Instruments of interest
Draft Pension Schemes Act 2015 (Transitional Provisions and Appropriate Independent Advice) (Amendment No.2) Regulations 2017
Pension Schemes Act 2015 (Transitional Provisions and Appropriate Independent Advice) (Amendment) Regulations 2017 (SI 2017/717)
5.Recently introduced freedoms allow people aged over 55, with defined contribution pension savings, flexibility under tax legislation over when and how they access those savings. Section 48 of the Pension Schemes Act 2015 required occupational and personal pension schemes to check that members with “safeguarded benefits” (broadly, benefits under salary-related defined benefit schemes, or defined contribution arrangements with certain guarantees) have taken appropriate independent advice before transferring, converting or taking lump sum payments from those benefits. Other Regulations5 provide an exception to this requirement if the value of a person’s safeguarded benefits is £30,000 or less. Following consultation the valuation method has been simplified to allow schemes to apply whichever calculation methodology they already use for the purpose of calculating statutory transfer values.
6.As a result of another consultation, this instrument also refines the information that schemes must send to inform all members with safeguarded-flexible benefits of their guarantees, to require the use of a tailored communication with a personalised ‘risk warning’. This personalised risk warning must include a narrative section explaining the guarantee, its features and how it can be exercised or surrendered. It must also include a projection of the income the guarantee might provide, relative to the income a pension pot of the same size would purchase on the open market. The annual net impact of the package of measures contained in this instrument is estimated to be a saving of £1.6 million: the estimated costs of the new requirement to send risk warnings are outweighed by the benefits to pension providers of being able to adopt a simpler and less burdensome process for valuing members’ benefits. We commend the Department for Work and Pensions for its consultations on this matter resulting in pragmatic changes which appear likely to provide a better service at less cost.
Insolvency Amendment (EU 2015/848) Regulations 2017 (SI 2017/702)
7.The Department for Business, Energy and Industrial Strategy (BEIS) has laid these Regulations in order to facilitate the application of “the recast EU Insolvency Regulation”6 which deals with cross-border jurisdiction, cooperation, recognition and enforcement of insolvency proceedings in the EU. BEIS says that the recast EU Insolvency Regulation introduces new procedures for undertakings as an alternative to secondary proceedings and for the coordination of proceedings involving members of a group of companies. SI 2017/702 makes amendments to the Insolvency Act 1986 and a number of statutory instruments to ensure consistency with the recast EU Insolvency Regulation. We enquired how voluntary arrangements could be effective and received the explanation from BEIS published at Appendix 2. It is possible that we did not fully understand the explanation but we did not find it persuasive.
8.BEIS laid SI 2017/702 on 23 June and brought it into force three days later. In the accompanying Explanatory Memorandum, BEIS says that the instrument needed to come into force on 26 June, on the same day as the recast EU Insolvency Regulation. BEIS added that the drafting of the instrument was “complex and technically difficult” because it covers reserved and devolved insolvency law across three jurisdictions of the United Kingdom; and that, as a result, “we have been unable to settle the instrument in time to comply with the 21 day rule”. We sought additional information from BEIS about the timing of its preparations to finalise and lay these Regulations, and we are publishing that information as Appendix 2. The Department has told us: “We sincerely regret that we underestimated the time and complexity of the project, which meant that Parliament did not have the normal 21 day period to examine the regulations before they came into force. We will ensure that we learn from this for the future by building in scope for unexpected developments within the planning timetable, where at all possible”.
9.In July 2016, we were assured by the Rt Hon. Ben Gummer MP, then Cabinet Office Minister, that the civil service would implement an “improvement package for secondary legislation support”.7 The handling of these Regulations suggests that there remains significant scope for improvement, and we shall be drawing this case to the attention of those responsible for the improvement package.
South Tees Development Corporation (Establishment) Order 2017 (SI 2017/718)
10.This Order establishes the “South Tees Development Corporation” (“the Corporation”), as a Mayoral Development Corporation under section 197 of the Localism Act 2011, which is the first such corporation outside London. It encompasses industrial areas in Redcar and Cleveland Council, including the former SSI steelworks site. The Government and local leaders in the Tees Valley announced a devolution deal for the area in October 2015. Following the first mayoral election, on 4 May 2017, the Mayor took office on 8 May 2017 and notified his intention to establish the Corporation in the Tees Valley Combined Authority. The Corporation’s boundary is depicted on the map that accompanies the Order. As well as the wider industrial area and infrastructure, following consultation it was agreed to extend the proposed area into the Coatham Marshes, which is managed by the Tees Valley Wildlife Trust. The Wildlife Trust confirmed their support for this which would allow regeneration and environmental management work to be taken forward in a holistic manner.
Loans for Mortgage Interest Regulations 2017 (SI 2017/725)
11.The Support for Mortgage Interest scheme (SMI) was designed to provide short-term help to prevent benefit claimants from having their homes repossessed by making a contribution towards owner-occupier payments (principally mortgage interest payments) during periods of unemployment, sickness or retirement. The Department for Work and Pensions (DWP) states that the housing market has changed significantly since SMI was introduced in 1948 and the net effect is now that claimants are receiving money from the tax payer to fund the acquisition of an appreciating capital asset without any requirement to pay it back. These Regulations propose to convert SMI into an interest bearing loan, which will be repayable from any remaining equity when the property is eventually sold (or earlier if the claimant is able and so wishes). The amount of loan available will be limited to a maximum of £200,000 capital outstanding for working age and £100,000 for pension age claimants. Interest on the loan will be set at the forecast gilt rate of borrowing (currently 1.7%). DWP estimate that this will save in the region of £150 million a year (which includes an estimated write off of bad debts at 9%). Help with other housing costs (such as service charge and ground rent) will continue to be made by means of the income-related benefit schemes. As now, the interest on the mortgage payment will be paid directly to the lender. Special arrangements will be made for claimants who are vulnerable or lack mental capacity. DWP state the current SMI scheme would be unsustainable if mortgage interest rates were to rise and it is best to make the change to loans while mortgage interest rates are low.
12.The first new loans and transitions to the new scheme will take effect from 6 April 2018. As part of that process claimants will also have to take part in a telephone conversation with a third-party provider (SERCO) that will give more detailed information about the loan payments and alternative options that claimants may wish to explore to help them meet their owner-occupier payments, including their mortgage commitments. In making these arrangements we remind DWP of the need to ensure that applications do not rely exclusively on telephone and online contact, there are those who will require a face to face explanation from someone who understands the process rather than a telephone operator speaking from a script.
5 Pension Schemes Act 2015 (Transitional Provisions and Appropriate Independent Advice) Regulations 2015 (SI 2015/742)
6 EU Regulation No. 2015/848 of the European Parliament and of the Council of 20 May 2015 on insolvency proceedings.
7 We published correspondence with the Minister in our 9th Report of Session 2016–17 (HL Paper 46).