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Pensions Bulletin 2024/21

Our viewpoint

Parliament dissolved as General Election called

Parliament was dissolved on 30 May 2024, following Rishi Sunak’s calling of the General Election last week.  As is customary, there was a very short window in which some Bills were rushed through.  They included the now Finance (No. 2) Act 2024, which insofar as pensions policy is concerned contains a minor pensions tax adjustment to do with CDC schemes (see Pensions Bulletin 2024/16).

Other Bills with a pensions aspect to them were lost such as the Pensions (Special Rules for End of Life) Bill (see Pensions Bulletin 2024/04) and the Economic Activity of Public Bodies (Overseas Matters) Bill (see Pensions Bulletin 2023/26).  The State Pension Age (Compensation) Bill (see Pensions Bulletin 2024/17) that was waiting on its House of Commons Second Reading was also lost.

There is a great deal of unfinished pensions policy business that the next administration will need to decide what to do with, including all the DB and DC initiatives that the current Chancellor was driving forward in tandem with the DWP under his Mansion House heading.  We had been expecting this July’s Mansion House speech to provide some updates.  The event may still go ahead, but if there is a new Chancellor there are likely to be new priorities.

The unexpected early calling of the General Election has also thrown up challenges in a number of pensions areas.  The most obvious is the new DB funding regime, where the intention was for the DWP to lay the necessary Code of Practice before Parliament in mid-June so that it would be in force by 22 September when the new regime comes into force.  It is now not clear what is to happen.

And the resolution of various flaws with the new pensions tax law that HMRC highlighted in April (see Pensions Bulletin 2024/14) and on which certain individuals are waiting to be fixed before taking or transferring benefits, cannot now be delivered until after ministers are in place following the General Election in order to sign off the necessary regulations.

Comment

There is always an element of hiatus on regulatory matters when a General Election is called, and this one is no exception.  And with the summer recess likely to follow on shortly after the King opens the new Parliament, it may be some time before it becomes clear what is to happen with all this unfinished business.  See LCP partner David Fairs’ blog for further commentary in this area.

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Conservatives pledge “Triple Lock Plus” income tax personal allowance

In one of the first directly pensions-related announcements since the calling of the General Election, it has been reported that the Conservatives, if they win the General Election, will increase the tax-free personal allowance for pensioners in line with the triple lock already in place for the state pension, ie the highest of the increase in average earnings, prices, or 2.5%.

The standard personal allowance has been £12,570 since the 2021/22 tax year and is due to remain frozen at this level until 2027/28.  As a result of this freeze there have been concerns that the impact of the existing triple lock increases on the state pension (currently around £11,500 pa) mean that soon it will exceed the personal allowance, resulting in pensioners whose only income is the state pension paying income tax on part of it and, as a result, likely being drawn into having to provide tax returns.

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Norton inquiry draws to a close

One casualty of the dissolution of Parliament is that the House of Commons Work and Pensions Committee has had to bring to an early close, its inquiry into the lessons that can be learned from the collapse of the Norton pension schemes.  The inquiry was launched in July 2023 (see Pensions Bulletin 2023/30), but the now former MPs were not able to finalise their report in time.  So instead, they have written a letter to the Secretary of State for Work and Pensions, in which they have summarised the key points raised in the inquiry.  These include the following:

  • Whether the Pensions Regulator’s remit should be extended to cover pension scheme administrators – this is an issue that the Regulator is currently examining with the DWP
  • Whether the Regulator should have rule-making powers – this had been recommended as long ago as 2019, but on which the DWP has yet to reach a landing
  • The funding of the Pensions Ombudsman and whether some of its funding should be demand-led – as suggested by the current Ombudsman in response to concerns that determinations were taking too long
  • What changes could be made to the Fraud Compensation Fund and when payments can be made from it – the Norton case having brought into focus a number of practical issues, including the differences in ability to pay compensation quickly between the FCF and other compensation schemes such as the Financial Services Compensation Scheme

The hope is that this letter should help identify areas requiring attention and possible policy change in the new Parliament.

Comment

This useful document is pretty close to being an actual report from the Committee and although shorn of the usual pithy recommendations and attendant publicity, and presumably not needing a formal response from the Government, it does provide some food for thought.

