Page 1 PENSIONS E-BULLETIN ROUND-UP OF PENSIONS DEVELOPMENTS: MARCH AND APRIL 2016 Stop Press !! The High Court has released its judgment in Pollock v Reed [2015] EWHC 3685 (Ch), the litigation involving the Halcrow Pension Scheme in which Herbert Smith Freehills acted for the Pension Protection Fund. The case involved a proposed restructuring of the scheme’s benefits based upon a ‘without consent’ transfer to a new scheme providing lower benefits (that were nonetheless in excess of PPF compensation levels) and enhanced security from the employer group. Its objective was to prevent Halcrow from becoming insolvent and the existing scheme falling into the PPF by dint of the weight of liabilities it was carrying. The court held, reluctantly, that it was not possible to bless the trustees’ decision to enter into the transaction because the proposed bulk transfer was not permitted by the Preservation Regulations and could not, therefore, comply with their requirements. In particular, lower headline benefits backed up by a stronger employer covenant were not sufficient to tick all the requisite boxes of the ‘broadly no less favourable’ test. Full analysis of the court’s reasoning (and the interesting contextual background) will be provided in a separate briefing note to follow very shortly… MAY 2016 London Table of Contents Top of the agenda 1. The new ‘beneficial ownership’ regime – does 2 your pension scheme trustee company comply? 2. Brexit – what would it mean for 2 UK pensions law? 3. VAT – taxing times. The saga continues… 3 Cases 4. No entitlement to continued pension provision: 4 Prometric Ltd v John Cunliffe [2016] EWCA 191 (Civ) Legislation 5. Auto-enrolment – member-borne commission ban: 5 new regulations now in force (and DWP guidance published) 6. More new regulations (and a TPR consultation 5 exercise): DC governance 7. Yet more new regulations: AE, DB contracting-out, 5 DC freedoms, the PPF, AA and LTA reductions, and s251 PA04… Pensions Ombudsman 8. No duty on trustees to inform members that 6 better early retirement terms available: Mayo v Kodak Pension Plan [PO-8035] 9. Employer liable for 12 years’ uncollected AVCs: 7 Cunningham v Royal Mail [PO-86] 10. No entitlement to pension service credit: 7 Vose v Allianz Cornhill [PO-6130] Consultations 11. Secondary annuity market – HMRC, 7 Treasury and FCA consultations launched Budget 12. For “pensions”, read “lifetime savings”… 8 RELATED LINKS Herbert Smith Freehills Pensions and superannuation homepage Employment, pensions and incentives insights Herbert Smith Freehills insights ROUND-UP OF PENSIONS DEVELOPMENTS: MARCH AND APRIL 2016 HERBERTSMITHFREEHILLS Page 2 Top of the agenda 1. The new ‘beneficial ownership’ regime – does your pension scheme trustee company comply? All UK companies, including those which are corporate trustees of pension schemes, must now comply with the requirements of the ‘beneficial ownership’ regime introduced into company law with effect from 6 April this year. This obliges them to establish and maintain a register of People with Significant Control, known colloquially as PSCs, and (from 1 July onwards) to submit that information to Companies House on a regular basis – whenever, in fact, an annual return (to be known from that date as a “confirmation statement”) is filed. Non-compliance is a criminal offence for both the corporate entity and the individual officer(s) concerned. The purpose of the regime is to improve transparency as to the ownership and control of UK companies, with a particular eye (as one might expect) on tax avoidance and money laundering. People with Significant Control are defined as those who, in all cases directly or indirectly, hold more than 25% of a company’s nominal share capital, or control more than 25% of the votes at general meeting, or control the appointment or removal of a majority of the board. PSCs include those who have the practical ability or the legal right to exercise significant influence or control over a company. Given that most pension scheme trustee companies are nowadays wholly-owned by a fellow group member, that company will be the trustee company’s PSC: there is no need to investigate any further up the chain. More difficult will be identifying a trustee company’s PSC (or PSCs) where its shareholders are its trustee directors, or if the corporate group’s members are not entirely within the EU (and/or involve trust structures). In such cases the trustee company may have to fall back on its ability to compel potential PSCs to confirm whether or not in fact they are (or, alternatively, who is). Any company in respect of whom it transpires there is no PSC must nonetheless maintain a register (and state on it that there are no registrable persons or entities). Companies whose shares are admitted to trading on a regulated market in an EEA member state (and other jurisdictions such as the