Pensions Bulletin 2024/17
Our viewpoint
2 May 2024
- LTA abolition issues – no timescale for regulations needed to fix legislation
- Backbench MPs try to force compensation for 1950s born women affected by State Pension Age changes
- FCA extends the sustainability disclosure requirements and investment labels regime
- Pensions Regulator sounds caution on DC to DB transfer at retirement models
- PDP looks forward to connection testing
- FCA provides easement to its pensions dashboard connection rules
- IFoA reviews pensions advice in divorce cases
- IFS suggests that DC pension pots should be subject to inheritance tax
- PSIG looks to its future
LTA abolition issues – no timescale for regulations needed to fix legislation
HMRC’s latest pension schemes newsletter contains a mixture of LTA abolition and other topics, but doesn’t contain much by way of news on either front. This is particularly worrying for the former given that there are lots of teething problems with the pensions schedule of the Finance Act 2024 that need to be addressed, with more seemingly being discovered each week.
LTA abolition
This is the first topic to be dealt with and starts with an examination of the meaning of “entitlement”, guidance on which was inadvertently archived. HMRC says that there has been no change to the definition and points to new guidance on the topic in the Pensions Tax Manual. Various scenarios are then examined relating to whether benefits to which entitlement has arisen fall to be treated under the pre or post April 2024 tax regime.
The newsletter then moves on to provide further guidance on the new pension commencement excess lump sum (PCELS) (see Pensions Bulletin 2024/11), but unfortunately not covering the possibility of full commutation of excess benefits using small lump sums alongside the PCELS.
We had hoped that by now, regulations would have been made that fixed a handful of known errors in respect of which HMRC had advised affected members to temporarily delay taking benefits or transferring out (see Pensions Bulletin 2024/14). This included those with scheme-specific lump sum protection. There is no promise to resolve these issues any time soon, with HMRC now saying that where a member requires a payment which is affected by the further regulations and cannot wait until these are introduced due to financial hardship, HMRC should be contacted directly to resolve the issue. It is not clear how HMRC can do this.
Two new errors in the legislation are then mentioned, one to do with the override to scheme rules provided by the Finance Act 2024 and the other in determining an aspect of the transitional lump sum and death benefit allowance. Promises are made to fix the errors but with silence as to when this will happen.
There is also a separate document containing no less than 105 FAQs on a variety of aspects of the modified pension tax regime, consolidating and updating FAQs published in previous newsletters. Many are simply means by which guidance as to the operation of the new law is given in bite-sized pieces, whilst a number contain promises to fix errors or omissions in the Finance Act 2024.
Other topics
These comprise the latest pension flexibility and new scheme registration statistics, two topics relevant to schemes operating relief at source, some more reminders about the Managing Pension Schemes service and some news about the public service pension remedy.
Comment
After a veritable burst of activity by HMRC in the run up to 6 April 2024, this newsletter disappoints as there remains much to be done and this was an opportunity to see more things being ticked off. We worry that HMRC is providing no timescale for the regulations needed to resolve the remaining issues that have been identified to date. Might they be returning to a more ‘business as usual’ level of activity, despite the need to get on and fix the issues that have arisen from a rushed implementation?
Backbench MPs try to force compensation for 1950s born women affected by State Pension Age changes
A Private Member’s Bill that would require the Government to set down proposals within a specific time period for a compensation scheme for women who have been affected by the increase in State Pension Age has been published.
The State Pension Age (Compensation) Bill has been introduced by SNP MP Alan Brown, with 11 MP supporters named on the face of the Bill. Six are fellow SNP MPs, but the other five comprise one from each of the Conservative, Labour, Liberal Democrats and the Northern Irish DUP and SDLP parties.
The Bill requires the Government to lay before Parliament a paper setting out its proposals for a compensation scheme within three months of the passing of the Act. The paper must include proposals relating to eligibility, the amounts of compensation to be paid, how the scheme will be administered and the timeframe for compensation to be paid.
