- Pension Protection Fund consults on 2021/22 levy rules
- Winter is coming – new Job Support Scheme
- Autumn Budget scrapped
- April 2021 State pension uprating to go ahead despite the risk of falling average earnings
- Pension Schemes Bill starts over in the Commons
- Government extends temporary insolvency and company law measures
- HMRC announces further extension to easements on pension processes
- PLSA publishes vote reporting templates
Pension Protection Fund consults on 2021/22 levy rules
On 29 September the Pension Protection Fund published its consultation on the 2021/22 levy rules. The consultation had been expected to set key parameters for the next three years; this has now been changed in favour of a more flexible one year approach to enable the PPF to better respond in future years as the full impact of the Covid-19 pandemic emerges.
The overall levy intake in 2021/22 is estimated to be £520m, down £100m from the expected intake for the 2020/21 levy year. The PPF estimates that 89% of schemes will see a decrease in their levy, with smaller schemes and those already paying the maximum levy (“capped schemes”) benefiting greatly from the proposed changes.
The PPF’s central theme for the 2021/22 levy is an awareness of the challenges and uncertainties faced by many sponsoring employers; in particular, smaller employers who tend to have much larger levies as a proportion of their scheme liabilities. It has made the following proposals:
- Introduction of a small scheme adjustment, which reduces the uncapped risk-based levy of schemes with smoothed liabilities of less than £20m by 50%. A gradually decreasing reduction is applied to schemes with smoothed liabilities between £20m and £50m. The PPF expects that 41% of schemes will benefit from this adjustment
- Reduction of the risk-based levy cap from 0.5% to 0.25% of smoothed liabilities
- Recalibration of insolvency scores for sponsoring employers with credit ratings, using actual vs expected experience up to the end of 2020. This follows feedback to December 2019’s consultation on the move to Dun & Bradstreet as the PPF’s insolvency risk partner (see Pensions Bulletin 2020/13). It is not completely clear this is consistent with the recalibration of the other insolvency risk scorecards which used insolvency data collated before the outbreak of the pandemic
Other headline levy rules, including the levy scaling factor, are to remain unchanged. However, most schemes will benefit from the PPF’s updated assumptions for valuing liabilities which reflect improvements in buyout market pricing.
The PPF has used this year’s consultation to highlight changes in the near future. For example, it expects levies to rise in 2022/23 as the effect of Covid-19 more fully hits company accounts. It also intends to work with the Pensions Regulator on the provision of asset information as part of the Regulator’s new scheme funding regime. The PPF expects to draw up another set of single year levy rules for 2022/23, targeting a return to rules that are set for a number of years from 2023/24 onwards.
New Commercial Consolidator Guidance is to be published for the first time this year. The PPF is also considering a potential future consultation on the introduction of a “hybrid” levy methodology, reacting to the emergence of arrangements that have characteristics of consolidators but retain an element of sponsor covenant protection.
Consultation closes on 24 November 2020. As well as the usual online form, this year the PPF has made available an offline version which can be uploaded once complete. The PPF expects to publish final levy rules at the end of January 2021.
Comment
Levy payers will be delighted that, due to its current position, the PPF has been able to flex its financial muscles and cope with a lower levy intake this year. This is despite, as we have previously noted, it facing unprecedented levels of uncertainty from all sides, including the move from RPI to CPIH, legal challenges to the structure of PPF compensation, investment market movements and the level of insolvencies Covid-19 is likely to cause.
If the final estimate of £520m remains unchanged, the PPF would be limited by law to £650m total estimated levy intake for 2022/23, only £30m above the 2020/21 estimate. But these total levy intakes shouldn’t allow complacency to set in – there will be plenty of schemes, particularly larger schemes, that could still get a nasty rise in levies if they don’t continue taking levy mitigation actions, both now and even more so in future years.
Winter is coming – new Job Support Scheme
On 24 September, as part of the Winter Economy Plan, the Chancellor announced the replacement for the furlough scheme which ends on 31 October. The Job Support Scheme “is designed to protect viable jobs in businesses who are facing lower demand over the winter months due to Covid-19, to help keep their employees attached to the workforce”.
The idea is that employers will continue to pay employees who are working at least 33% of their normal hours for time worked, but the burden of hours not worked will be split between the Government (by way of a grant), the employer and the employee.