US and Japan) do not need to hold a PSC Register themselves, but do still need to be named as a PSC if they are the direct parent of (for our purposes) the pension scheme trustee company. Action: All trustee companies should check with their secretariat (or that of their corporate group), in the early course (and by the end of June at the very latest), that any PSCs of the trustee have been identified and that – whether or not there are any – a PSC Register is in place. Back to top 2. Brexit – what would it mean for UK pensions law? The question of what any Brexit would mean for UK pensions law is probably quite high on people’s lists at the moment. Whilst it is impossible to predict precisely what impact an exit from the EU would have, we consider here what it might mean from a pensions law perspective (as well as what, in our opinion, it couldn’t possibly mean). What has the EU ever done for us? First, though, a brief reminder about the pensions-related aspects of our legal system for which we owe the EU a debt of gratitude. Equal treatment Sex discrimination: benefit equalisation under Article 119 Treaty of Rome (Barber v GRE), and the part-timer pension claims under ss2(4) and 2(5) Equal Pay Act 1970 (Preston & Fletcher). Age discrimination, under the Equal Treatment Framework Directive, and the Equality Act 2010. Scheme funding Scheme-specific funding / the “statutory funding objective”, pursuant to the IORP Directive and Part 3 of the Pensions Act 2004. Protection of employment TUPE, which implemented the Acquired Rights Directive: full protection of employment rights (other than in relation to pensions) on a business transfer. And the “exception to the pensions exception”, in the form of the Beckmann and Martin decisions of the ECJ and their impact on enhanced redundancy or severance rights arising in the pensions context. Corporate failures The Insolvency Directive and its UK offspring the Pension Protection Fund, and its predecessor the Financial Assistance Scheme which aimed to deal with the inadequacies of the UK’s own Minimum Funding Requirement. ROUND-UP OF PENSIONS DEVELOPMENTS: MARCH AND APRIL 2016 HERBERTSMITHFREEHILLS Page 3 What Brexit might mean Three things spring to mind as distinct possibilities: Court of Justice of the European Union (the erstwhile ECJ) Its impact would undoubtedly be diminished, as there would no longer be any requirement for domestic legislation that has its provenance in EU law to be interpreted in accordance with its requirements. That in turn may lead to a significant increase in the speed with which justice is dispensed: remember, for example, that it took 4½ years for the uncertainties arising from the 1990 Barber judgment to be finally answered in Coloroll in September 1994. The cross-border regime (And, in fact, any domestic legislation that pre-supposes UK membership of the EU.) Its impact would also undoubtedly be diluted, although this could give rise to interesting questions of statutory interpretation when the very raison d’etre of an extant piece of legislation has been swept away. IORP 2 and PEPPs The additional governance, risk management, solvency and transparency provisions of the new IORP Directive, and the flexibilities offered by products such as the proposed pan-European Personal Pension, would all be denied to the UK if a Brexit were to come about. And what it won’t Equally there are things which in our opinion are unlikely to be brought about by a Brexit, even though they tend to feature quite highly in conversation at the moment: Reversal of the requirement to equalise retirement ages This we believe is highly unlikely. The so-called ‘doctrine of acquired rights’ would prevent it from happening with retrospective effect, and it would be a brave Government indeed that saw fit to change the law for the future. Dilution of TPR’s anti-avoidance powers The regime is not actually a requirement of European law, but something which does derive directly from it (existing as it does to mitigate the ‘moral hazard’ of corporate entities passing responsibility for the funding of their DB pension arrangements to the Pension Protection Fund and, ultimately, the UK taxpayer). Extremely unlikely to be impacted by any Brexit – ‘business as usual’, we think, whichever way the vote goes. Abolition of the PPF As above – not a chance! But the question of GMP equalisation is surely an interesting one. Without in any way passing judgment about whether such a requirement even actually exists under EU law, the extent to which Government would follow through with this long-promised (and much-maligned) requirement post-Brexit is surely one to ponder. Back to top 3. VAT – taxing times. The saga continues… Six months on from the publication of Revenue & Customs Brief 17 (2015) in late October last year, which extended the ‘transitional period’ (during which schemes could continue to