A round-up covering the GMP Conversion Bill, disclosing member numbers in scheme returns, the Spring Statement, Scheme Pays regulations and new laws for collective money purchase schemes.
Extended scheme pays deadline: final regulations published
Kirsty Cotton, Dave Roberts | March 30, 2022
In line with the draft regulations outlined in our article “Criteria for extended Annual Allowance “Scheme Pays” tax charge deadline”, the final regulations set out when new/updated pension savings statements (PSSs) must be provided if an employer finds that information provided previously was insufficient to correctly calculate the pension input. They also introduce a new requirement as to when new/updated PSSs must be issued if the aggregate of the member’s pension input amounts has changed as a result of a change to scheme rules. The final regulations come into force on 6 April 2022. PSSs issued under these regulations would enable a member to use the extended scheme pays deadlines set out in FA2002 Section 9 if the other criteria are met (see WTW comments on the earlier article).
Financial Assistance Scheme: compensation cap uprating
Dave Roberts | March 29, 2022
The Pension Protection Fund, which administers the Financial Assistance Scheme (FAS) on behalf of the DWP, has confirmed this year’s “Changes to the FAS compensation cap”.
Individuals whose scheme passed into the FAS receive payments of broadly 90% of their expected pension (before the scheme in which benefits accrued started to wind up and revalued to the FAS normal retirement age).
There is a cap on this figure, reviewed annually and, from 1 April 2022, it will increase from £36,901 pa to £38,045 pa. (a 3.1% increase).
The new cap will apply to members retiring on or after 1 April 2022.
Although there are several further stages before this Bill reaches the statute book, it is backed by the government and it seems likely the Bill will become law around the end of April. There will then be regulations – on which consultation has been promised – and revised guidance.
In addition to the issues addressed by this Bill, the tax impacts of conversion have also been a barrier to conversion. During the debate in the House of Lords, the government said that “HMRC will publish supplementary guidance in the coming weeks on the tax implications of conversion as well as highlighting to industry where tax issues could arise for certain types of member. HMRC is working with industry, DWP and Her Majesty’s Treasury to determine the appropriate outcome and treatment for those affected by conversion as well as the scope and timing for any legislative changes.”
The Secretary of State for the DWP confirmed in Parliament that the triple lock uprating mechanism will be restored from next year, for the rest of this Parliament.
Under the triple lock, the annual increase awarded each April to the Basic State pension and New State pension is the highest of 2.5%, the increase in national average earnings and CPI. The latter two are determined by the Secretary of State for the DWP, but the rates in the preceding September are usually the base for this. The Office for Budget Responsibility’s Economic and fiscal outlook 2022 forecasts that the April 2023 increase to the BSP and NSP will be 7.5%.
Last year the Government's 'Budget before the Budget' revealed that the April 2022 increases would increase by the higher of CPI and 2.5%, with the earnings-related component of the triple lock suspended due to its post-pandemic spike.
In his Spring Statement 2022, the Chancellor announced that the additional 1.25% rate of (both employee and employer) National Insurance contributions will go ahead from 6 April 2022, as planned. However, to ease the burden on individuals, the government is also increasing the level of earnings from which employees will have to start paying National Insurance contributions (the primary threshold). From 6 April 2022, the primary threshold will increase as previously planned to £9,880 (from its current level of £9,568). However, from July 2022 it will then be aligned with the personal tax allowance at £12,570.
A Spring Statement Tax Plan was also published, which includes a commitment to cut the basic rate of income tax from 20% to 19% before the end of this Parliament in 2024. The plan also includes an aspiration to make the tax system “simpler, fairer and more efficient” and cites that there are “over 1,000 tax reliefs and allowances [which] can be costly and complex … We have already reformed some reliefs and allowances and will look to go further ahead of 2024”.
Scheme Return Member Numbers – TPR clarifies requirements
Mark Dowsey | March 23, 2022
In a reversal from explicit guidance sent last year, the Pensions Regulator (TPR) has now confirmed that dependants should not be included in the membership numbers section of the scheme return. It has “changed [its] guidance in Exchange back to the version used in previous years”.
As some schemes may have either submitted their scheme return already or gathered numbers that include dependants, TPR will allow scheme membership numbers to be amended in Exchange until 31 May 2022 and will delay sending levy invoices until after mid-June 2022. TPR will also email all DB and Hybrid scheme return recipients to alert them that the guidance help text has been updated.
The snappily titled Occupational Pension Schemes (Collective Money Purchase Schemes) (Modifications and Consequential and Miscellaneous Amendments) Regulations 2022, that amend a raft of existing regulations – such as those relating to transfer values, scheme funding and disclosure – come into effect, as expected, from 1 August 2022. They follow the main CMP regulations which were laid earlier this month and that were flagged below.