The amount of compensation must have regard to the severity of injustice scale published by the Parliamentary and Health Service Ombudsman (PHSO) and must in particular make proposals for compensation in line with that scale, in accordance with a table that provides that those women who have experienced the greatest increase in State Pension Age being entitled to the highest (Level 6) level of compensation.
The Bill is currently scheduled to have its Second Reading on 17 May 2024.
Comment
Clearly, this Bill mirrors the PHSO’s March 2024 recommendation (see Pensions Bulletin 2024/12) that the DWP should get on with identifying a mechanism for providing an appropriate remedy for those who have suffered injustice straight away. However, as a Private Member’s Bill which is well down the Order Paper for debate on 17 May, it could struggle to progress further, as the DWP made it clear when the PHSO report was laid before Parliament that it would respond without undue delay but only once it had had time to consider the contents. Nonetheless, it is an illustration of the level of feeling across Parliament on this issue.
FCA extends the sustainability disclosure requirements and investment labels regime
The Financial Conduct Authority has launched a consultation on extending to portfolio managers the requirements on how sustainable investments are labelled and explained that it finalised for asset managers in November 2023 (see Pensions Bulletin 2023/49). The FCA is proposing a broadly similar approach to labelling for portfolio managers as introduced for fund managers.
Consultation closes on 14 June 2024 and the FCA intends to publish its final rules in the second half of 2024, with new requirements coming into force over a two-year period starting in December 2024.
The FCA has also published its now finalised guidance on the anti-greenwashing rule, which comes into force on 31 May 2024.
Pensions Regulator sounds caution on DC to DB transfer at retirement models
In a blog by David Walmsley, the Interim Director of Supervision – Market Oversight at the Pensions Regulator, a warning is sounded about the possibility of DB pensions being provided to DC savers by transferring into a DB arrangement at retirement. Mr Walmsley says that whilst the Regulator supports innovation, he “would not expect the market to develop further” until the Pensions Regulator, other regulators and the Government establish whether this is something they can support.
On separate matters Mr Walmsley says that the Regulator’s guidance on its approach to the profit release mechanism in DB superfunds will be published “shortly” (it was missing from the revised superfund guidance published in August 2023 – see Pensions Bulletin 2023/32). He also said that later in the year the Regulator intends to publish new DB alternative arrangements guidance to help trustees (and employers) navigate alternative arrangements, including capital backed journey plans.
Comment
This warning seems to be in relation to the intended launch of a specialist occupational pension scheme whose purpose is to accept individual transfers from those with DC pots.
PDP looks forward to connection testing
The Pensions Dashboards Programme has published its latest (April 2024) Progress update report, covering its activity over the last six months and looking forward to its areas of focus for the next six months.
In it the PDP says that updated drafts of data standards for dashboards have now been shared with volunteer participants and will be published soon, and drafts of the PDP’s other standards are being refined with industry and the PDP’s partners. At the same time, the PDP is considering its approach to user testing of dashboards, and this report provides more detail of the work that it will be doing to get this underway. Volunteer participants will begin connection testing later this year.
A new pensions dashboards advisory group has also been launched, which includes members of its previous steering group and eight new people appointed in February 2024. The advisory group provides advice and input on emerging operational and delivery topics and helps the PDP further its goal of successful delivery of dashboards in collaboration with industry.
There is also mention of the MoneyHelper pensions dashboard which is said to be progressing, with the MoneyHelper project team working closely with the PDP to ensure the MoneyHelper pensions dashboard is ready for testing with pension providers at the earliest opportunity.
Comment
There is relatively little news in this latest update and no mention of the assurance testing that needs to be passed before the infrastructure can be signed off. Looking forwards the PDP must be hoping that in six months’ time it can report successful connections by a number of its volunteer participants and use this to drive home the message that other schemes need to be well-advanced in their dashboard projects in order to connect in line with the DWP’s latest staging timetable.
