Introduction 03 The Pensions Regulator 04 Pensions dashboards 08 Department for Work and Pensions 10 GMP equalisation and HMRC 12 Legislation and case law 14 Other news 15 On the horizon 16 Contact details 17
Welcome to the latest edition of DLA Piper's Pensions Round-Up newsletter in which we provide an overview of developments in pensions legislation, case law and regulatory guidance.
GMP equalisation: the publication by the GMP Equalisation Working Group's Administration sub-group of a checklist on the administration implications of past transfers out.
The main focus of this edition of Pensions Round-Up is key developments from June 2022, including those listed below. However, as the last edition of Pensions
HMRC: the publication of a pension schemes newsletter that includes information about interest paid on arrears of pension.
Round-Up covered key developments from March 2022, we also mention some developments from April and May 2022 in this edition.
The Pensions Regulator: the Regulator's Corporate Plan 2022 to 2024; the response to the Regulator's and the FCA's joint call for input on the pensions consumer journey; a blog post on pension scams; and information on DC scheme returns.
Pensions dashboards: the Regulator's initial guidance for trustees on pensions dashboards; and a further DWP consultation.
Department for Work and Pensions: a call for evidence on helping savers understand their pension choices; and the government response to the 2021 consultation on proposals to amend the regulations on climate change governance and reporting to add a new requirement in relation to metrics, and on draft guidance in relation to reporting in the implementation statement and the Statement of Investment Principles.
O n the horizon: a timeline of some of the key future developments in pensions to help employers and trustees plan ahead.
If you would like further information about any of the issues raised in this edition of Pensions Round-Up, please get in touch with Cathryn Everest or your usual DLA Piper pensions contact. Contact details are at the end of this newsletter.
The Pensions Regulator
On 13 June the Regulator published its Corporate Plan 2022 to 2024 (Plan) which updates the 2021 to 2024 plan that was published last year. The Plan sets out the Regulator's priorities for the coming year and looks ahead to the final year of the period. The Regulator states that the Plan complements its Corporate Strategy in putting the saver at the heart of its work, enhancing and protecting all savers' pensions through the delivery of five strategic priorities (security, value for money, scrutiny of decision-making, embracing innovation, and bold and effective regulation).
Features of the Plan include that it sets out: (1) 19 "saver outcomes", which relate to the Regulator's strategic priorities, that define its ambitions for savers and will guide the prioritisation and planning of its work; (2) a two year roadmap which includes activities in relation to each of the strategic priorities; (3) key outcome indicators, which are long-term measures that allow the Regulator to track its progress towards the saver outcomes over time; and (4) key performance indicators, which are annual measures that enable the Regulator to track the performance of its prioritised activities (and adjust as necessary) within any given year.
In relation to the DB funding code, the Plan states that, on the basis that the DWP consults on its draft funding and investment regulations in spring 2022, the Regulator is planning to launch its second consultation on the code in the autumn of 2022, with the new code becoming operational from September 2023 (although
it notes that these timings remain subject to change). The Plan states that "resulting changes from the new code will be forward-looking, which means that schemes with valuation effective dates on or after the code's commencement date will be affected".
Other upcoming activities set out in the Plan include that the Regulator: (1) is planning to start five regulatory initiatives during 2022 to 2023, the first of which will focus on the accuracy of contributions; (2) will publish its new code of practice during 2022, which will combine the content of its "existing 15 codes into one online document and is specifically designed to be easier for trustees, advisers and employers to understand and navigate"; (3) will create an action plan which will set out how it plans to support the development of more diverse and inclusive boards of trustees and managers; and (4) will launch a programme of education on pensions dashboards.
The Regulator also: reports that it will develop its organisational capability with the creation of a Digital, Data and Technology directorate; and states that, by being data-led and digitally enabled, it will enhance its ability to regulate effectively and efficiently.
Pensions consumer journey
On 7 June the Regulator and the FCA published the feedback statement to their joint call for input on the pensions consumer journey. The joint call for input, which was published in May 2021, invited views on how best to engage consumers so that they can make informed decisions that lead to better pension
saving outcomes. The feedback statement summarises the themes in the responses and sets out the Regulator's and the FCA's response, ongoing workstreams and how they will use the feedback to inform future work. The Regulator and FCA state that they have produced the feedback statement, in part, to share knowledge on key issues with the industry and other stakeholders, as it may help inform initiatives that they design.
The feedback statement identifies a number of steps that the Regulator and the FCA will take, including that they will publish an update to their joint strategy in the second half of 2022, which will outline the shared strategic outcomes that will continue to draw their focus in the years ahead. Next steps for the Regulator include that it will: (1) publicise the existence of Midlife MOT toolkits available for employers "and would encourage larger schemes and providers to support employers in this initiative"; (2) work with the Money and Pensions Service to produce guidance that enables employers to support staff returning to the workforce; (3) conduct an equality review to understand how well the market works for different groups of savers to inform regulatory responses; and (4) review the communicating to members section of its DC guidance to provide more information on inclusivity, use of behavioural insights and timing of communication. The feedback statement also reports that the Regulator has set up three stakeholder panels covering savers, industry and employers, which it will use "to get feedback on proposed regulatory changes at an earlier stage, allow meaningful two-way
interaction in a frank and honest forum, and clearly communicate its strategic direction".
The feedback statement also notes that, in the trust-based market, the DWP has "set out its intention to make 2023 `the year of the trustee', providing support to trustees through a programme of education and by promoting best practice through the course of next year". The Regulator states that it intends to support the government in its ambitions and will consider how trustees can be supported to make the best decisions for all members.