The DWP has published regulations that increase the Fraud Compensation Fund annual levy ceiling to £0.65 per member of Master Trusts (from £0.30 in 2021-22) and to £1.80 per member (from £0.75) for other occupational schemes with effect from 1 April 2022. This follows a High Court ruling in November 2020 that members of schemes established for the purposes of pensions liberation (scams) could be eligible for compensation.
The Continuous Mortality Investigation has published its 2021 mortality projections and accompanying frequently asked questions. This provides a brief overview of mortality improvements and the latest version of the standard mortality model. Given the significant increase in mortality arising from COVID-19, no significance is placed on 2020 and 2021 data. Core projections produce “slightly lower cohort life expectancies” than under CMI 2020.
Final Collective Money Purchase Scheme authorisation regulations published
Mark Dowsey | March 11, 2022
The CMP scheme regulations to implement the new authorisation and supervisory regime for collective money purchase schemes were published on 10 March. Amongst other things, these set out what information must be included with an authorisation application and confirms the fee at £77,000.
TPR updates DC code-related guidance for Stronger nudge provisions
Paul Barton | March 4, 2022
The Pensions Regulator has updated its communication and reporting guidance for DC schemes to reflect various legislative developments, including the new requirements for a stronger nudge to guidance from Pension Wise and the detailed value for money assessment.
The Dormant Assets Bill received Royal Assent on 24 February 2022. The Government claims that it will bring into force measures to release £880 million from dormant assets to boost opportunities across the country including by permitting unclaimed cash in certain contract-based life insurance and pension policies to be transferred under the dormant assets scheme. This scheme already permits building societies and banks to transfer sums for untraced owners voluntarily to the Reclaim Fund Ltd (RFL), so that the funds can be used for charitable purposes (albeit that the consumer retains the right to the funds, met by RFL, if they come forward). The Act expands the scheme to permit inclusion of dormant proceeds from a number of other sources including unclaimed cash available following the policyholder’s death (or hypothetically reaching a record-breaking age!) in contract-based life insurance and pension policies (but not those arising from automatic enrolment).
A consultation will be launched in the summer to consider what causes should benefit with the Government hoping to use the expected additional £880 million to fund levelling-up opportunities for young people and communities.
The Pension Schemes (Conversion of Guaranteed Minimum Pensions) Bill has completed its passage through the House of Commons. It now passes to the House of Lords for consideration. Although not a government-sponsored Bill, it is supported by the government and has cross-party support. The Bill addresses concerns raised by industry with the existing conversion legislation, as follows:
Moving the prescribed minimum survivors’ pensions from the primary legislation into regulations – it is currently unclear whether the regulations will reflect the existing requirements or whether the DWP will take the opportunity to simplify the existing approach
Making clear that survivors’ pensions in payment can be converted – explicitly rendering into legislation the Lloyds case ruling that made the presumption that this is permitted
Clarifying which employers need to be consulted before conversion may take place (to be included in regulations) – we hope this will address tricky cases such as multi-employer schemes or schemes for whom employers no longer exist
Removing the requirement to notify HMRC – recognising the reality that GMP information for the purposes of calculating State pension is based on the position as at 6 April 2016, so HMRC is no longer interested in this information
Recognising that conversion can occur at individual, rather than scheme, level – albeit that the legislation itself is already wide enough to allow trustees to choose which scheme members to convert.
After the Bill is enacted there will need to be regulations, fleshing out detail.
The Finance (No 2) Bill 2021-22 was enacted on 24 February, becoming Finance Act 2022.
It is this Act that:
Increases normal minimum pension age (NMPA) to 57, from 6 April 2028. For individuals who were “entitled” to an NMPA below 57 on 3 November 2021 (the day before the Finance Bill was published), transitional provisions will usually enable them to retain that earlier NMPA in relation to existing and future rights within the scheme. It will also be possible to retain a protected NMPA where rights are transferred to a different arrangement, but only for accrued rights unless it is a block transfer.
Extends the deadlines by which members can elect for their scheme to meet an annual allowance tax charge on their behalf (commonly known as “Scheme Pays”) where there has been a retrospective change of facts. This provision was drafted following the government decision to return public sector employees into their legacy schemes, after the courts found that its 2015 public service pension scheme reform was unlawful on the grounds of age discrimination. However, the provision applies to all registered pension schemes, not only public sector schemes. The government is currently consulting on draft Registered Pension Schemes (Miscellaneous Amendments) Regulations 2022 – concerning detailed implementation.