Clearly things went very wrong in the Norton case and although a scam of this nature should not reoccur (due to tightening up of inexplicably lax scheme registration processes and the 2021 Conditions for Transfers regulations), other sorts of scams will occur.  When they do it is important that the Regulator, Ombudsman and the Fraud Compensation Fund have the necessary powers, funding and rules to be able to act efficiently in order to serve the public interest.

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Pensions minister sets out next steps on fiduciary duty

The now outgoing Work and Pensions Committee has been looking into trustees’ fiduciary duties in relation to pension investment decisions since February 2024 (see Pensions Bulletin 2024/06) when it took evidence from a number of people.  The Committee has now published a reply by the current pensions minister, Paul Maynard, to an earlier letter which contains an update on the DWP’s plans in this area.

The reply includes the following plans:

  • An outline of the planned content for two roundtables on fiduciary duty (the first of which happened and the second of which has now been postponed)
  • Supporting the Pensions Regulator to develop and implement a trustee register
  • A Treasury consultation on the Competition and Market Authority’s recommendation that investment consultants be brought within the FCA’s regulatory perimeter (this consultation had been promised for late 2019 but has yet to emerge)
  • A post-implementation review of the Taskforce on Climate-related Financial Disclosures (TCFD) reporting requirements in the second half of 2024, working closely with the FCA and the Pensions Regulator.  This includes whether to bring more schemes into scope, and the effectiveness of climate scenario analysis models.  However, the DWP does not believe that the Government should mandate which models should be used by pension schemes

Comment

Now that Parliament has been dissolved, so has all its Select Committees.  Only after the new Parliament is opened can the process of creating new committees get underway and it will be entirely up to them which investigations they continue with and which they drop.  And as to the DWP’s plans in this area, they have to all be up in the air thanks to the General Election.

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Changes to how the Pensions Ombudsman operates set out

Robert Loughlin, the recently appointed Chief Operating Officer at the Pensions Ombudsman, has highlighted plans to tackle the Ombudsman’s historical caseload and reduce waiting times – an issue highlighted in the latest Corporate Plan published in January (see Pensions Bulletin 2024/01).  These plans have arisen out of an operating model review and are a mixture of small changes that get in the way of day to day working and “more revolutionary” changes that will involve a significant shift in the way that the Ombudsman works.

The following three areas will be prioritised this year:

  • Resolution Team changes – the conditions to investigate a complaint will be tightened and will require complainants to demonstrate that they have exhausted the respondent’s formal complaints process (such as an occupational pension scheme’s internal dispute resolution procedures)
  • Expedited Determinations – the use of short-form decisions and Determinations will be extended for appropriate cases at all stages of the Ombudsman’s processes.  This will bring forward decision-making and reduce the number of handovers between different teams at the Ombudsman
  • Acceptance thresholds – there will be an exploration of whether there are certain categories of complaints that are more appropriately dealt with by other organisations and whether a de minimis threshold should be applied in some circumstances

The full programme of changes is to be delivered over the next three years, with a target set of achieving an improved position over the next 12-18 months.

Comment

These changes appear entirely reasonable, but it is not clear what levels of improvement they will deliver to waiting times and in tackling the backlog.

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FRC issues CDC technical actuarial standard

The Financial Reporting Council has announced the publication of Technical Actuarial Standard 310: Collective Money Purchase Pensions (TAS 310).  This new standard follows a consultation launched in May 2023 (see Pensions Bulletin 2023/19) together with extensive industry engagement in the months that followed.

The FRC has taken into account industry concerns that the draft standard added complexities and significant costs to the set up and management of CDC schemes, and settled on a more proportionate set of rules which must be followed by actuaries carrying out work on CDC schemes from 30 September 2024.

The FRC has also re-issued its guidance on applying proportionality when complying with TASs generally in order to add two examples relevant to TAS 310 at the end.

Comment

Although the expected draft regulations for multi-employer CDC schemes are probably now held up by the upcoming general election and there will be further delays before new schemes can be set up, we still welcome the FRC’s new standard which helps clarify the framework within which actuaries will provide advice in relation to CDC schemes.

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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.

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