Pensions Bulletin 2023/12
23 March 2023
- MPs to examine the future of DB schemes
- Industry Group provides interim guidance on 2021 anti-scam regulations
- DB funding code – LCP broadly supportive but more work needs to be done
- Finance Bill to say more on the pensions tax changes
- Pensions dashboards – more on the delay
- Consultation promised on details of auto-enrolment extension
MPs to examine the future of DB schemes
The House of Commons’ Work and Pensions Select Committee has launched its promised inquiry into the future of DB schemes.
First intimated when the Committee launched its inquiry into DB schemes’ LDI exposures (see Pensions Bulletin 2022/39), this latest inquiry promises to investigate whether the current regulatory framework “is set up to enable private sector DB schemes to continue to thrive under good governance and provide positive outcomes for scheme members”. The inquiry will also “examine the way DB [schemes] can be consolidated or bought out”.
There are nine specific questions on which the MPs would like to receive written evidence. They include matters such as improving the quality of trustee boards, encouraging or forcing consolidation, how scheme surpluses should be treated, and whether changes should be made to the PPF, FAS and Fraud Compensation Fund to improve outcomes for members.
The deadline for submissions is 26 April 2023.
This consultation provides Parliamentarians with an opportunity for a stocktake of the health of the regulatory regime surrounding DB schemes. Unusually for an inquiry, there is no burning platform against which the MPs can conclude that something must be done. But they should be able to use the opportunity to judge whether DB promises are being appropriately managed and overseen during what is a prolonged run off insofar as much of private sector DB provision is concerned.
Industry Group provides interim guidance on 2021 anti-scam regulations
The Pensions Scams Industry Group has issued a new Interim Practitioner Guide, together with a useful Short Summary Guide, whose purpose is to assist trustees, administrators and providers follow the Conditions for Transfers regulations that were laid before Parliament in November 2021 (see Pensions Bulletin 2021/47).
The standalone Interim Practitioner Guide, running to over 50 pages, replaces one part of the PSIG’s five-piece Code of Good Practice suite on pension scams, last updated in April 2021 (see Pensions Bulletin 2021/15). As before, it sets out the due diligence steps that pension schemes should take when assessing the pension scam risk of a transfer request, but now in the context of the 2021 regulations, which it explains, along with the risks, options and steps that practitioners should take to be able to comply with them. Some of the key areas covered are “clean lists”, overseas investments, communication, and discretionary transfers. This new Practitioner Guide is much lengthier than the Guide it replaces.
The Practitioner Guide notes that the 2021 regulations contain a few clauses which in their current form are not consistent with the stated DWP policy intent and could have unintended consequences. As a result, the PSIG felt that it was not possible to issue definitive good practice guidance at this time. A full new version of the Code is expected to be released later in 2023, but this is dependent on the regulations being amended or clarified.
This guidance helpfully addresses two key issues head on – the "overseas investment" issue (which results in the majority of all transfers being given an unhelpful amber flag) and the "incentives" issue (which results in some transfers with trivial "incentives" being given a red flag). It offers no solutions, but helpfully discusses the issues.
The industry continues to hope that the DWP will review the 2021 regulations specifically on these two points in the coming months and improve them, but there are no public indications yet from the DWP that it will do this.
DB funding code – LCP broadly supportive but more work needs to be done
The Pensions Regulator’s consultation (see Pensions Bulletin 2022/47) on its draft Code of Practice for the new DB funding regime, along with its consultation on proposals for the Fast Track parameters and wider regulatory approach, closes shortly.
The LCP response has been submitted to both consultations – we are supportive of most of what is being proposed in the Code and, looking at this and the DWP draft regulations, can now begin to see how the new regime is taking shape. However, there are a number of important areas where the Code or draft regulations (or both) could in our view lead to unintended negative consequences for DB schemes and their members, and several areas where more clarity is needed. We would like to see action especially with regard to the draft regulations. On the Regulator’s Fast Track proposals, overall, we are supportive, but we have a few points of technical detail regarding its proposed operation.
The new regime for DB funding is starting to come together after a lengthy period of development. However, we are not there yet. In addition to necessary adjustments to the Code and regulations there are the outstanding matters of updated covenant guidance and further detail on the new “Statement of Strategy”.
