This month’s round-up of recent pensions developments includes updates to TPR’s transfer guidance, the latest political uncertainty and plans to resolve the low earners conundrum.
Government response on consideration of social risks and opportunities by occupational pension schemes
Paul Barton, Janine Bennett | July 28, 2022
The DWP has published its response following the Call for Evidence that it launched in March on
Consideration of social risks and opportunities by occupational pension schemes. In the foreword, the Pensions Minister welcomed some strong examples of effective stewardship but feels a majority of schemes have more to do, and he encourages schemes to join the Occupational Pensions Stewardship Council which can use collective engagement to promote stewardship on social factors. For now, the DWP is leaving it up to schemes whether they use an integrated ESG approach or adopt a standalone policy on social factors.
The only concrete development to come out of this Call for Evidence is establishing a new minister-led taskforce to identify reliable data and metrics to ensure that focus on social factors increases across the investment process. In addition, the taskforce is to monitor and report on developments with the International Sustainability board, and other international standards, but no deadlines are set for the taskforce to deliver any outcomes.
Annual Reports and Accounts from TPR, PPF, PO and NEST
Paul Barton, Janine Bennett | July 28, 2022
Four pensions organisations have published their Annual Reports and Accounts this month.
The Pensions Regulator’s
Annual Report and Accounts 2021 to 2022 sums up its achievements in the past year as it strives to keep good member outcomes permanently in mind. It cites a regulatory intuitive focused on weakening employer covenants that saw it engage with hundreds of schemes and saw 75% of trustees who were engaged with confirming that TPR’s intervention enabled constructive discussions with scheme sponsors. TPR met 10 of its 14 key performance indicators, coming close on three others and missing the publication of its DB code on Funding as the draft regulations were themselves delayed (and since published on 26 July).
The highlight of the Pension Protection Fund’s
Annual Report 2021/22 is that the improvement in its funding ration which increased to 137.9% as a result of strong investment performance and low claims. This has allowed it to build up significant reserves and holds out the prospect PPF will be able to reduce the levy without risking its ability to pay compensation. PPF expects to reduce the amount of levy it collects and, as usual, it will formally consult on its proposals for levy in the autumn.
The Pensions Ombudsman’s
Annual Report and Accounts 2021/22 disclose a second year’s increase in productivity following an 11.7% increase in complaints. The Ombudsman closed 5,221 complaints and resolved over 8,437 general queries. The main types of complaint relate to transfers, retirement benefits and then misquotes/misinformation although there has been an increase in complaints about non-payment of contributions, which may be pandemic related.
Finally, the NEST corporation and pension scheme published their
Annual report and accounts for 2021/22 as the scheme increased its membership to 11.1 million members, 975,000 employers and £24.4 billion of assets at 31 March 2022.
Resolving the Net Pay versus RAS conundrum: low earners
Dave Roberts, Paul Barton | July 21, 2022
Pension scheme members whose earnings are within the Personal Allowance (PA) of £12,570 do not receive tax relief if their contributions are deducted using the net pay method because their earnings are not subject to tax in the first place. However, they receive a top up equivalent to basic rate relief if the Relief at Source (RAS) method is used. This results in a difference in take home pay and the issue has received growing publicity over recent years, particularly since the PA rose above the threshold for automatic enrolment (£10,000).
In the Autumn Budget 2021 the Government published its Call for Evidence Response on the issue, proposing a top-up payable directly to low-earning members of net pay arrangements and it has now published draft legislation to be included in Finance Bill 2022-23 intended to achieve this. There will be a duty on HMRC to make top-up payments directly to individuals who save through a scheme using net pay arrangements, if their total employment income – excluding their pension contribution – is less than their PA. The amount of the top up will be the relevant basic rate of tax (as it applies in Scotland, Wales or rest of the UK) applied to the element of their pension contribution within their PA. The legislation will apply in relation to contributions made from 2024-25 and be payable in the following tax year, with HMRC informing eligible individuals and inviting them to provide bank details into which the top up should be paid.
Easing employer-related investment restrictions for large DC Master Trusts (MTs)
Dave Roberts, Paul Barton | July 20, 2022
The Government response to Chapter 3 of its consultation “Facilitating investment in illiquid assets” has been published, confirming that there will be easements of the employer-related investment (ERI) restrictions for large authorised DC MTs. There are 36 authorised DC MTs listed with The Pensions Regulator, of which 13 have at least 500 active employers. The threshold of 500 was one of the consultation questions and, having considered responses, the Government believes that this is appropriate.
For those schemes within scope, the Government is amending the ERI-regulations, such that the existing restriction – no more than 5% of assets per participating employer (capped at 20%) into ERI – will apply only in relation to investment in the scheme funder, the scheme strategist or any person connected with, or an associate of, those bodies. The changes are introduced through The Occupational Pension Schemes (Investment) (Employer-related investments by Master Trusts) (Amendment) Regulations 2022, which have been laid before Parliament and come into effect from 1 October 2022.