FCA provides easement to its pensions dashboard connection rules
The Financial Conduct Authority has adjusted its dashboard rules for pension providers so they can connect by the dates in the DWP’s staged timetable (see Pensions Bulletin 2024/12) whilst not fully complying with the FCA’s unmodified rules. These dates are 30 April 2025 for firms with 5,000 or more relevant members and 31 January 2026 for firms with fewer than 5,000 relevant members.
The adjustment is to address concerns that providers may not be able to comply with the FCA’s rules (see Pension Bulletin 2023/31) for all of their relevant pension scheme members by these dates. Where a firm is able to connect to the dashboard on these dates in respect of at least 80% of its relevant pension scheme members and comply fully with certain requirements, the FCA expects the firm to do so. This transitional provision ends on 31 October 2026 by which time full compliance is required for all members.
IFoA reviews pensions advice in divorce cases
The Institute and Faculty of Actuaries has published a report which examines how actuaries, operating as ‘pension on divorce experts’ (PODEs) provide advice and calculations for certain pensions on divorce cases. The IFoA estimates that such reports are provided for less than 1 in 20 of the divorcing couples in England and Wales each year and are typically where there are significant DB pensions to consider.
This latest thematic review of actuarial work involved analysing a selection of divorce reports from actuaries and interviewing some of those actuaries. A survey of family lawyers who commissioned divorce reports from actuaries on behalf of their clients was also undertaken.
The review concluded that whilst the overall standard of the examples reviewed was good with sound levels of compliance with standards, there are examples where advice could be improved to help divorcing parties understand the implications more clearly. There was also an issue around the timely collection of data from pension schemes and providers, which is essential to enable the PODE to complete their work.
Comment
This is a niche area of pensions actuarial activity, with a valuable service being provided to a limited number of divorcing couples. The reports themselves can be complex and lengthy and a continuing challenge is to ensure that they are as user-friendly as possible to the recipients.
IFS suggests that DC pension pots should be subject to inheritance tax
An article published by the Institute for Fiscal Studies suggests that DC pension pots should lose their efficacy as inheritance tax planning vehicles, as one of three suggestions made to improve the current IHT system.
In Raising revenue from closing inheritance tax loopholes the authors say that the total exemption from IHT of DC pension pots has a cost in the low hundreds of millions now, but this is set to grow fast. They recommend that DC pension pots should be brought into the scope of IHT as their current exemption “serves no economic purpose and is clearly unfair”.
Comment
This suggestion is not new, the IFS having highlighted this issue in “Death and taxes and pensions” published in December 2022, but so far, there has been no indication from the Government that DC pension pots will be drawn within the IHT net. However, we suspect that this will attract the attention of a future Chancellor at some point.
PSIG looks to its future
The Pensions Scams Industry Group has launched a consultation in which it is asking its stakeholders, such as pension trustees, advisers and administrators, for views on the value provided by it, its possible future direction and how this could be achieved.
The Group, which has been in existence since 2014, is particularly known for producing and updating its Code of Good Practice (and related materials) on combatting pension scams (see, for example, Pensions Bulletin 2023/12). However, its activities range beyond this, including running a monthly Pension Scams Industry Forum (PSIF) which meets to share knowledge of known and emerging potential scam risks. PSIG is also a core member of the Pensions Regulator-led Pensions Scams Action Group.
The Group is a voluntary body with no source of funding, and as such, all of its work relies on the goodwill of those donating time or resources. It clearly thinks that this is no longer tenable and so after asking for views on the work that it does, sets out some options in which funding could be provided to support its work.
Consultation closes on 31 July 2024.
Comment
Regrettably, pension scams have been a feature of the pensions landscape since at least the 2008/09 economic downturn and were given further impetus by the 2015 freedom and choice pensions reforms. PSIG’s work has been hugely valuable in providing the tools to assist the industry combat this ever-changing threat. It, or something very much like it, will be needed for the foreseeable future.
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.
If you would like to receive the weekly pensions bulletin automatically by email please fill in this form.