Blog post climate change governance and reporting
On 10 June the Regulator published a blog post by its Executive Director of Regulatory Policy, Analysis and Advice relating to the reporting requirements in the Occupational Pension Schemes (Climate Change Governance and Reporting) Regulations 2021. In summary: (1) the regulations currently apply to trustees of schemes with relevant assets of GBP5 billion or more and trustees of authorised master trusts (irrespective of size); and (2) their first annual report under these regulations must be published within seven months of the end of the scheme year underway on 1 October 2021.
The blog post states that, over the coming months, the Regulator expects around 100 schemes to publish their first reports produced in line with the regulations. The Regulator states that it knows significant work has been carried out by many trustees, and that some have faced challenges, for example, relating to the availability, quality and consistency of data.
In relation to its review of published reports, the Regulator states that it will be mindful of the challenges and concerns that trustees have. It states that the outcome of the review will also: be used to provide high-level observations and feedback to in-scope schemes where the Regulator has an existing supervisory relationship; and inform the DWP's review of the regulations in late 2023.
The Executive Director also reports that the Regulator does not anticipate that it will be necessary to issue any penalty notices to trustees of schemes that publish their reports in the first wave, other than: where the report has not been published (which will result in a mandatory penalty); or where it is clear that the trustees have not made a genuine effort to comply with the regulations (which would result in a discretionary penalty).
On 15 June the Regulator published a blog post by its Executive Director of Frontline Regulation in relation to pension scams. The blog post reports on some of the themes from the Regulator's and the National Fraud Intelligence Bureau's joint review of the threat of pension scams. The Regulator also published Pension scams threat assessment: summary which provides further information on the joint review, including sections looking at: industry responses to a questionnaire seeking views of the current threat; and key findings based on all inputs to the assessment.
In relation to how the pensions industry can help the Regulator prevent more scams, points in the blog post include that it encourages pension providers, trustees and administrators to sign up to its
pledge to combat pension scams. It also states that schemes should report concerns about scams to the authorities. To help ensure that this can be done effectively, the blog post reports that the Regulator and its partners have published a Guide to reporting pension scams. The Guide (produced by the Regulator, the FCA and Action Fraud) looks at: why reports should be made; what should be reported; when reports should be made; who reports should be made to; and what happens once a report has been submitted.
DC scheme return
The Regulator has updated the information on its website about the DC scheme return, noting that some (mainly larger) DC schemes need to complete a scheme return in two parts this year.
For schemes completing the usual scheme return process, the Regulator's website includes an example scheme return for 2022. For schemes that need to complete a return this year using this process, the Regulator will send the scheme return notice between July and December 2022 and the return must be completed by the due date in the notice.
In relation to two-part scheme returns, the Regulator explains that: (1) Part 1 will be completed on an online form and will contain new questions relating, where applicable, to the more detailed value for members assessment and to the website addresses for extracts from the chair's statement, the SIP, the implementation statement and the climate change report; and (2) Part 2 will contain the rest of the questions and can be completed in Exchange as usual. The Regulator's website also contains an example of each
part of the two-part return, as well as information about how each part will be sent to schemes and how to complete them. Two-part scheme return notices will be issued in July 2022 and the return must be completed by the due date in the notice.
On 4 May the Regulator published a consultation on: (1) a revised enforcement policy that will replace its existing policies for defined benefit, defined contribution and public service pension schemes; and (2) an updated prosecution policy. Both policies have been updated to include the new powers granted to the Regulator in the Pension Schemes Act 2021 and to reflect its experience from using existing enforcement powers. The consultation closed on 24 June and the final policies are expected to be published later this year. Following its September 2021 consultation on new policies, the Regulator also published a response document and the final versions of its High fines policy (avoidance) and its High fines policy (information requirements). The other policies which were the subject of the September 2021 consultation (relating to overlapping powers and information gathering) are now incorporated as chapters in the draft revised enforcement policy, although these sections are not subject to consultation.
DC schemes value for money
On 24 May the Regulator and the FCA published a feedback statement to their September 2021 joint discussion paper on Driving Value for Money in defined contribution pensions. The discussion paper invited views on developing a holistic framework and related metrics to assess value for money
(VFM) in all DC pension schemes regulated by the Regulator and the FCA. It stated that availability of comparable information will make it easier for independent governance committees and trustees to compare the VFM their scheme offers. The paper proposed a framework that looks at value through three lenses: investment performance; customer service and scheme oversight; and costs and charges.
The feedback statement provides a summary of the responses received which includes that: there was agreement that a holistic approach to assessing VFM is needed and that the three elements proposed are the right ones; but, there was less consensus on how to measure each of these elements. While the feedback statement does not set out the policy response, it does include a section on next steps which notes that there are a number of areas where there is no clear consensus as to the way forward, and also states that: (1) the Regulator and the FCA will continue to develop their thinking on how to address these issues; (2) they will need to engage further with the industry to enable them fully to understand the potential impact of their proposals on the industry and savers; (3) the government has expressed its willingness to legislate to introduce the VFM framework for the schemes regulated by the Regulator; and (4) the Regulator and the FCA will work with the DWP to achieve this, and they aim to consult on proposals towards the end of 2022.
The Regulator has published an updated version of the template letter (jointly signed by the
Regulator, the FCA and the Money and Pensions Service) to be sent to DB members requesting a transfer.
Several changes have been made to the letter since the original version was published in April 2020 including that, in the opening paragraph, the reference to financial uncertainty and the sentence stating that "Since the coronavirus outbreak began, stock markets have fallen and are likely to go up and down for some time", have been removed. A link to the updated letter can be found on the page of the Regulator's website relating to warning members about pension scams.
