In October 2013, the UK Department for Work and Pensions (DWP) published a consultation paper setting out proposals to cap the charges levied by default funds under qualifying defined contribution (DC) auto-enrolment schemes. The intention was for this cap to be in place by April 2014. However, the DWP has now confirmed that implementation will be delayed for at least a year.

 Commenting on this development, Francois Barker, head of pensions at global law firm Eversheds, says: “The government’s original plan to impose a cap on DC default fund charges by April 2014 was ambitious in terms of timescale. Rather than rushing through legislation, delaying implementation will hopefully give the government time to consider the detail and get it right. “It is important that people have a decent level of savings for their retirement. However, low charges alone will not guarantee this. It is also essential that pension schemes have effective governance, clear communications and suitable investment options. And, of course, low charges will not greatly improve the funds available for a person’s retirement if the amount of money paid into their pension is insignificant in the first place.”

2013 saw many changes for executive pay and share incentives, and 2014 is likely to be just the same.  Graham Rowlands-Hempel, a consultant in our Employment and Incentives team summarises what we can expect over the next 12 months: Say on pay, and display: The new voting and disclosure regime for directors of quoted companies came into force on 1 October 2013. We have already seen a few new-format remuneration reports and 31-December year-end companies are gearing up to produce their reports in the next 12 months or so. It is clear that this is a challenging process both for the remuneration policy and the increased pay disclosure. There are some key issues companies are having to deal with such as setting maximums in the policy as well as single figure disclosures for promotions and terminations. Preserving previous arrangements also requires some care. 

Clawback for all: The FRC’s consultation on possible changes to the Corporate Governance Code has just ended. The main issue was whether the Code should be amended to require all quoted companies to have performance adjustment and clawback provisions for deferred bonuses and LTIP awards. If the FRC decide to change the Code, there will be a further consultation. The changes will apply to accounting periods beginning on or after 1 October 2014.  In the meantime it is clear from remuneration reports that many companies have already adopted performance adjustment and some claw back provisions.  We are starting to see a number of cases involving the application of these provisions and expect to see more this year.

Banks’ EU cap on variable pay: CRD4 took effect in EU Member States on 1 January 2014 and is making a number of changes to pay in banks and certain investment firms. The most important is a bonus cap of 1x salary on variable pay (2x salary with shareholder approval).  This applies to payments to Code Staff/Identified Staff for services provided or performance from 2014 onwards, whether due on the basis of contracts concluded before or after 1 January 2014. So the first bonus round caught by the cap will be in 2015, for 2014 performance. Affected firms should be considering how this applies to them, whether and how to seek shareholder approval for the increase to 2x salary, and remuneration structures which may be outside the cap.

Let’s go digital – online registration and self certification: The Government announced some time ago that it will be implementing a system of online registration of all plans and self certification for tax-approved plans. This will replace the current cumbersome pre-approval HMRC process with effect from 6 April 2014. All existing approved plans will also have to be registered and self certified by 6 July 2015. The detailed provisions have just been published for consultation in the draft Finance Bill and we will be considering the impact on companies. Click here for more information. This is an exciting development which should enable companies to roll out tax-approved plans and administer them in a flexible manner, without the constraints of the HMRC pre-approval time delays. However, it will crucial to ensure that plans comply with the legislative requirements and that online annual returns are submitted in time, to avoid penalties. Companies may also need to amend their existing plan rules to be within the new regime. Changes to tax-approved and unapproved plans: HMRC have also just announced a number of proposed changes affecting both tax-approved and unapproved share plans. They should generally give more flexibility and will mostly have effect in the summer of 2014. Click here for more information

Employee-shareholders are here: From 1 September 2013, new or existing employees may become 'employee shareholders'. In return for giving up some employment rights, including the right not to be unfairly dismissal (except for discrimination or health and safety) and the right to a statutory redundancy payment, the employee shareholder receives company shares which attract some tax breaks: up to £50,000 worth of shares will be exempt from capital gains tax and the first £2,000 will be exempt from income tax and NIC on acquisition. An onerous process must be followed however, including legal advice for the employee and a cooling off period. Click here for more information. So far implementation has been limited to the private equity and similar sectors, but it is worth considering whether and how this structure may be used with LTIP awards, in view of the tax planning opportunities.

Global share plans – latest news from Australia: Many multinational companies have operations in Australia and extend their global incentive plans to employees there. There is good news for 2014, with the Australian Securities and Investments Commission (ASIC) looking set to end much of the uncertainty that has surrounded the offer of free share plans structured as restricted stock units (RSUs or conditional awards). ASIC recently released a consultation paper and draft regulatory guide (click here for details) and proposes  to broaden the current Class Order exemption (from prospectus and licensing requirements) associated with employee incentive plans. A key proposal is to extend the exemption to include various types of newer style incentives including RSUs, phantom plans, cash-settlement alternatives and dividend equivalents, alongside the traditional share options and share purchase plan structures already covered by the 10 year old Class Order. It is also proposed to allow offers of depositary interests such as U.S. ADRs, provided there is a clear link to the underlying listed share. As a result, companies would no longer have to consider modifying their plan rules, applying for special relief or excluding their Australian employees from their global plans because of securities law considerations.

Companies will also welcome ASIC’s intention to dispense with the requirement to lodge offer documents each time the plan is operated. However, ASIC is also proposing new, general, standards of disclosure – including a risk disclosure – on issuers, which may not be quite so welcome. Other proposals include a new 12 month mandatory holding period for a significant portion of entitlements under the offer, and additional conditions for offers to non-executive directors. These seem likely to be the subject of submissions during the consultation period, which runs to 31 January 2014. It is expected that the new Class Order will be released in May 2014. More generally for global plans, we expect to see increased use of global nominee arrangements, giving employees a convenient way of holding and dealing with their shares once they are released from the plan. On the tax side, we anticipate companies reviewing their group chargeback arrangements to check they are not only in line with their internal policy but are also compliant with local law requirements.