After the consultation responses have been digested, the DWP and Pensions Regulator will have a lot of work on their hands as both the Code and the regulations need to be finalised before the summer recess if the intended go live date of 1 October 2023 is to be met. It is looking increasingly unlikely that this date will be met.
Finance Bill to say more on the pensions tax changes
The Finance Bill that follows on from last week’s Budget is expected to be published on 23 March 2023 and of particular interest will be what it has to say in relation to the Chancellor’s Budget Day announcements on the Lifetime Allowance and the Annual Allowance (see Pensions Bulletin 2023/11 and our subsequent News Alert).
HMRC’s Pensions Schemes Newsletter 148 provided some operational details of the changes (amongst other topics), for example, confirming that the lifetime allowance framework will remain in place in 2023/24, but it will be the Finance Bill clauses that warrant close attention. Those who registered for the initial protections when the Lifetime Allowance charge was introduced in 2006 and for the protections that accompanied each of the three reductions in the Lifetime Allowance in 2012, 2014 and 2016, will want reassurance on how the law governing these protections is to operate from 6 April 2023, including in relation to protected tax-free lump sums.
The other notable item we will be looking out for are the clauses, potentially honed following consultation on the draft (see Pensions Bulletin 2022/29), to enable implementation of the solution to “missing” income tax relief for low earners contributing to a scheme operating net pay relief rather than relief at source – ready for when the HMRC systems are in place.
There are two stages to the Government’s pension tax reforms. We think that the first stage (raising the amount of the Annual Allowance in its various forms and replacing the Lifetime Allowance charge with an income tax charge) will be relatively straightforward legislatively speaking – although there will be practical ramifications. Removing the Lifetime Allowance itself, promised for 6 April 2024 onwards, will be much more difficult given the central place it occupies in the legislative framework.
Pensions dashboards – more on the delay
There have been some developments since the beginning of the month when Pensions Minister Laura Trott announced that there will be a reset of the deadlines by which pension schemes must connect with the pensions dashboard (see Pensions Bulletin 2023/09).
Firstly, on 15 March 2023, the Pensions Dashboards Programme published some FAQs on the issue. Beyond stating that there is more work to do on the central digital architecture (including finalising the supporting documentation and ensuring a smooth and stable connection journey for industry), they shed little light on what exactly the issue is and by when it may be resolved.
Secondly, on the same day, the Pensions Regulator updated its initial guidance on pensions dashboards which it had first issued in June 2022 (see Pensions Bulletin 2022/25). This acknowledges that “many of the dashboards processes are still being developed” whilst strongly advising trustees to make the most of the time available to get ready to comply with their dashboard duties. The section that sets out the connection deadlines has been pared back, with a promise to update “when there is more clarity in the legislation”.
Finally, speaking in a debate on the legislation, Laura Trott said that she is working towards coming back to Parliament with new deadlines before the summer recess and is pushing as hard as she can to ensure that the original deadlines are kept to as much as possible, along with when dashboards will be publicly available.
It is hard to gauge from all this how long the delay will be and whether, for example, all schemes will get the same amount of extra time. But when the project comes back on stream, the PDP and its sponsors will want to ensure that any things going wrong from this point will point to deficiencies in schemes’ preparedness and not the PDP’s IT ecosystem.
Consultation promised on details of auto-enrolment extension
The Private Member’s Bill that implements the Government’s 2017 auto-enrolment review conclusions (see Pensions Bulletin 2023/09) is racing through the House of Commons, having had its Committee stage on 15 March 2023 and with its remaining Commons’ stages scheduled for 24 March 2023.
Speaking at Committee stage, Laura Trott said that since her appointment as Pensions Minister she has been determined to make progress on auto-enrolment expansion. She went on to say that implementing the expansion provided for in the Bill can only take place following consultation and this consultation will be on the implementation approach and the timetable. She hopes to launch the consultation in the autumn assuming that the Bill goes through in the near future.
As we had expected, the Bill is being fast-tracked. We look forward to the consultation to come which will spell out quite how the lower age limit of 22 will fall and the lower limit of the qualifying earnings band will be removed.
This Pensions Bulletin does not constitute advice, nor should it be taken as an authoritative statement of the law. For further help, please contact David Everett at our London office or the partner who normally advises you.