Stronger nudge guidance
In May the Regulator updated the section of its Communicating and reporting: DC schemes guidance relating to the stronger nudge requirements including to add a link to the online tool which trustees can use to book an appointment for a member. The Regulator also updated the paragraph relating to cases where the scheme cannot make the appointment or the member declines the trustees' offer to book them an appointment, by adding the website address and telephone number to provide to members so that they can make an appointment themselves. The guidance notes that the telephone number is intended for use by members only, and that trustees should make bookings on behalf of members through the online booking tool.
On 30 June the DWP published the findings of its latest annual survey of trust-based occupational DC pension schemes, which was carried out between October and December 2021.
The survey comprised quantitative interviews with individuals (such as trustees, scheme managers or in-house administrators) involved in managing 305 schemes of differing sizes, 21 of which were master trusts. The survey questions on pensions dashboards concerned schemes with 100 or more members, and the findings include that: (1) at the time of the survey, most schemes had yet to take action to prepare for dashboards, but many were planning to do so within the next six months; (2) the most widespread actions were speaking to the scheme's administrator about data, discussing dashboards at the pension board and undertaking work to clean or update data; and (3) master trusts and large schemes were more likely than medium schemes to have taken action or be planning to do so in the next six months.
The Regulator's accompanying press release states that trustees of schemes in scope should ensure that they are ready to meet the new value for members assessment requirements (which apply to relevant schemes with total assets of less than GBP100 million and that have been operating for at least three years). This follows the DC survey showing that two- thirds of schemes with less than GBP100 million in assets under management were unaware of the new requirements.
In June, the Regulator also published the results from its 2020-21 survey of pension scheme administrators. The survey was conducted between November 2020 and January 2021 and was completed by a total of 203 administrators (covering both in-house and third-party administrators). The objectives of the survey included to build understanding of relationships between trustees and administrators, current administration practices and administrator operations. The findings of the survey cover issues including: trustee/ administrator relationship; systems and automation; data; pensions dashboards readiness; transfers; pension scams; and saver communications.
Annual Funding Statement
On 27 April the Regulator published its Annual Funding Statement 2022 (AFS) for trustees and sponsoring employers of occupational DB pension schemes. The AFS aims to set out guidance on how to approach valuations under current conditions and is particularly relevant to schemes with valuation dates between 22 September 2021 and 21 September 2022 (Tranche 17), and all schemes undergoing significant changes that require a review of their funding and risk strategies. It also aims to highlight the Regulator's views on general risk management practices, regulatory developments and current issues facing schemes,
which are expected to have a bearing on pension scheme management. On 25 May the Regulator published Annual Funding Statement Analysis 2022 which is analysis of the expected positions of Tranche 17 schemes that gives further context to the AFS.
CDC code of practice
On 9 June the Regulator published a press release reporting that it has laid its new code of practice for the authorisation and supervision of Collective Defined Contribution (CDC) pension schemes before Parliament. The Regulator states that this will enable the code to complete its legislative passage in time for trustees to apply, from 1 August 2022, for authorisation to operate a CDC scheme (as the code is expected to be made after it has laid in Parliament for 40 days). The Regulator also published the response to its January 2022 consultation on the draft code, which explains how it has changed the final version of the code in response to some of the feedback it received.
Pensions Regulator initial guidance
On 22 June the Regulator launched its new "Deadline" campaign which reminds trustees that their pensions dashboard deadline is coming. It also published Pensions dashboards: initial guidance in order to help trustees get ready.
The Regulator states that its research "shows trustees have yet to get their preparations sufficiently underway and are at risk of failing to meet their legal pensions dashboards responsibilities". The guidance notes that there will be significant work involved in successfully connecting to pensions dashboards and that it could take at least 12 to 18 months to prepare. It states that, regardless of their scheme's connection deadline, trustees are strongly advised to start preparing as soon as possible.
The guidance is based on the draft regulations that were the subject of the DWP's January 2022 consultation. (The government response to that consultation was published on 14 July, following which, on 20 July, the Regulator updated its guidance, although the points noted in this article remain in the guidance. We will provide further information about the response in the July 2022 edition of Pensions Round-Up.) Looking ahead, the Regulator states that it will publish updated guidance later in the year, which will reflect the final regulations and the standards that are being developed. (Standards will provide further technical or operational detail on how trustees and qualifying pensions dashboard services must comply with their legislative
duties.) The Regulator states that its guidance will also evolve in light of industry's experience with dashboards.
As well as an overview section, Pensions dashboards: initial guidance includes sections on: when your scheme needs to connect with dashboards; connecting to pensions dashboards; matching people with their pensions; information to provide to members; and failing to comply with pensions dashboards duties.
It also includes a Preparing to connect: checklist which the Regulator states trustees can use to ensure that they are on track to meet their duties. The checklist looks at actions in the areas of connection, governance, matching savers to their pensions and providing pension information to savers. Some of the due dates for the actions are expressed by reference to the scheme's connection deadline, for example, "6 to 12 months before deadline" and "0 to 3 months before deadline". There are also some actions which are stated to be due "ASAP", including the following.
Pensions dashboards are a regular agenda item at the trustee board.
The trustees have discussed pensions dashboards with their administrator and other relevant parties.
In relation to matching savers to their pensions, trustees: understand what personal data they will receive from the system to help them match members to their pensions; have assessed the
accuracy and digital accessibility of this data in their records; and have put in place plans to improve the accuracy and digital accessibility of this data (if required).
In relation to providing pension information to savers, trustees: know what data they will need to return to members and how to calculate values; and have assessed whether the scheme's data is accurate, calculated in line with the requirements and digitally accessible, and put plans in place to ensure this.