Trustees to be prohibited from using scheme assets to meet dashboards fines
Kirsty Cotton, Paul Barton | July 20, 2022
The DWP has given their full support to a Private Member’s Bill: the Pensions Dashboards (Prohibition of Indemnification) Bill. The Bill is still at an early stage but is now expected to become law. It would make it a criminal offence (potentially with a jail term on conviction) for a trustee or manager to be reimbursed for any fines imposed for a failure to meet dashboard requirements. Similar measures are already in place in respect of certain failures to comply with statutory duties by trustees or managers.
As reported last week in the lead up to Boris Johnson’s resignation as Prime Minister (PM), both of the then-incumbent pensions ministers – John Glen (Treasury) and Guy Opperman (DWP) – resigned. Guy Opperman has since been re-appointed and a new Economic Secretary to the Treasury, Richard Fuller, has been appointed. Mr Fuller’s parliamentary record does not indicate a particular interest in pensions. He will serve under the new Chancellor, Nadhim Zahawi, who succeeded Rishi Sunak (both of whom hope to emerge from a large field of candidates as the next PM).
The Prime Minister has resigned. A new Chancellor of Exchequer took office on 5 July and both the DWP Pensions Minister (Guy Opperman) and Economic Secretary to the Treasury (EST – responsible for pensions tax issues – John Glen) have also resigned.
PASA’s Data Working Group has published guidance on dashboards data accuracy, encouraging schemes to carry out more extensive checks by carrying out accuracy testing and validation rather than relying on data reviews. It suggests that, as a minimum, pension schemes should check that they hold names, dates of birth and NI numbers for members and that they confirm the accuracy of this information. The guidance provides a list of various data sources that could be used for accuracy validation.
The Government has announced in a written statement that L-Day, when draft clauses for inclusion within the next Finance Bill are published for technical consultation, will take place on 20 July 2022.
TPR has modified the ‘overview’ and ‘carry out due diligence’ sections to suggest that schemes may, where their rules allow, opt to pay non-statutory transfers where technically, in relation to a statutory transfer, a red or amber flag is triggered but the trustees consider that the risk to the member is low. It has also updated the red flag and amber flag sections to confirm the policy intention where small-scale incentives or ‘normal’ overseas investments, such as ex-UK equity funds, feature in the proposed receiving arrangement.
Under the regulations, transfers to schemes that have “any overseas investments included in the receiving scheme” trigger an amber flag. The Government asserts that this was not the policy intention, but risk-averse trustees have, understandably, decided in favour of referring affected members to MoneyHelper – thereby creating a bottleneck for transfers. In an attempt to mitigate this, TPR’s guidance now states “After carrying out due diligence you may consider the transfer is at a low risk of a scam and, where your scheme rules allow, you may consider granting a discretionary transfer,” which provides a stronger steer that trustees can do this, but a reliance on this route is not always possible as some schemes do not permit non-statutory transfers or restrict them to particular situations. Moreover, even where scheme rules do permit such transfers the process may differ from that for ‘normal’ (statutory) transfers. For example, in the absence of the statutory discharge, the scheme may require additional documentation and each non-statutory transfer may require explicit trustee approval.
The regulations also state that where “the member has been offered an incentive to make the transfer,” a red flag is present and the (statutory) transfer cannot proceed. Some providers offer an incentive where someone refers a friend to them – and risk-averse trustees, understandably, will not proceed to make the transfer. TPR’s revised guidance seeks to shift the focus away from the provisions of the regulations and onto whether trustees consider the specific transfer at low risk of being a scam, in which situation it suggests they could – where possible under the scheme rules – provide a discretionary transfer.
August introduction for CMP schemes and some new TPR powers
Paul Barton, Mark Dowsey | July 5, 2022
The Commencement Order bringing in provisions of the Pension Schemes Act 2021 relating to the introduction of collective money purchase benefit schemes has been laid and will come into force on 1 August 2022. The Order also implements certain measures allowing TPR to inspect premises, impose financial penalties for providing false or misleading information to TPR and powers relating to fixed and escalating penalty notices – again from 1 August.
The DWP has laid amending regulations on climate and investment reporting to bring in the fourth climate metric for trustees in scope of these reporting measures – also covered in our headline on June. They come into force on 1 October 2022, applying with effect from the first scheme year ending after that date.
Historically, pension schemes calculated transfer values using an approach that didn’t equalise a member’s benefits for the effect of GMPs in respect of post 17 May 1990 service. PASA has published a checklist setting out a number of issues that trustees need to address regarding such transfer payments, the decisions trustees need to take and the administrative implications. The checklist is linked in to PASA’s Press release – PASA releases GMP Equalisation checklist for past transfers out.
