This month’s round-up contains news of guidance and legislation in relation to the Budget, a Bill making changes to automatic enrolment, a delay for Pensions dashboards and TPR’s review of the first climate reports and its plans to check value in smaller schemes.
State Pension Age increase to 68 delayed ... for now
Paul Barton, Janine Bennett, David Robbins | March 31, 2023
The Government has published the outcome of its latest review of the State Pension Age (SPA), alongside the final reports from the Government Actuary and Baroness Neville-Rolfe.
SPA will increase from 66 to 67 by 2028, as planned, but the legislation currently providing for it to increase from 67 to 68 between 2044-46 remains subject to change. The Government has said that this timeline “remains appropriate” for now, but that a further review will consider all options that give people at least 10 years’ notice of any change affecting them; it plans to undertake this review during the first two years of the next Parliament. This supersedes the position the Government adopted in 2017, when it pencilled in a rise to 68 over the period 2037-39 but said it would wait for a further review before legislating.
In her independent review, Baroness Neville-Rolfe recommended that the increase to 68 takes place in 2041-43, ie, four years later than current policy but three years earlier than current legislation. However, in his statement to Parliament, the Secretary of State for Work and Pensions, Mel Stride, argued that it would be better to wait for clearer data on how life expectancy, labour markets and the public finances had been affected by external challenges such as the pandemic, inflation and the war in Ukraine.
The Pensions Administration Standards Association (PASA) has published two pieces of guidance on data matching and what to say to savers – both in relation to pensions Dashboards. The first is an addendum to PASA’s Data Matching Convention Guidance so that it now covers matching without a National Insurance number, where it suggests devising multiple additional match criteria such as email addresses and mobile numbers. It also suggests how to deal with “possible match” responses, where data provided by an individual only partially meets the trustees’ matching criteria.
PASA’s second Guidance document, about “what to say to savers”, contains wording that can be used to respond to questions in the run up to Dashboards being launched and will help ensure that the industry provides consistent information, but there is no obligation to use it – it proposes saying that Dashboards are expected to be ready in the mid-2020’s – and it contains a reminder that the Pensions Tracing Service remains available to help in the meantime. This is the first version of what PASA intends to be iterative guidance.
HMRC has issued a Lifetime allowance guidance newsletter
on practical issues arising from the Budget changes. This confirms that normal benefit crystallisation calculations and disclosures continue throughout 2023-24, albeit there will be no Lifetime Allowance (LTA) charge due on any excess and no reporting requirements; the excess paid will be taxed as pension income through PAYE.
A person’s maximum pension commencement lump sum (PCLS) is calculated as the lower of 25% of their benefit value or the available LTA. Examples in the newsletter confirm that it is only the latter part of the calculation (ie the LTA) that is frozen at 5 April 2023; the former can normally be based on benefit value at crystallisation, not at 5 April 2023. So, a person with, for example, fixed protection 2012 has an LTA of £1.8 and if their benefit value at 5 April 2023 was £1.6m, their maximum PCLS on that date would be the lower of £450,000 (frozen) and £400,000. However, after 5 April 2023 they cannot lose protection and, if their benefit value were to increase by £300,000 (through investment return and/or further contributions), their maximum PCLS would increase to £450,000, capped at their fixed protection limit. Examples are also provided in relation to the PCLS determination where a member has enhanced protection and lump sum protection, which is to be fixed by reference to benefit value at 5 April 2023.
The newsletter explains that there will be procedural changes needed in relation to defined benefit and uncrystallised funds lump sum death benefits (DBLSDB and UFLSDB respectively). Currently, a scheme can pay such a lump sum without needing to assess it against available LTA – the legal personal representatives (LPRs) are responsible for determining any LTA charge, with HMRC then assessing the amount that each beneficiary owes. From 6 April 2023, schemes will have to obtain confirmation of available LTA from the LPRs, then split the lump sum between a tax-free amount and an amount on which tax has been deducted.
The newsletter invites participation on a working group to consider the changes necessary for the 2024-25 and subsequent tax years.
Pensions Regulator to check ‘value for members’ assessments for smaller schemes
Mark Dowsey, Janine Bennett | March 29, 2023
On 27 March 2023, the Pensions Regulator (TPR) announced a “New initiative to check savers are getting value from their pensions”. Under this initiative, TPR will be checking that trustees of defined contribution (and hybrid) schemes with total assets worth less than £100m are complying with the detailed (compare/contrast) ‘value for members’ (VfM) requirements, which came into force for scheme years ending after 1 October 2021.
The move appears to be prompted by TPR’s survey in 2022 (to be published later this year), which found that only 17% of those schemes that had been required to complete the assessment had done so. The same survey found that 64% were “unaware of this statutory obligation”.
The press release states that TPR’s focus will be “data-led” and that it will contact selected schemes later this year to check compliance, including those who have indicated on their scheme return that they are not providing VfM. TPR reiterates that if poor value schemes are unable to demonstrate plans to address their shortcomings, it expects them to wind up and “put their members into a better run scheme”.
TPR publishes review of pension schemes’ annual climate reports
Paul Barton, Tom Wood, Edwin Sheaf, Nicola van Dyk | March 24, 2023
TPR has published a review of 71 "TCFD (Taskforce on Climate related Financial Disclosures)" reports in which trustees disclosed their approach to climate-related risks and opportunities. The review aims to share good practice and identifies areas where appropriate action has been taken, reporting that most were substantial documents that showed an encouraging level of trustee engagement with the new requirements.