The Regulator's accompanying press release also flags that trustees should be deciding how they will connect their scheme to the dashboards systems, that is, whether they will develop a solution in-house, use a pensions administrator or use an integrated service provider. Further information on this issue is included in the "Connecting to pensions dashboards" section of the guidance.
The final section of the guidance relates to staying in touch with developments and notes some upcoming developments including that: (1) the Regulator's consultation on its compliance and enforcement policy for dashboards is expected in autumn 2022; and (2) the Financial Reporting Council's response to its consultation on changes to Actuarial Standard Technical Memorandum 1 is expected in autumn 2022. The guidance also states that an updated version of the Pensions Administration Standards Association's Data Matching Convention (DMC) Guidance is expected in the
summer. On 19 July the Pensions Dashboards Programme published a consultation on standards and we will provide further information on this in the July 2022 edition of Pensions Round-Up.
DWP further consultation
Following consideration of the feedback to its January 2022 consultation on pensions dashboards, on 28 June, the DWP published Pensions dashboards: further consultation which seeks views on two issues. The further consultation closed on 19 July 2022.
DASHBOARDS AVAILABLE POINT The first issue that the June 2022 consultation considers is the Dashboards Available Point (DAP), which is the point at which pensions dashboards services will be made available to all members of the public. The consultation proposals in relation to the DAP include the following.
The pensions dashboards regulations will provide that pensions dashboard services will become available for use by the public from a date that is to be specified in a notice issued by the Secretary of State for Work and Pensions. The consultation includes an indicative draft of the relevant provision for the pensions dashboards regulations.
In determining the date for the DAP, the Secretary of State must be satisfied that the dashboards ecosystem is ready to support the widespread use of qualifying pensions dashboard services.
The consultation states that this will include consulting with the Money and Pensions Service (MaPS), the Regulator and the Financial Conduct Authority, as well as having regard to matters such as security and conformance testing.
The Secretary of State will be required to give notice of the DAP in advance and publish the notice. The DWP states: that it expects the formal announcement of the DAP by the Secretary of State to be a final confirmation; and that it believes 90 days' notice is sufficient (the indicative draft provision refers to "at least" 90 days' notice). It is also worth noting that the consultation states that: "There will be significant communications between the Government, MaPS, and industry in the lead up to any announcement and so at the point at which the DAP is announced, it should not come as a surprise".
DISCLOSURE OF INFORMATION This section of the consultation relates to the disclosure of information between MaPS and the Regulator. The DWP notes that: (1) MaPS and the Regulator have key roles to play in the operation of pensions dashboard services; and (2) in order to carry out their activities in relation to dashboards in a secure and efficient way, they need to be able to share information with each other about schemes. The proposals in the consultation on this issue therefore include the following.
A provision will be added to the pensions dashboards regulations setting out that MaPS may share information with the Regulator for the purpose of enabling or assisting MaPS or the Regulator to exercise their functions in connection with the regulations. The consultation includes an indicative draft of the relevant provision.
An Order will be made to amend Schedule 3 to the Pensions Act 2004 (which relates to permitted disclosures of restricted information) to enable the Regulator to share restricted information with MaPS in respect of MaPS' dashboards functions. The consultation seeks views on the proposed policy approach, but does not include a draft version of this Order.
The consultation sets out some examples of what this measure means in practice and why it is needed, including that: (1) the Regulator is the only body that holds certain relevant information about pension schemes via its scheme register, which "is essential for MaPS planning for implementation, and for security purposes"; and (2) MaPS "will be privy to data and management information that arises from the running of the dashboards ecosystem that will be key for TPR to perform its compliance functions". The consultation also states that MaPS and the Regulator will have a comprehensive data sharing agreement in place, which will be published.
Department for Work and Pensions
CMA Order DWP regulations
In June 2019 the Competition and Markets Authority (CMA) made The Investment Consultancy and Fiduciary Management Market Investigation Order 2019. Provisions of the Order imposing obligations on trustees of occupational pension schemes in relation to competitive tenders for fiduciary management services and setting strategic objectives for investment consultants came into force in December 2019. The Order also requires trustees to submit annual Compliance Statements to the CMA in relation to these provisions. In July 2019 the DWP published a consultation on draft regulations to integrate these trustee obligations into pensions law and require compliance to be reported to the Pensions Regulator (rather than to the CMA) within the scheme return process.
On 6 June the DWP published the government response to its 2019 consultation which explains amendments that have been made to the drafting of the final version of the regulations to ensure that certain provisions are more closely aligned with the Order. The regulations broadly replicate the provisions of the Order, although the Impact Assessment to the regulations notes that, for some aspects, there are slight differences in policy between the Order and the regulations. Subject to Parliamentary approval, the DWP anticipates that the regulations will come into force on 1 October 2022. The response also states that the Pensions Regulator will be updating its guidance to reflect the final regulations ahead of commencement. The regulations
were subsequently made in July and we will report further on them in the July 2022 edition of Pensions Round-Up.
Call for evidence pension choices
On 14 June the DWP published a call for evidence (Helping savers understand their pension choices) about how it "can help savers, improve member communications, guidance and decumulation products in pension schemes". It notes that: (1) research by the FCA found that many people who save into a pension scheme choose the `path of least resistance' when it comes to accessing their pension savings; and (2) based on this research, the FCA introduced measures, for personal pensions, aimed at supporting people to get the most out of their pension savings.