apply the old 70/30 rule-of-thumb first outlined in VAT Notice 700/17 way back in April 1996), we take stock of the current position with regards to reclaiming VAT on pension fund management costs and try to interpret the silence that is currently emanating from HMRC. Schemes may, as mentioned above, continue to treat 30% of the professional service fees incurred as relating to pension fund management (upon which VAT can be reclaimed) rather than investment-related activities (on which it can’t), where the supplier issues a single invoice and no further evidence is available about a more precise split of costs. Equally, as in the past, trustees who do not consider this to be a fair proportion – and can supply both evidence of the actual split between management and investment-related activities, and separate invoices from their suppliers – may reclaim VAT on the actual proportion of expense relating to management of their fund. HMRC’s stated position, covered most recently in our October 2015 Bulletin, remains that with effect from 1 January 2017 (or earlier, if schemes so choose), the position outlined in Revenue & Customs Brief 43 (2014) must be applied. This requires clear contiguity between the party to whom the services are provided and that by which the VAT is reclaimed – in other words, it will be imperative to show (via whatever means) that the management costs were provided to the employer, in order for a valid VAT reclaim to be permissible. And this, of course, is where all the problems with tripartite contracts started in the first place. ROUND-UP OF PENSIONS DEVELOPMENTS: MARCH AND APRIL 2016 HERBERTSMITHFREEHILLS Page 4 HMRC are however known to be actively considering other options, with particular regard to the conflicts of interest and Corporation Tax issues which are said to afflict their original position. These solutions might be expected to include, amongst others: a revised form of tripartite mechanism; cross-charging of pension fund management costs by trustees on to the employer; VAT grouping (naturally only where the pension trustee is a corporate entity); and hybrid combinations of the above. Action: We will report further as soon as anything substantive is heard from HMRC as to its revised position. In the meantime, trustees and their administrators should diarise 1 January next year as it will undoubtedly be upon us much sooner than anticipated. Stop press !! The Supreme Court has just (11 May) given judgment in Airtours v Revenue & Customs [2016] UKSC 21 and held that, despite the existence of a tripartite agreement to which Airtours was a party, if it did not genuinely receive the services that were primarily provided to its bankers by a third-party supplier then it (Airtours) could not reclaim the VAT it had paid on their fees. Although the context is different there are clear parallels with the position of employers and the trustees of their pension arrangements; and we will report in more depth next month, once the full ramifications of the court's decision have been assessed. Back to top Cases 4. No entitlement to continued pension provision: Prometric Ltd v John Cunliffe [2016] EWCA 191 (Civ) The Court of Appeal has dismissed a claim for continued provision of DB pension benefits, brought by a senior executive in an IT company, and struck it out on the basis that it showed no real prospects of success. The claimant’s employer, which participated in a multi-employer DB scheme until its sale to another group of companies in 2007, subsequently provided the claimant with DC benefits via a replacement arrangement. The claimant alleged that this breached a verbal agreement with the group’s HR director made in 2000 that he, the claimant, would be entitled to DB pension benefits on an open-ended basis, and whether or not his particular employing company remained a part of the same corporate group. The Court of Appeal gave these arguments short thrift. It was clearly, the court said, inconceivable that the claimant would succeed at trial. The judge commented, somewhat pointedly, that “on subjects as complex as pensions, businessmen do not enter into oral agreements; and if they do, they certainly confirm them in writing”. He went on to say that if there had been a genuine agreement, the claimant would have insisted upon having documentary confirmation of it, and most likely in the form – to give it contractual effect – of contemporaneous documentation. The court concluded by expressing the view that it was just not possible to imply into the claimant’s employment contract a term that required his employer to continue providing the same type of benefits notwithstanding any future sale, outside the group, of that company. It was also, the judge said, “unreal” to suggest that some 15 years after the event, a court could confidently resolve any dispute as to what was said – but not documented – at