Pensions Bulletin 2022/07
Our viewpoint
24 February 2022
- When should a transfer involving an overseas investment be amber-flagged?
- HMRC consults on regulations filling in detail on Mandatory Scheme Pays extension
- Reforms to Audit and Corporate Governance – Government expected to set out next steps soon
- Guidance issued on climate change regulations
- DWP firms up on GMP fixed rate revaluation cut
- Royal Mail CDC scheme set to launch later in 2022
When should a transfer involving an overseas investment be amber-flagged?
The Conditions for Transfers Regulations that passed into law on 30 November 2021 and which set down conditions that must be met before a member can exercise their statutory right to transfer their pension benefits (see Pensions Bulletin 2021/47), have been exercising a Parliamentary Committee.
The grandly titled Joint Committee on Statutory Instruments of the House of Commons and House of Lords has raised two issues with the DWP on these regulations, as a recent report makes clear. The second of these concerns whether an amber flag has to be raised if the intended receiving scheme contains any overseas investments, as opposed to those overseas investments that may constitute a scam risk. The DWP, in response to the Committee, says that only scam risk investments are intended to be caught, but in the light of potentially too many transfers being subject to this flag and unnecessary referrals being made to MaPS for guidance sessions, it is “actively engaging” with the pensions industry and will consider amending the regulations if necessary.
Comment
There is, of course, a world of difference between investing in Cape Verde storage pods and shares in Microsoft listed on the New York Stock Exchange. Unfortunately, where the regulations talk about an “overseas investment” they do not seem to make this distinction.
This is an issue that has been known about since the regulations were laid before Parliament. We look forward to hearing how the DWP is going to resolve it.
HMRC consults on regulations filling in detail on Mandatory Scheme Pays extension
As the Finance Bill nears the statute book and therefore, amongst other things, extends the access and tax payment deadlines for using “mandatory Scheme Pays” to pay annual allowance charges where there has been a “retrospective change of facts” that impacts past annual allowance usage (see Pensions Bulletin 2021/47), HMRC has launched a consultation on necessary changes to existing regulations to accompany this reform.
Falling under the process in these regulations is what triggers the extended deadlines in the Bill. The phrase “retrospective change of facts” was in the description in the notes to early drafts of the Bill clauses. The draft regulation specifically refers to a realisation by the employer (or whoever is the “responsible person” for providing information to enable the Scheme Administrator to calculate the annual allowance usage) that the information previously provided was “insufficient to correctly calculate” annual allowance usage.
Following on from that, for the most part the proposed regulations amend the 2006 Provision of Information Regulations so that, when such “additional information” comes to light, there is appropriate and timely communication between the employer of the registered pension scheme and the Scheme Administrator, the Scheme Administrator and HMRC, and the Scheme Administrator and the member. This is to ensure that the revised pension input amount calculation can be successfully completed and communicated and trigger the extended deadlines.
There are some minor additional changes to the Scheme Pays process, some of which apply more widely.
Consultation closes on 15 March 2022 and it is intended that the new legislation will take effect from 6 April 2022, with respect to annual allowance pension input amount revisions for tax years from 6 April 2016.
Comment
This is a narrow and short technical consultation (although as ever the devil is in the detail). The proposed mandatory Scheme Pays extension is intended to assist public sector ‘McCloud’ exercises but may be of wider application. And the tweaks to the disclosure requirements do apply generally.
Reforms to Audit and Corporate Governance – Government expected to set out next steps soon
In the coming weeks the Department for Business, Energy and Industrial Strategy is expected to publish its response to the White Paper consultation it launched in March 2021 on reforms to the UK’s audit and corporate governance regime (see Pensions Bulletin 2021/13) and set out the Government’s next steps.
We understand that the Queen’s Speech in May will mention these reforms, as they will require a Parliamentary Bill. This Bill might appear in the 2022/23 Parliamentary session, or possibly in the 2023/24 session after further consultation on a draft Bill.
Amongst other things, the Bill will establish the Audit, Reporting and Governance Authority (ARGA), to replace the Financial Reporting Council.
Comment
These reforms have been a long time coming and it seems quite likely that the wait will continue if a draft Bill stage is envisaged. Nevertheless, they are important reforms and so it is welcome (if true) that an opportunity will be given to comment on the Bill’s clauses, especially given the significant new powers envisaged for ARGA.
Guidance issued on climate change regulations
Following the finalisation of regulations, requiring the largest UK companies and financial institutions to disclose climate-related financial information in their strategic reports, with similar requirements for large Limited Liability Partnerships in separate regulations (see Pensions Bulletin 2022/03), the Department for Business, Energy and Industrial Strategy has now published non-binding guidance on both sets of regulations.
Most of the guidance is set out in FAQ style. Also set out are the outcomes desired in respect of each element of the disclosure requirements common to the two sets of regulations. The guidance concludes with a non-exhaustive list of further regulations and frameworks produced by other bodies related to the TCFD recommendations, and the interaction between these and the DBEIS guidance.
The guidance is intended to be a factual explanation of the regulations and will be reviewed periodically and updated where necessary.
Comment
The regulations (and guidance) do not directly concern pension schemes, but for some the disclosures will be potentially relevant to UK company shares held in schemes’ investment portfolios. For other schemes they may apply to their sponsoring employer and so be potentially relevant for covenant assessments.
DWP firms up on GMP fixed rate revaluation cut
The DWP is going ahead with its proposal to cut the fixed rate of GMP revaluation from 3.5% pa to 3.25% pa for those with GMPs leaving pensionable service between 6 April 2022 and 5 April 2027. This follows a consultation launched in September 2021 (see Pensions Bulletin 2021/40).
The Occupational Pension Schemes (Schemes that were Contracted-out) (No. 2) (Amendment) Regulations 2022 (SI 2022/158) making this change were laid before Parliament on 21 February 2022 and come into force on 6 April 2022.
Comment
Just two consultation responses were received giving the DWP little to go on, so it is no surprise that the DWP has gone ahead with its proposed cut, which is intended to reflect a lowering of inflation and wage growth expectations compared to when the rate was last set in 2017.
Royal Mail CDC scheme set to launch later in 2022
Following the member consultation on the proposed Royal Mail Collective Pension Plan, launched last September, which closed on 21 November 2021 (see Pensions Bulletin 2021/40), it is now being reported via a joint statement from Royal Mail and two trades unions, that only some final, minor legislative work is needed before a formal application can be made to the Pensions Regulator to authorise the Plan.
The statement concludes that the new scheme should be delivered in the latter part of this year.
Comment
This is clearly a reference to the regulations and authorisation process, both of which should be in force by August.