The DWP states that it has the same goals for individuals in the trust-based market. It states that those saving into occupational pensions should also have access to support that allows them to make informed decisions and achieve what they want from their pensions. The call for evidence has therefore been issued, setting out questions for members and questions for schemes. The call for evidence seeks to find out, in particular from people saving into occupational pension schemes, what information and support they expect: in the lead up to taking their pension; at the point when they want to access their savings; and after they have started to use their pension savings. The DWP also wants to hear about what pension savers need to help them to make informed choices about
how to use their pension savings. In relation to schemes, the DWP wants to understand: what support and decumulation products occupational pension schemes currently offer to their members; and what they are considering offering their members in the future. The DWP states that, in addition to the call for evidence, it is seeking further direct engagement with trustbased pension savers, which will be considered alongside the formal responses to the call for evidence. The call for evidence closed on 25 July 2022 and the responses will inform what, if any, government action is required.
Climate and investment reporting
On 17 June the DWP published the government response to its October 2021 consultation Climate and investment reporting: setting expectations and empowering savers. Further information on the consultation is included on pages 7 and 8 of the October 2021 edition of Pensions Round-Up.
PORTFOLIO ALIGNMENT METRIC The consultation proposed amendments to the Occupational Pension Schemes (Climate Change Governance and Reporting) Regulations 2021 to add a fourth metric one portfolio alignment metric to the list of metrics in the regulations that trustees must select and, as far as they are able, calculate. A portfolio alignment metric was defined in the draft regulations as "a metric which gives the alignment of the scheme's assets with the climate change goal of limiting the increase in the global average temperature to 1.5 degrees Celsius above pre-industrial levels". The consultation also proposed that
the new requirement will come into force on 1 October 2022 and apply to all trustees of schemes in scope of the regulations. The response confirms that the government does not intend to make any changes to its original proposal to require trustees of schemes in scope to measure and report a portfolio alignment metric or to its original proposals on the scope and timing of this measure. However, it notes that a small number of minor technical changes have been made in the course of finalising the regulations.
The DWP also published an updated version of its statutory guidance (Governance and reporting of climate change risk: guidance for trustees of occupational schemes) which includes a section about the new requirement. This new section includes that trustees should calculate, as far as they are able, and report one of three listed types of portfolio alignment metric. Consequential amendments have also been made to the section of the guidance relating to the selection and reporting of an additional climate change metric. The response reports on changes that have been made to the guidance updates since the consultation draft, and states that the Regulator will also update its guidance ahead of the new requirement coming into force.
GUIDANCE ON THE SIP AND IMPLEMENTATION STATEMENT The response document also sets out the government's response to the part of the October 2021 consultation relating to the draft version of Reporting on Stewardship and Other Topics through the Statement of Investment Principles and the Implementation Statement:
Statutory and Non-Statutory Guidance. The final version of the guidance was also published alongside the response.
The guidance is stated to focus "on the areas where existing policies and reporting appear to be weakest - stewardship and, to a lesser extent, consideration of financially material ESG factors and non-financial factors". It notes that stewardship encompasses a range of activities, but states that the guidance focuses specifically on voting and engagement. The statutory guidance applies to implementation statements that trustees are required to prepare in respect of any scheme year ending on or after 1 October 2022. The DWP encourages trustees to consider the non-statutory parts of the guidance from the date of publication. The guidance also: refers to the UK Stewardship Code and indicates areas of potential alignment between the implementation statement requirements and the Code principles; and states that trustees can use information in their Code reports in the implementation statement, provided that information meets the legal requirements for the statement.
The response reports on some of the changes that have been made to the guidance since the consultation draft. These include changes to: (1) reflect that the Pensions Regulator is the primary audience for the SIP and the implementation statement; (2) encourage schemes to consider producing memberfacing summary versions of these documents (with signposting to the full document) if scheme-specific research has found that members are more likely to engage with a
different style of communication; (3) clarify that a "significant vote" (this term is relevant to the requirements for reporting in the implementation statement) is likely to be one that is linked to one or more of the scheme's stewardship priorities or themes, but that a vote could also be significant for other reasons, with the guidance providing examples of these types of vote; (4) amend the content relating to member views for added clarity; and (5) provide further clarification on the distinction between statutory and non-statutory content, with a new section also added to explain what is meant by the use of the terms should, could/may, and must in the guidance.
The DWP will revisit the extent to which the guidance is being followed and has helped trustees understand expectations around the SIP and implementation statement in the second half of 2023, and will review requirements on disclosures on stewardship activities at the same time.
On 22 June the DWP published a press release reporting that over 160,000 pension scheme members "will be encouraged to learn more about making greener pension choices" in a new three week trial. It explains that the "Green Nudge" trial (commissioned as part of the government's COP26 agenda) will "test the impact of behavioural nudges and messages on increasing saver engagement with the sustainability of pension investments and how this could translate into greener pension decision-making". The results of the project will be published later this year.
GMP equalisation and HMRC
GMP equalisation newsletter
On 6 April HMRC published Guaranteed Minimum Pension equalisation newsletter April 2022 which looks at past transfers and GMP conversion. HMRC states that the newsletter supplements previous guidance in GMP equalisation newsletters in February 2020 and July 2020.
PAST TRANSFERS This part of the newsletter concerns cases where past transfer payments did not take account of the obligation to equalise benefits for the effects of GMPs and, following the High Court's November 2020 judgment in the Lloyds case, trustees need to take corrective action in respect of those payments.
The newsletter first looks at the position where the transferring scheme is making a top-up transfer payment to another pension scheme. It states that, in order to be an authorised payment, any top-up transfer payment must satisfy the conditions for a `recognised transfer' that apply at the time the top-up payment is made. The newsletter goes on to provide information about how a top-up transfer payment can fit with the different elements of the definition of a `recognised transfer' in the Finance Act 2004. This includes that the receiving scheme must be a registered pension scheme or a QROPS at the time that the top-up transfer payment is made. HMRC states that the receiving scheme may be the same scheme to which the original transfer payment was made or a different scheme.