the time. Comment: Employers and pension scheme trustees can take some comfort from this decision that, however well-argued and heartfelt a case is put forward (and however willing a claimant is to instigate formal and potentially costly legal action), pension entitlements will generally only arise as a consequence of a written agreement between, or conferring rights upon, the parties. It is clearly in the interests of legal certainty that a mere oral agreement, for something so involved as a right to a DB pension, seems unlikely ever to be upheld by a court and can be expected not even to get to full trial. Back to top ROUND-UP OF PENSIONS DEVELOPMENTS: MARCH AND APRIL 2016 HERBERTSMITHFREEHILLS Page 5 Legislation 5. Auto-enrolment – member-borne commission ban: new regulations now in force (and DWP guidance published) As trailed in our January 2016 Bulletin the Occupational Pension Schemes (Charges and Governance) (Amendment) Regulations 2016 came into force on 6 April 2016. These prohibit service providers from levying a charge on scheme members to recoup the commission that they paid to advisers in return for the new business, where a DC occupational pension scheme is being used for auto-enrolment purposes. The ban applies immediately to new commission arrangements, and with effect from the first date after 6 April on which pre-existing arrangements are varied or renewed. DWP has also published non-statutory guidance to complement the new regulations. It clarifies in particular who is a “service provider” for the purpose of the new regulations, a concept which includes organisations (and individuals) providing bundled administration services (e.g. an insurer or master trust provider) or who are “unbundled providers” such as third party administrators. The wider DC governance regime, of which these regulations form a part, does not apply to executive pension plans, small selfadministered schemes or single member arrangements. Similarly the ban on member-borne commission can be circumvented by members deciding to opt-in to adviser services and then agreeing to pay the additional charges that would otherwise be caught by the ban. Back to top 6. More new regulations (and a TPR consultation exercise): DC governance Also now on the statute book (again as of 6 April this year) are amendments to the much-loved Occupational Pension Schemes (Scheme Administration) Regulations 1996, which simplify certain aspects of the DC governance regime introduced by DWP a year ago. Most pertinently these ensure that the additional governance requirements now relating to industry-wide schemes and commercial master trusts do not apply to multi-employer group schemes. At the same time TPR has launched a consultation exercise on six “how to” guides it has produced to accompany the revised version of the DC governance code. These cover: the trustee board; scheme management skills; administration; investment governance; value for members; and communication and reporting; with consultation closing on 11 May and final versions of the guides due to be published during July, when the revised Code itself also comes into force. Back to top 7. Yet more new regulations: AE, DB contracting-out, DC freedoms, the PPF, AA and LTA reductions, and s251 PA04… The legislators have indeed been busy and we set out below a summary of the further pieces of primary and secondary legislation in force since 6 April. Abolition of DB contracting-out. A statutory modification power is now in place to allow trustees to amend provisions in scheme rules relating to fixed-rate GMP revaluation: see our February 2016 Bulletin for more detail. Revised requirements now apply on the transfer, both with and without consent, of accrued contracted-out rights: again, more detail is contained in our February 2016 Bulletin. Auto-enrolment. The obligation to auto-enrol LLP members who are workers but also “genuine partners” in the business is replaced with a discretion to do so: see our January 2016 Bulletin for more detail. A simplified procedure is also now in place by which employers may accelerate their staging dates: in particular, the one month notice requirement has been abolished. ROUND-UP OF PENSIONS DEVELOPMENTS: MARCH AND APRIL 2016 HERBERTSMITHFREEHILLS Page 6 The timescales within which employers must submit re-declarations to TPR have also been simplified: henceforth they run at regular three-yearly intervals. And finally, a new transitional easement allows formerly contracted-out schemes to remain compliant with the statutory quality test until, essentially, 5 April 2019. DC freedoms. Trust-based schemes must now provide generic “retirement risk warnings” to members who are considering taking advantage of the new DC freedoms. However these can be tailored to reflect the options available to a member; and, as importantly, the proposal that a similar requirement applies