This month’s round up provides an update on the PPF’s consolidator ambitions, the removal of the lifetime allowance, the Government’s consultation on the General Pension Scheme Levy and the Taskforce on Social Factors consultation on guidelines for pension schemes.
The Pension Protection Fund’s Chief Customer Officer, Sara Protheroe, has published a blog in which she shares her thoughts on “finding the solution for onboarding schemes into a public sector consolidator“. The blog addresses some of the concerns raised by WTW and others who responded to the Call for Evidence on options for DB schemes about the realistic rate of consolidation/onboarding that is achievable.
The blog states that under the existing assessment process, the PPF has previously transferred 300 schemes in a year and suggests that this could be scaled up to deliver around 1,000 in two years – although Sara acknowledges that this might still falls short of ambitions proposed by others, such as the Tony Blair Institute for Global Change.
The PPF rightly notes that it has transferred the “majority of schemes within two years” and suggests that some of the existing time-consuming challenges would fall away as the new PPF ‘function’ would be dealing with solvent employers. Therefore, the new function could operate differently by “for example transferring assets to the consolidator first, followed by administration of member benefits, if it’s to help achieve the government’s wider aims of increasing investment in UK productive finance as swiftly as possible.”
Legislation needed to establish the PPF as a public consolidator could introduce a new “clear and simple” transfer process to support the separate function.
Taskforce on Social Factors consults on guidelines for Pension Schemes
Mark Dowsey, Janine Bennett | October 23, 2023
On 19 October, the Taskforce on Social Factors (“the Taskforce”), comprising representatives from industry, various Government departments and regulators, published a set of guidelines for consultation.
The Taskforce was set up in 2022 by the Department for Work and Pensions, as a response to its call for evidence on improving how social factors – risks and opportunities – are taken into account in investment decision-making by pension schemes.
The Taskforce sets out 35 recommendations on how social factors can be better integrated into investment and stewardship decision-making. Trustees and other bodies – including Government, employers, regulators, legal advisers and asset managers – are subject to specific recommendations; for example, it recommends “DWP to consider formally setting out expectations on addressing social factors for pension funds, to then be overseen by The Pensions Regulator”.
The guidance also sets out a layered framework for trustees in addressing social factors in pension portfolios with ‘baseline’, ‘good’ and ‘leading’ practice tiers; recognising that a degree of proportionality is necessary given different “size, type and resource constraints of schemes”.
The appendices to the guidance contain:
Details of useful data sources, with resources specific to modern slavery
Suggestions as to how trustees might oversee the use of data by managers and service providers in relation to their stewardship, investment and advice services
An overview of how trustees assess asset managers’ practices on addressing modern slavery risk in portfolios, and
Case studies covering the following topics:
Engaging on social issues in 2023 proxy voting season
Tobacco exclusion
Materiality matrix – prioritising and choosing thematic stewardship issues
Quantifying the qualitative – asset manager ESG assessments
An approach to dealing with modern slavery
Collaborative investor action on modern slavery in direct investment portfolios
Engagement on modern slavery.
The Taskforce is seeking feedback by 1 December and will also be running a series of roundtable events as part of the consultation process.
Government sticking to 6 April 2024 removal of lifetime allowance
Dave Roberts, Kirsty Cotton | October 12, 2023
Over the summer, the government consulted on legislation removing the concept of the LTA from the pensions tax regime. One of the most significant, and consistently raised, concerns throughout the industry was the viability of implementing this from 6 April 2024. Key elements of the new regime (eg transitional arrangements – often the most complex area of any change) were missing and, within days of issuing the consultation, HMRC published a Newsletter suggesting that at least one fundamental feature (excess pension commencement lump sums) might be amended.
Even without these problems, many cautioned that there was insufficient time to make appropriate changes to systems, procedures and communications material, requesting a delay in implementation.
Throughout October HMRC has been consulting informally with stakeholders on the previously missing elements. These have covered transitional arrangements, reporting and disclosure requirements and international aspects. At one of these meetings, HMRC confirmed that the government is pressing ahead with its 6 April 2024 implementation date and a further meeting has been scheduled to consider the practical challenges associated with this and to consider how the government can help industry and members overcome these challenges.
It is unlikely that we will see further drafts of the legislation until Finance Bill 2023-24 is introduced into Parliament, following the Autumn Statement (22 November 2023).
Building on the consultation it carried out in 2020, to recover by 2030-31 what was then a near £80m deficit, the Government now considers options for further change. It cites that, “without further intervention, the levy is expected to be operating with an accumulated deficit of over £200m” by 2030-31. The proposals cover the payments due in levy years 2024-25 to 2026-27.
Unusually, in light of the expected increase in the prospective deficit, the first option is for no change although this is quickly dismissed. Option 2 is a proposed increase of 6.5% per year across the board which, despite being significantly below recent inflation statistics and previous levy increases, is viewed as a significant increase that doesn’t support the Government’s policy direction. Option 3 is for a 4% per year increase plus a new (additional, but only from 2026-27) flat-rate “premium” of £10,000 for all “small schemes” – which the DWP defines as those with fewer than 10,000 members.
In Annex C of the document, the Government sets out the projected revenue for each option over the three-year period. By 2026-27, it forecasts £88.9m under Option 1, £107.4m for Option 2 and £200.9m under Option 3. Both of the last two options are projected to result in “an acceptable deficit or surplus” by 2030-31.
The Government’s preferred choice is option 3 and states that introducing “the premium payment in 2026 allows smaller schemes time to adapt and consolidate, giving two years to consider whether this is in their members’ interests”.