HMRC also states that: for GMP equalisation purposes, a lump sum payment made directly to the member may be possible; and such a payment will be an authorised payment where it meets the relevant conditions at the time the payment is made. The newsletter considers three types of authorised lump sum payment and some of the conditions that would need to be met in respect of each: (1) a payment that is made following a `relevant accretion'; (2) a small lump sum payment; and (3) a winding-up lump sum payment.
In relation to taxation, the newsletter includes that: the right to a top-up transfer payment is an uncrystallised right for the purposes of tax legislation, as the member is not entitled to present payment of benefits in respect of the right under the transferring scheme; and any lump sum payment that is made directly to a member to extinguish the right to a top-up transfer payment will be a payment in respect of uncrystallised rights. It goes on to set out the taxation position for payments in respect of uncrystallised rights, as well as the position in relation to the annual allowance and protections, including transitional protections.
GMP CONVERSION HMRC notes that GMP conversion is a complex area and that its work on this continues. However, the newsletter highlights the issues identified and provides confirmation on particular aspects of the pensions tax legislation where HMRC can do so. HMRC states that, in the newsletter, it assumes that trustees are using the GMP conversion method on the basis that the value of adjustment made to a
member's benefit is on an actuarial equivalence basis only. It also assumes that where the conversion for a member is to achieve the required removal of inequalities arising from GMPs, the conversion is on the basis of seeking to achieve both equality of present value on the conversion date and equality of benefit payments thereafter between men and women for benefits earned from 17 May 1990.
In relation to scheme members who have not retired, the newsletter states that there are likely to be impacts on the treatment of their annual allowance in the tax year of conversion, as well as in all subsequent tax years up to and including that of retirement. It states, for example, that in the tax year of conversion, the removal of the GMP rules may cause the loss of the deferred member carve-out and result in a pension input amount calculation for the tax year, as well as for subsequent tax years. HMRC states that it needs to undertake further work in this area "to determine the appropriate outcome and treatment, and the potential for any legislative change". The newsletter also notes that, for deferred members, the effects of GMP conversion may cause the loss of fixed protection.
The newsletter also provides confirmation of the expected pensions tax position for: (1) pensioner members, in relation to the annual allowance, fixed protection and the lifetime allowance; (2) pensioners who have recently retired (that is, where GMP conversion is undertaken after retirement but it is still in the tax year of retirement), in relation to the annual allowance, deferred
member carve-out and the lifetime allowance; and (3) members who left pensionable service prior to 6 April 2006, in relation to the annual allowance.
Interest on pension arrears
On 30 June HMRC published pension schemes newsletter 140 which includes information relating to cases where a pension has been underpaid and the scheme administrator pays interest on arrears of pension, including cases relating to equalisation for Guaranteed Minimum Pensions.
HMRC states that interest payments will qualify as "scheme administration member payments" (and, therefore, as authorised payments) where interest is provided on an arm's length commercial basis, so is no more than a reasonable commercial rate of interest. It also states that where pension arrears are paid in connection with GMP equalisation "and interest is provided at 1% above base rate (for example, in line with the Lloyds judgment) either on a simple or compound basis, or at an interest rate specified in the scheme rules the interest will be treated as a scheme administration member payment".
HMRC states that interest payments made in addition to payment of arrears that meet the definition of a scheme administration member payment, are taxable as interest in the tax year in which they are paid. The newsletter also includes information about whether the person paying the interest will be under an obligation to deduct income tax at source, which, in summary, includes that: there is no obligation to deduct income tax at source on `short' interest; and, if the interest is `yearly', the
position depends on the type of entity making the payment and whether the recipient usually lives outside the UK. The newsletter provides a link to further guidance on when interest is `short' or `yearly' and also provides an example of the likely position where arrears relate to a period of years. The newsletter also looks at the position for the recipient including in relation to allowances.
GMP equalisation past transfers
On 27 June the Administration sub-group of the GMP Equalisation Working Group published a checklist which looks at the administration implications of past transfers out. The introduction to the document includes that: (1) in order to implement equalising past transfers out, trustees need to make a number of decisions which will influence both the scope of this project and the number of former members where a top up payment is due; (2) many of these decisions have the potential to impact the administration aspects of the project; and (3) an "important part of the planning is to detail the decisions which need to be made, why they're important and the potential impact on administration". The checklist in the document includes three columns (covering the issue, trustee decision and administrative implications), and the sub-group states that it can be used to inform discussions, capture the decisions made and provide an audit trail for the future.
On 11 April HMRC published a Managing pension schemes service newsletter which includes that: scheme administrators can now select schemes from their list of schemes on the Managing Pension Schemes service and provide
up to date information on them in order to migrate them to the service from the Pension Schemes Online service; and it is no longer possible to compile and submit any new Accounting for Tax returns for any quarter from 1 April 2020 onwards on the Pension Schemes Online service. Subsequent pension schemes newsletters have included a reminder to pension scheme administrators to take action to migrate their schemes to the Managing Pension Schemes service.
Other updates in recent pension schemes newsletters include: (1) that HMRC has amended the annual allowance calculator to include the 2022/23 tax year (newsletter 138); (2) an update on HMRC's work on the digitisation of relief at source, the aim of which is to have a fully digital service by April 2025 that will replace the current relief at source paper service (newsletter 139); and (3) an update providing clarification in relation to reporting requirements following the recent changes to the scheme pays legislation (newsletter 140).