where members seek to transfer their benefits to a flexible DC environment has not been followed through and will not now apply. Pension Protection Fund. Eligibility rules widened to catch schemes whose employers are in a similar position to Olympic Airlines and who, whilst based in the UK, have their “centre of … main interest” in another EU state (and could not otherwise, therefore, suffer a “qualifying insolvency event” and thereby trigger their scheme’s eligibility for the PPF). The PPF now also has discretion, to extend from 28 days to 3 months, the period within which trustees of an eligible scheme – on becoming aware that an employer is unlikely to continue as a going concern – must apply to the PPF for it to assume responsibility for their scheme. And last but not least, the PPF compensation cap for 2016-17 has been set at £37,420 (and 42 pence). Lifetime and Annual Allowances. LTA reduced from £1.25m to £1.0m. “Fixed protection 2016” and “individual protection 2016” introduced for those who might be impacted. AA remains at £40k but tapers down to £10k for those with annual earnings in excess of £150k: see our January 2016 Bulletin for more detail. PIPs now aligned with the tax year. Refunds of surplus from ongoing schemes. Only now permitted if requisite resolution (pursuant to s251 Pensions Act 2004) passed by trustees, following at least three months’ notice to members and scheme employers, prior to 6 April 2016. Back to top Pensions Ombudsman 8. No duty on trustees to inform members that better early retirement terms available: Mayo v Kodak Pension Plan [PO-8035] The Deputy Pensions Ombudsman has dismissed a complaint by a member of the Kodak Pension Plan (KPP) that its trustees failed in their duty to inform him that, if he were to delay the drawing of his benefits from the scheme, more favourable early retirement terms would be available. The KPP was, of course, the scheme that bought its sponsoring employer three years ago, via a novel structure that allowed the insolvent employer’s remaining profitable business lines to continue and which similarly prevented the majority of the scheme from falling into the PPF. This determination of the Ombudsman concerns the slightly more down-to-earth topic of one such member’s early retirement benefits. Mr Mayo, the complainant, applied for early retirement in September 2012, after the employer’s US parent had entered “Chapter 11” bankruptcy. His application was automatically accepted under the standing policy that the scheme’s trustees had in place at the time. In late March 2013, three days before Mr Mayo’s benefits were due to come into payment, the trustees were asked by the employer group to approve a revised benefit design package that offered, amongst other things, more generous early retirement terms than had previously applied. These were duly agreed, and put in place in respect of any subsequent applications for early retirement. Mr Mayo discovered in due course that his £19,000 per annum pension would have been in the region of £26,000 had the new factors been applied, and he complained to the Ombudsman. In her determination the Deputy Pensions Ombudsman held that at the point at which Mr Mayo had applied for early retirement, the KPP’s trustees could not in any way have foreseen the outcome of various possible scenarios (for the employer and the scheme’s rescue) that were playing out at the time. Their responsibilities were limited to giving Mr Mayo the ability to make a properly-informed decision and providing him with information about the option he had chosen; these did not, by contrast, extend to taking pre-emptive action to monitor a member’s personal situation to then inform him at a much later stage that new early retirement terms were being agreed and that if he re-applied for early retirement – which might not have been possible in any event – he could have been significantly better off. Comment: A practical, sensible determination by the Deputy PO that is to be welcomed. (We would similarly hope that the same decision would have been reached even had the member’s early retirement decision not been an irrevocable one.) Clearly one cannot fail to have enormous sympathy for the member’s predicament, but from a legal perspective the decision applies long-standing principles and is entirely right. Any extension of trustees’ duties, in the manner suggested by Mr Mayo, would place all trustee boards in an invidious and utterly impossible position. Back to top ROUND-UP OF PENSIONS DEVELOPMENTS: MARCH AND APRIL 2016 HERBERTSMITHFREEHILLS Page 7 9. Employer liable for 12 years’ uncollected AVCs: Cunningham v Royal Mail [PO-86] A complaint by a pension scheme member whose AVCs were not collected for 12 years because of a payroll error has been upheld by the Deputy Pensions Ombudsman. The member had his employment transferred between companies within the