A round-up of recent developments in the UK, including a Private Members Bill on GMP conversion, consultations on SMPI assumptions and dashboard requirements, a call for evidence on the State Pensions age and new Scheme Pays regulations.
TPR provides new guidance on climate-related governance
Paul Barton | February 24, 2022
Trustees and advisers have been offered more aid in getting to grips with climate-related rules by the Pensions Regulator. TPR has published an illustrative step-by-step example setting out how pension scheme trustees might approach meeting the requirements of the new climate-related regulations. This illustrative example is TPR's response to requests for additional support during the consultation that preceded the publication of TPR's final guidance in December last year.
The example, which covers a scheme that combines both defined benefit and defined contribution schemes, is intended to be helpful to trustees and advisers who are required to comply with the climate change regulations as well as those that wish to do more to manage their climate-related risks and opportunities. While intended to be practical it is not a checklist, and TPR emphasises that schemes vary enormously and must therefore take appropriate advice and ensure that the approach they take is suitable for their scheme.
Criteria for extended Annual Allowance “Scheme Pays” tax charge deadline
Kirsty Cotton, Dave Roberts | February 23, 2022
On 18 February 2022 the Government published draft regulations with the uninformative title The Registered Pension Schemes (Miscellaneous Amendments) Regulations 2022 for a short technical consultation (deadline 15 March 2022). These regulations are the missing piece of the jigsaw to define when a member will be able to use “Scheme Pays” to meet an Annual Allowance (AA) charge which arises following a retrospective change of facts. The regulations extend the circumstances in which this easement will apply to situations where an employer finds that information provided for a tax year was insufficient to correctly calculate the pension input amount for it. The legislation allowing for extended Scheme Pays deadlines to then apply is included in the Finance (No.2) Bill 2021-22 which is currently making its way through Parliament.
The regulations set out that the employer must provide corrected information to the “scheme administrator” within three months. The scheme is then required to issue a corrected Pensions Savings Statement (PSS) – or a first statement if the standard criteria were previously not met, but they are now – to members within a further three months. The new provisions are intended to come into force on 6 April 2022.
The Government response: Guaranteed Minimum Pension Fixed Rate Revaluation confirms a reduction from 3.5% to 3.25% per annum for ‘early leavers’ – members who leave pensionable service before age 60 for women and 65 for men – where the scheme adopts fixed rate rather than earnings-linked revaluation. The DWP undertakes a review of the fixed rate every five years with recommendations from the Government Actuary’s Department (GAD) about the appropriate rate. This new rate will apply to members who were still accruing benefits when contracting out ended on 6 April 2016 and who leave pensionable service between 6th April 2022 and 5 April 2027 inclusive. The new rate is provided for in The Occupational Pension Schemes (Schemes that were Contracted-out) (No. 2) (Amendment) Regulations 2022.
Statutory Money Purchase Illustrations – assumptions to be prescribed
Dave Roberts | February 16, 2022
The Financial Reporting Council (FRC) published (14 February 2022) its proposals to remove the current flexibility that schemes have to set the assumptions used to produce Statutory Money Purchase Illustrations (SMPIs) (see Proposed revision to AS TM1: Statutory Money Purchase Illustrations). SMPIs are required for money purchase and cash balance benefits. The changes are intended to be effective for SMPIs produced from 1 October 2023.
The assumptions specified in AS TM1 will also be used to produce the Estimated Retirement Income (ERI) shown on pensions dashboards for both money purchase and cash balance rights, and, for members with money purchase benefits, an Estimated Retirement Pot (ERI pot). It is this extension of use that has prompted most of the proposed changes. Currently, AS TM1 allows a degree of flexibility in key SMPI assumptions, such as the accumulation rate and the benefit choice at retirement. This flexibility could result in identical money purchase pots held in different schemes providing different ERI and ERI pot projections; an outcome which might be confusing for users and undermine trust in the system. FRC proposes to eliminate this inconsistency by prescribing the accumulation assumptions and form of annuitisation. In relation to the latter, the consultation proposes to prescribe that funds are used to provide a level annuity without attaching spouse or partner benefits and that no tax-free cash is taken.