Examples of good practice included reporting on governance, identification of specific areas where trustee training is needed, integrated scenario analysis (that combined the impact on assets, liabilities and covenant), and the use of stewardship as a risk management tool. It also covers areas that would benefit from improvement, highlighting issues such as lack of clarity for hybrid and sectionalised schemes, and too much focus on the impact on asset values (at the expense of liabilities, covenant and strategy).
TPR adds a reminder that the statutory guidance, and not just the regulations, include legal requirements and that reports should be easy to access, read and understand.
Paul Barton, Kirsty Cotton, Dave Roberts | March 24, 2023
The Government has published the Finance (No.2) Bill 2022-23, which includes the legislative clauses to implement the pension tax changes announced in the Budget. This is generally as expected with the removal of the Lifetime Allowance (LTA) charges and increases to the Annual Allowance (AA) limits applying from 6 April 2023.
The Bill also confirms that enhanced and fixed protection cannot be lost provided that the notice was given (or, for a Fixed Protection 2016 application, was made) before 15 March 2023 (the date of the Chancellor’s Budget Speech). Consistent with freezing pensions commencement lump sums (PCLS), the maximum lump sum for Enhanced Protection members with lump sum protection and members with stand-alone lump sums has also been capped as at 5 April 2023. There are no changes to disclosure requirements, so (as previously indicated in HMRC newsletter no.148) administrators will need to continue to operate LTA checks when paying benefits and to issue benefit crystallisation event statements until the LTA is abolished by a later Finance Act.
The guide sets out the key due diligence steps that pension practitioners should consider when assessing whether the receiving arrangement in a pension transfer is bona fide or a potential scam vehicle. It takes account of the UK 2021 Conditions for Transfer regulations that aim to set out when a statutory transfer can proceed, when it cannot and when the member needs to obtain guidance from the Money and Pensions Service (MaPS) before it can go ahead.
The press release states that PSIG’s “original intention had been to update [its] Code of Good Practice and its related documents to coincide with the Regulations”, however, it adds that “a few clauses introduced some confusion. After months of debate and consideration, we decided to update and publish one part of the Code, the Practitioner Guide, on an interim basis and amend the full Code once the Regulations are clarified following their formal review by the DWP”.
Some of the areas covered in the guide, see bullets below, include the most contentious issues raised by the regulations and the Pensions Regulator’s (TPR’s) guidance, the latter of which tries to set out more clearly the underlying policy intention in those areas where different practitioners have taken different approaches.
The use of ‘clean’ (sometimes referred to as green or white) lists – highlighting the risks both of doing so and not doing so and suggesting any such list be reviewed “at least quarterly”.
The presence of overseas investments in the receiving arrangement.
Incentives offered to potential transferees.
Discretionary (or non-statutory) versus statutory transfers – the guide recognises that non-statutory transfers are not possible under all schemes and, where they are, they may be subject to additional requirements or restrictive conditions.
The 50+ page guide is accompanied by a brief (four page) summary. This, more baldly than the press release, states that “Elements of the 2021 regulations need to be clarified or amended. When those issues are resolved, [PSIG] will update both this guide and [its] full Code”.
Pensions Minister announces delay on Dashboards staging
Paul Barton, Mark Dowsey | March 9, 2023
In a Ministerial statement, the Pensions Minister, Laura Trott, announced that “more time is needed” to deliver pensions dashboards and that there will be a “reset” of the delivery timetable and connection deadlines. She announced that the DWP will legislate “at the earliest opportunity to amend the timing of these [Dashboards] obligations to provide clarity to schemes”.
The statement affirms that the framework set out in legislation remains fit for purpose, indicating that it is mainly the timing that is at issue. However, the Minister states that the DWP will “play a full role” with the new Chair of the Programme Board developing a new plan for delivery. She added that she will provide an update to the House before the summer recess – 20 July. The Pensions Dashboards Programme also issued a news release confirming plans for a new timetable and The Pensions Regulator has said it will update its guidance shortly.
Automatic Enrolment Bill supported in House of Commons
David Robbins, Paul Barton | March 6, 2023
The House of Commons has given a Second Reading to the Pensions (Extension of Automatic Enrolment) (No. 2) Bill. This Private Member’s Bill, which the Government is supporting, would empower ministers to use regulations to reduce the age threshold for automatic enrolment (currently 22) and to reduce or eliminate the lower qualifying earnings threshold (currently £6,240 a year).
A DWP press release says the Government’s intention is to reduce the age threshold to 18, and to abolish the lower qualifying earnings threshold, so that contributions to qualifying defined contribution schemes are always calculated on earnings from the first pound.
This package of measures was originally proposed in the 2017 Automatic enrolment review, in which the DWP said its “ambition” was to implement them in the “mid-2020s” but that this was subject to affordability.
In supporting the Bill, the DWP has not proposed a timetable. The Bill does not impose any deadline for making the changes and does not restrict policymakers’ options when it comes to phasing them in. It does, though, require ministers to consult before doing anything.
Where an employee’s pension contributions are 8% of qualifying earnings, making earnings pensionable from the first £1 would boost contributions by just under £500 a year. Half of this would often come from take-home pay (before allowing for how wages might be affected by higher employer pension costs).