Pensions Tax Manual NMPA
On 31 May updates were made to HMRC's Pensions Tax Manual (PTM) to reflect the increase in the Normal Minimum Pension Age (NMPA) to age 57 on 6 April 2028 and the introduction of a new protection regime in relation to that increase. In particular, two new pages have been added: (1) PTM062215, which includes information on the eligibility requirements for a 2028 protected pension age; and (2) PTM062250, which looks at retaining a 2028 protected pension age following a block transfer or an individual transfer, and includes examples.
Legislation and case law
Conversion of GMPs
The Pension Schemes (Conversion of Guaranteed Minimum Pensions) Bill completed its journey through Parliament in April and received Royal Assent on 28 April, becoming the Pension Schemes (Conversion of Guaranteed Minimum Pensions) Act 2022.
The Act will amend the legislation that allows occupational pension schemes to convert GMP benefits into other scheme benefits to: (1) clarify that it applies to survivors as well as earners; (2) remove the detailed requirements regarding survivors' benefits that must be provided by a converted scheme and instead provide a power to prescribe in regulations the conditions which must be met in relation to survivors' benefits; (3) replace the provision that requires employer consent to be obtained to GMP conversion with a power to prescribe in regulations who must consent; and (4) remove the requirement to notify HMRC. The Act is not yet in force, aside from for the purposes of making regulations. It will come into force for remaining purposes on a day to be appointed. The DWP has previously confirmed that the government will consult on the regulations on survivors' benefits and employer consent.
Pension Schemes Act 2021
On 28 June regulations were made which commence further provisions of the Pension Schemes Act 2021. The regulations bring Part 1 of the Act, which relates to collective money purchase schemes (also known as collective defined contribution, or CDC, schemes), into force on 1 August 2022 insofar as that Part is not already in force.
The regulations also include a transitional provision in relation to schemes which were established before 1 August 2022.
The regulations also bring into force some provisions of Schedule 7 to the Act on 29 June 2022. Schedule 7 makes minor and consequential amendments to other relevant legislation following changes to the Pensions Regulator's powers. Some of these amendments were already in force but those brought into force on 29 June include amendments to the Pensions Act 2008 to give the Regulator power to issue penalty notices in the event of a failure to comply with an interview notice relevant to the exercise of its functions under Part 1 of that Act (which relates to automatic enrolment).
Automatic enrolment and loss of fixed protection
On 4 April the First-tier Tribunal (FTT) gave its judgment in the case of Moan v The Commissioners for HMRC which relates to an appeal against HMRC's decision to revoke the Appellant's Fixed Protection 2016 as a result of him being automatically enrolled into a pension scheme.
The automatic enrolment legislation provides that a jobholder who has been automatically enrolled into an occupational pension scheme may opt out by giving their employer a valid opt out notice within a period of one month beginning with the later of: the date on which the jobholder became an active member of the scheme; or the date on which the jobholder was given specified "enrolment information". The enrolment information to be given includes the jobholder's
automatic enrolment date. The FTT concluded that, in this case, the automatic enrolment date provided to the Appellant as part of the enrolment information was incorrect. The judge stated that he considers it to be self-evident that, if the information given is incorrect, "any time limit expressed to run from the time when that information has been provided cannot start to run until the correct information has been provided". He therefore concluded that an opt out notice that the Appellant had delivered prior to the correct enrolment information being given to him must have been delivered before the statutory deadline, which meant that HMRC's withdrawal of the Appellant's Fixed Protection was not authorised. The appeal was therefore allowed.
The FTT also considered whether, had the information been accurate, the enrolment information had been "given" to the Appellant. The enrolment information was sent by email in March 2017, but the Appellant had been experiencing IT issues from the start of the relevant employment until July 2017. On the facts of this case, the FTT concluded that the March 2017 email was received at the Appellant's email account and that, on balance, that receipt would, if the information in the email had been correct, have resulted in the information contained in it being "given" to the Appellant. This means that, if the information had been correct, the opt out notice would have been given after the opt out window had closed and the FTT would have dismissed the appeal.
Work and Pensions Committee
On 27 April the Work and Pensions Committee published the government's response to the Committee's January 2022 report on Accessing pension savings which relates to the second part of its three part inquiry into the impact of the pension freedoms and the protection of pension savers. The Committee's recommendations included that the government should set a goal of at least 60% of people to be using Pension Wise or receiving paid-for advice when accessing their pension pots for the first time. The response states that the government does not support setting a target proportion of members utilising advice or Pension Wise guidance and that the decision to use advice or guidance will depend upon individuals' circumstances and should be understood within context. The government also disagrees with the Committee's recommendation that automatic Pension Wise appointments are trialled, stating that it believes there are significant issues with the approach of automatically booking appointments, both at age 50 and at the point of first access.
On 3 May, the Pensions Administration Standards Association (PASA) published Good Practice Guidance entitled Defined Benefit Transfers: Faster, Safer, Better, the objectives of which are to: (1) improve the overall member experience through faster, safer transfers; (2) improve communications and transparency in the processing of transfers;
and (3) improve efficiency for administrators. PASA states that the proposed processes set out in the Guidance are not prescriptive and can be adapted by administrators as necessary to fit their preferred operating model. However, PASA states that the principles of the Guidance (which relate to issues including member experience, member communications and setting internal timescales) should be followed at all times. PASA states that, while the Guidance is voluntary, it anticipates that the Pensions Ombudsman will reference it when reviewing complaint cases as a source of what good industry practice looks like.