Royal Mail group in 2000. In 2012 the member was informed by the trustees of the scheme that they had not collected any AVCs since the transfer and that he was liable for arrears of £17,500 or would be required to cancel the arrangement. The trustees and the member’s employer admitted that the failure to collect the AVCs, or notify the member in 2003 when the error was first noticed, were maladministration. The Deputy Ombudsman found that, on the facts, it was reasonable for the member not to have spotted the error given his fluctuating income and because he relied on annual benefit statements that wrongly continued to show his added years. He had, furthermore, irrevocably changed his position in reliance on those benefit statements and it would accordingly be inequitable for the scheme to go back on the representations constituted by them. The employer was ordered to pay into the scheme the amount necessary to fund the service credit that the member had been led to believe would be bought by his AVCs. Comment: Another well-reasoned and eminently justifiable decision, and a good example of the kind of matter for which a costeffective, easily-accessible tribunal system is designed. Back to top 10. No entitlement to pension service credit: Vose v Allianz Cornhill [PO-6130] In a further reminder (see also Prometric v Cunliffe, considered above) of the need to document pensions policies in clear and unambiguous fashion, the Pensions Ombudsman has partially upheld a complaint from a member whose anticipated five-year service credit – said to have arisen following a TUPE transfer of his employment from AGF to Cornhill – did not materialise on drawing his benefits. The facts are very specific but, more generally, provide a good illustration of the compound effect of ‘chinese whispers’ where matters as complex as pension entitlements are concerned. The trustees of the scheme in question operated long-standing but undocumented policies regarding the award of service credits, that were subsequently replaced by less generous discretionary policies applying to a much narrower class of individuals. Neither were fully understood within the company or its pensions department, a situation that was exacerbated by nothing having been committed definitively to writing. The need for clear employee communications where business transfers are contemplated, in light of the way in which (and extent to which) TUPE applies to pension rights, is another ‘takeaway’ from this decision. Back to top Consultations 11. Secondary annuity market – HMRC, Treasury and FCA consultations launched Three consultation exercises began at the end of April and run until June, in respect of the tax and regulatory frameworks for the new secondary annuity market to be created with effect from April 2017. We first addressed this in our January 2016 Bulletin shortly after the Government’s intentions had been formally confirmed by the DWP. The new regime will, if implemented as now proposed: relate to both current and deferred annuities, from both DC and DB schemes, and whether purchased since or prior to 6 April 2015; and allow policyholders to either assign them to a new provider or, in direct response to the weight of opinion that was forthcoming during the first consultation exercise on the new regime, surrender them back to the original issuer. Tax The proceeds will be capable of either being taken as cash, or used to replace the old policy with a “flexi-access drawdown fund” or “flexible annuity”. And so long as the assignment or surrender: is undertaken by the pension scheme member and the proceeds applied for his or her sole benefit; relates to all of the rights under the original policy; ROUND-UP OF PENSIONS DEVELOPMENTS: MARCH AND APRIL 2016 HERBERTSMITHFREEHILLS Page 8 and, in the case of an assignment or surrender for cash, involves a member who has either reached age 55 or become entitled to their benefits on the grounds of ill-health; then the unauthorised payments regime will not apply and the member will simply be taxed in the normal way on the cash lump sum or, as the case may be, future withdrawals or annuity income. The consent of contingent beneficiaries (such as a spouse not yet in receipt of survivor benefits) will not, HMRC suggest, be required; although interestingly the FCA promulgate the policy view that it may well be. Watch this space. Other areas of uncertainty that will require resolution in due course include: how to deal with members whose benefits have been bought-in, via an insurance contract in trustees’ names, rather than bought-out in their own; and how the requirement that an assignment or surrender relates to all rights under the original policy will sit alongside the fact that, historically, many DB schemes have either under- or over-secured pension increases (and either fund these entirely from, or retain any insurance proceed ‘surplus’ within, their schemes). Regulation As for the regulatory perspective, HM Treasury intends to create three new categories of regulated activity – annuity assignment agreements, annuity buyback agreements and annuity broking – that will each require FCA authorisation, separate from and in addition to any current authorisations a firm may hold. The third of these new classes of business will relate to the requirement that any surrender to the original provider takes place through an intermediary, other than for low value annuities (with the relevant threshold yet to be determined) – consumer protection, and competitive pressure, seem to be at the collective forefront of Government’s mind. New rules from the FCA will also help the satisfaction of this first objective. Risk warnings will be compulsory, as will a recommendation to ‘shop around’ and a requirement to take advice (although not necessarily to follow it). And contingent beneficiary consents seem destined, as mentioned earlier, to become something of a political hot potato between rival manifestations of Government. Presentation of offers to sellers is also something upon which the FCA are focusing quite heavily. They will need to be in pounds sterling, with no conditionality attached, and set out in descending price order. A price comparator will need to be included, in order to demonstrate the differential between the sale proceeds being offered to the policyholder and how much it would cost to re-buy that annuity in the market today. Existing ‘distance selling’ provisions will give individuals a 14-day cooling off period, and FCA authorised firms will – given the likely high incidence of older and more vulnerable participants – have existing guidance about mental capacity re-iterated to them. Back to top Budget 12. For “pensions”, read “lifetime savings”… And finally, by way of reminder about something that is now quite ‘old news’, a recap of this year’s Budget. Lifetime ISA As from April 2017 adults under age 40 will be able to subscribe to a Lifetime ISA and contribute up to £4,000 annually. The Government will add a bonus of 25% to the individual’s account at the end of each tax year, up to and including the individual’s 50th birthday. Funds will be capable of being withdrawn from the LISA tax-free to help purchase the individual’s first home, or when he or she reaches 60 years old (or, if earlier, is diagnosed with terminal ill-health). A 5% charge, and the loss of the Government bonus, will apply to any withdrawal of funds in other circumstances. Comment: When combined with the 2015 freedoms that no longer require a pension fund to be taken as a pension, this development further illustrates Government’s move away from the concept of retirement saving to the more flexible notion of saving for one’s lifetime. Pensions advice allowance Government intends to consult during the summer on the creation of a pensions advice allowance, that will allow those under age 55 to withdraw £500 tax-free from their DC fund and redeem it against the cost of financial advice as to the most appropriate manner in which to take those benefits. ROUND-UP OF PENSIONS DEVELOPMENTS: MARCH AND APRIL 2016 HERBERTSMITHFREEHILLS Page 9 Pensions dashboard Dashboards are all the rage amongst the pensions advisory community and now Government has announced that one is to be developed (and funded) by “the pensions industry” for individuals, to enable them to view all of their pension arrangements in one place. Salary sacrifice to be sacrificed? Government has also announced that it may limit the amount and range of benefits that attract income tax and NIC advantages when provided as part of a formal salary sacrifice arrangement. However, its intention appears to be that pension savings (amongst other things) will continue to attract favourable treatment if provided via salary sacrifice. Back to top ROUND-UP OF PENSIONS DEVELOPMENTS: MARCH AND APRIL 2016 HERBERTSMITHFREEHILLS Page 10 Contacts Daniel Schaffer (Partner) T +44 20 7466 2003 [email protected] Alison Brown (Partner) T +44 20 7466 2427 [email protected] Samantha Brown (Partner) T +44 20 7466 2249 [email protected] Kris Weber (Professional support lawyer) T +44 20 7466 3407 [email protected] If you would like to receive more copies of this briefing, or would like to receive Herbert Smith Freehills briefings from other practice areas, or would like to be taken off the distribution lists for such briefings, please email [email protected]. © Herbert Smith Freehills LLP 2016 The contents of this publication, current at the date of publication set out above, are for reference purposes only. They do not constitute legal advice and should not be relied upon as such. Specific legal advice about your specific circumstances should always be sought separately before taking any action based on the information provided herein. Back to top