The changes to AS TM1 are part of a broader set of changes to facilitate the introduction of pension dashboards. The DWP published a consultation and draft regulations relating to the creation of pensions dashboards on 31 January (see Pensions dashboards consultation ) and FCA consulted on the requirements to provide data on 11 February (see Dashboard: FCA consults on requirements to provide data ). Further consultations are expected from The Pensions Regulator and the Pensions Dashboard Programme (PDP) itself.
Any wider questions of whether AS TM1 should apply beyond annual SMPIs and dashboard ERI projections are beyond the scope of the consultation.
Dashboard: FCA consults on requirements to provide data
Kirsty Cotton | February 15, 2022
Following hot on the heels of the DWP consultation on the dashboard requirements for occupational pension schemes (see Related Insights article right), the Financial Conduct Authority (FCA) has issued its consultation CP22/3: Pensions dashboards: proposed rules for pension providers on the corresponding timeline and data requirements for providers of contract-based pensions. The FCA is under a statutory duty to make rules requiring pension providers to provide information to dashboard providers. Key points are:
The deadline for all but certain small providers will be 30 June 2023. This corresponds to the earliest deadline for occupational pension schemes.
The requirements to check for matched records and provide data generally follow those for occupational pension schemes. Indeed, on some issues, for example the treatment of benefits with an underpin, the FCA asks providers to respond to the DWP consultation as the FCA will follow DWP’s lead.
The final rules are expected to be published in Autumn 2022.
Of interest to all schemes, the consultation states that the Money and Pensions Service (MaPS) is expected to finalise the standards that pension providers are required to adhere to in relation to data, technical, design and reporting to a similar timeline.
Later this year the FCA will also publish a separate consultation for providers wishing to host a dashboard bringing third-party pensions dashboards closer to reality.
Second SPA review: independent report calls for evidence
Paul Barton | February 10, 2022
Following on from the launch of the Second State Pension age (SPA) review in December and last month’s publication of the terms of reference for the independent report, Baroness Neville-Rolfe, who is conducting it, has issued a call for evidence. The Baroness will look into the metrics Government should use when setting the SPA.
In the call for evidence, she asks a series of questions:
On intergenerational fairness: how can we ensure costs are shared fairly between generations, what factors relating to it should be considered in relation to the SPA and is it reasonable to give a fixed period of notice of SPA changes?
In relation to changes in the nature of work: have changes in job types affected working lives, how is this anticipated to change in the future and what factors do people consider when deciding whether to retire?
What is the most sustainable and affordable way of managing the cost of the State pension in the longer term and what are the pros and cons of potential options?
On the metrics for setting the SPA: is it reasonable for people to expect to spend a fixed proportion of their adult life in receipt of State pension; could different circumstances be factored in when setting SPA in future and how could such an approach operate within the current framework; how best to take into account the sensitivity of life expectancy projections are there other metrics or international comparisons to consider?
A Private Member’s Bill which seeks to make it easier to convert guaranteed minimum pensions (GMPs) into ordinary scheme benefits has moved closer to becoming law. The Pension Schemes (Conversion of Guaranteed Minimum Pensions) Bill has now moved through Committee Stage in the House of Commons with no amendments having been put forward and with government support it stands a good chance of becoming law.
Last year, during its Second Reading, the Minister for Pensions and Financial Inclusion, Guy Opperman, said that the Government would support the Bill. In his latest statements at Committee stage on 2 February the Minister reiterated this support. The Bill is now scheduled for Report Stage on 25 February when any further amendments will be considered, then it will have its Third Reading following which it should pass through to the House of Lords.
The Bill contains measures that seek to remove some of the technical problems with the GMP conversion legislation, which have dissuaded some pension schemes from taking this forward. In particular, the Bill modifies the existing overly specific provisions relating to the definition of affected members, survivors and employers and replaces these with power for the DWP to make regulations providing greater certainty. The Bill also removes the requirement for trustees to notify HMRC once a conversion exercise has been completed.