On 20 June PASA's DC Working Group published updated guidance on DC Governance, noting that a lot has changed since the original version of this guidance was published almost four years ago, with more changes in the pipeline. The document provides guidance for all stakeholders involved in the DC administration process, and includes sections on data, decumulation, controls and processes, management information, the chair's statement and transitions. The section on the chair's statement is a new addition to this version of the document. PASA notes that the next 18 months "will see further changes in the DC pension industry" and states that it will continue to refresh the guidance document as details are confirmed.
Following the publication of its Initial Update Report in September 2021, on 23 June the Small Pots Co-ordination Group published its
Spring 2022 Report. The Group was jointly convened by the Pensions and Lifetime Savings Association and the Association of British Insurers in 2021, and comprises experts from a range of pension providers, industry bodies and stakeholders. The Spring 2022 Report states that the Group has reached a consensus on which models should be considered in future: pot follows member; multiple default consolidators (with the Group having discounted a single default consolidator during the most recent phase of its work); and member exchange. The Group states that it may be that a combination of models is the best solution to reducing the greatest number of inactive small pots. It also states that greater analysis is still needed on: (1) the extent to which the models which remain under consideration could be expected to reduce the overall number of remaining small pots (both those that currently exist and new small pots which will be created in the future); and (2) the degree to which these models may impact the financial sustainability of the automatic enrolment market over time. A section of the report on recommendations sets out a number of steps that will need to be taken in order to be in a position to identify a preferred solution, with this section including that the industry representatives' view is that legislation will be required to enable any new framework and to implement a solution which addresses the greatest number of existing small pots and prevents future proliferation of them.
On the horizon
DATE Not known
Scheme year ending after 1 October 2021 or 31 December 2021 2022 2023
1 October 2022
1 October 2022 1 October 2022
6 April 2028
The Pension Schemes (Conversion of Guaranteed Minimum Pensions) Act 2022 received Royal Assent on 28 April 2022. The Act is not yet in force, aside from for the purposes of making regulations. The DWP has previously confirmed that the government will consult on the regulations on survivors' benefits and employer consent.
Following a 2020 consultation on DC schemes, regulations came into force on 1 October 2021 introducing a new requirement for trustees of all relevant schemes to report in the chair's annual statement on net investment returns for their default and self-selected funds. This requirement applies for the statement for the first scheme year which ends after 1 October 2021. The regulations also contain a new requirement for certain relevant schemes to carry out a more detailed value for members assessment, with this requirement applying from the first scheme year ending after 31 December 2021.
The DWP's January 2022 consultation on pensions dashboards looked at proposed requirements to be met by trustees of relevant occupational pension schemes and included sections on data, how dashboards will operate, connection, staging and compliance and enforcement. We will report on the response to the consultation in the July 2022 edition of Pensions Round-Up. The DWP published a further consultation in June 2022 (which closed on 19 July) considering the Dashboards Available Point.
In March 2021 the Regulator published a consultation on the first phase of its work to combine its current codes to form a single code of practice which includes information about a new requirement for trustees to carry out an own risk assessment of the system of governance. A blog post published by the Regulator in January 2022 states that it is expected that the new code will be laid before Parliament in summer 2022.
The Regulator's Corporate Plan 2022 to 2024 (published on 13 June 2022) states that, on the basis that the DWP consults on its draft funding and investment regulations in spring 2022, the Regulator is planning to launch its second consultation on the DB funding code in the autumn of 2022, with the new code becoming operational from September 2023.
Regulations came into force on 1 October 2021, introducing new governance and reporting requirements in relation to climate change for trustees of certain occupational pension schemes. The requirements will apply to further schemes from 1 October 2022. Amendments to the regulations will come into force on 1 October 2022 introducing requirements relating to selecting and calculating a portfolio alignment metric.
Regulations introducing simpler annual benefit statements for DC schemes used for automatic enrolment will come into force on 1 October 2022.
A March 2022 DWP consultation on Facilitating investment in illiquid assets includes proposals for draft regulations to come into force on 1 October 2022 amending the rules on employer-related investments for certain DC master trusts. The consultation also sets out policy proposals including a proposed requirement for DC schemes to include their policy on investment in illiquid assets in their Statement of Investment Principles.
A consultation on changes to the notifiable events regime was published on 8 September 2021. The consultation closed on 27 October 2021. The Regulator's Corporate Plan 2021-24 referred to changes to the notifiable events regime being introduced in 2022.
On 4 May 2022 the Regulator published a consultation on: a revised enforcement policy that will replace its existing policies for DB, DC and public service pension schemes; and an updated prosecution policy, both of which have been updated to include the new powers granted to the Regulator in the Pension Schemes Act 2021. The consultation closed on 24 June and the final policies are expected to be published later in 2022.
The May 2022 feedback statement to the Regulator's and the FCA's 2021 joint discussion paper on Driving Value for Money in defined contribution pensions includes that the Regulator, the FCA and the DWP will work together and publish a consultation towards the end of 2022, setting out proposals.
The Finance Act 2022 makes provision to increase the normal minimum pension age from age 55 to age 57 on 6 April 2028 and introduce a new protection regime in relation to that increase.
Cathryn Everest Senior Professional Support Lawyer, London +44 (0)20 7153 7116 [email protected]
Megan Sumpster Professional Support Lawyer, London +44 (0)20 7153 7973 [email protected]
Ben Miller Head of Pensions +44 (0)151 237 4749 [email protected]
Tamara Calvert Partner, London +44 (0)20 7796 6702 [email protected]
Joel Eytle Partner, London +44 (0)20 7796 6673 [email protected]
Andrew McIlhinney Partner, Leeds +44 (0)113 369 2141 [email protected]
Matthew Swynnerton Partner, London +44 (0)20 7796 6143 [email protected]
Amrit Mclean Head of Pensions De-risking +44 (0)20 7796 6613 [email protected]
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