator

Don't forgetTrustees: don’t risk a fine due to a simple process failure!

Reports show that transfer requests are steadily increasing in number and value.  Suggestions are that this is due to the attractiveness of member choice and the introduction of new pensions flexibilities from 2015.  So, with everyone talking about the impact of transfers-out on scheme liabilities and the possible benefit to pension plans, do trustees know whether their pension plan is caught by the requirement to notify the Pensions Regulator of the payment of large transfer values? If the pension plan is caught (generally because it is eligible for entry to the Pension Protection Fund) any decision by the trustees to make a transfer out or accept a transfer in where the transfer is the lower of 5% of the value of the pension plan assets and £1.5 million must be notified to the Regulator.

With larger transfers being a more frequent occurrence – we know many of our clients are being asked to consider them – trustees need to make sure they have a process in place for identifying and notifying where necessary, or else they could be subject to a nasty fine of up to £50,000, reducing to £5,000 in the case of individuals.

UK corporate governance reform: has Theresa May delivered?

With all the media frenzy over whether Theresa May has delivered on her (perhaps overly ambitious) promises on corporate governance reform, it is easy to miss the substance of what the Government has just announced.

Although there are no bold new initiatives, there are plenty of changes that are designed to deliver nudges to corporate behavior on executive pay, representation in the boardroom and other issues.  There are even one or two that play to the crowd in general and the media in particular.

Cynics might write this off as more of the same, with the result of one consultation exercise spawning a plethora of new consultations.  However, we think that there is more to it and that it is worth taking the time read through the list of action points identified by the Government. Continue Reading

The IBM appeal – when is a pensions promise not a promise?

Employers can pursue pension plan change with renewed vigour following the publication of the judgment in the IBM appeal. They can now be less concerned about whether promises they have made in the past may bind them into the future, as the weight of an employee’s “reasonable expectations” argument has been significantly downgraded making it more difficult for an employee to successfully challenge pension plan change on the basis that it breaches the employer’s duty of good faith.

Allowing IBM’s appeal, the Court of Appeal overturned the High Court’s ruling that IBM had breached its duty of good faith in introducing the “Project Waltz” pension changes, because of the reasonable expectations it had previously engendered as to defined benefit accrual and early retirement and its contractual duty of trust and confidence by removing the pensionability of future salary increases. In arriving at the decision, the Court of Appeal decided that though the trial judge had identified the correct legal test, he had applied it incorrectly, and he had wrongly elevated reasonable expectations to give them “paramount significance” over other relevant factors. The correct approach was to apply a rationality test, with reasonable expectations forming just one of many factors for consideration in the decision-making process.

The Court of Appeal also found in favour of IBM that making a “threat” that DB members would not receive pay increases other than on a non-pensionable basis, did not breach the contractual duty of trust and confidence. While specific to the pension plan rules, the representative beneficiaries’ cross-appeal that the exclusion power in the rules had been used for a collateral and improper purpose to break the final salary link was refused.

The representative beneficiaries have indicated they will not seek to appeal the decision before the Supreme Court.

Employers should consider member expectations that have arisen from previous communications when making pensions changes and should ensure that consultation is carried out properly. There are still a number of legal pitfalls for the unwary – not to mention problems arising from employees who perceive that promises have been broken.