The Government will pay a third of hours not worked up to a cap of £697.92 per month, with the employer also contributing a third so that employees earn a minimum of 77% of their normal wages where the cap does not bite.
The Government grant will not cover national insurance contributions or pension contributions which will remain payable by the employer – presumably on pay in respect of hours worked, but this has yet to be clarified.
The Scheme will start on 1 November 2020 and run for six months. Full details are promised in guidance to be published shortly.
The parallel scheme for the self-employed is to continue, but along similar lines to the new Job Support Scheme for the employed.
Comment
Government support for minimum auto-enrolment pension contributions ended in July so we are not surprised that it does not feature in the new scheme. Shortly after the Treasury guidance is published we assume that the Regulator will extend its useful guidance on how pension contributions should be determined for those in this new scheme.
Autumn Budget scrapped
According to press reports HM Treasury has made it known that, because of the coronavirus pandemic, the Autumn Budget will not now go ahead. Although an Autumn Budget had been expected, its date had not been confirmed by HM Treasury.
Comment
A few months ago the Autumn Budget was expected to mark the start of some revenue raising measures with speculation mounting in recent weeks that pension tax relief could once more be in the Government’s sights. If it is, we are now unlikely to find out until the Spring.
April 2021 State pension uprating to go ahead despite the risk of falling average earnings
The Government has introduced a Bill that will enable the uprating of the State pension and the Pension Credit guarantee next April to take place in the event of earnings falling year on year in the three months to July 2020 – the period traditionally used to measure earnings growth for the uprating exercise. Provisional figures from the Office for National Statistics indicate that there has been a 1% fall in average earnings over this period.
The Social Security (Uprating of Benefits) Bill is a temporary and short piece of law, to be fast-tracked through Parliament, so that next year’s uprating only can continue to operate should the ONS confirm this month that average earnings have fallen. It needs to achieve Royal Assent by mid-November in order that the annual uprating exercise for social security benefits can remain on track.
Comment
The Bill will enable the Government to carry out an uprating review in the face of falling earnings, but any increase put forward under its provisions will be entirely at the Secretary of State’s discretion. So, whilst it will enable the Government to continue to operate the triple lock policy for state pension increases (the greater of earnings growth, CPI inflation and 2.5%), it will also allow the Government to do something entirely different for next April.
Pension Schemes Bill starts over in the Commons
Progress on the Pension Schemes Bill resumes in earnest next week with Second Reading in the Commons now due to take place on 7 October. Separately the pensions minister, Guy Opperman, has been reported as saying that he is very confident that the Bill will complete its Parliamentary stages by the end of the year.
Comment
Second Reading will be the first opportunity for MPs to express their views on what is in the Bill and what they think is missing from it. We may also find out whether the Government is minded to accept any of the four non-Government amendments pushed through in the House of Lords at Committee stage (see Pensions Bulletin 2020/27).
Government extends temporary insolvency and company law measures
On 24 September the Government announced the extension of temporary measures contained within the Corporate Insolvency and Governance Act 2020 whose purpose is to protect businesses from insolvency during the coronavirus pandemic.
The Corporate Insolvency and Governance Act 2020 (Coronavirus) (Extension of the Relevant Period) Regulations 2020 (SI 2020/1031) extend the duration of some of the temporary measures introduced by the Act beyond their intended 30 September 2020 expiry date. Specifically, they extend the relaxation of company annual general meeting (AGM) requirements to 30 December 2020, extend the restrictions on use of statutory demands and winding up petitions to 31 December 2020, extend the modifications to moratorium provisions and temporary moratorium rules to 30 March 2021 (but see below), and extend the small supplier exemption from termination clause provisions to 30 March 2021. The remaining temporary provision (suspension of liability for wrongful trading) is not being extended and expired on 30 September 2020.
However, the Corporate Insolvency and Governance Act 2020 (Coronavirus) (Early Termination of Certain Temporary Provisions) Regulations 2020 (SI 2020/1033) bring to an end on 1 October 2020 (subject to certain saving provisions) an important aspect of the moratorium rules introduced by the Act – ie the ability of the insolvency practitioner to disregard aspects of the company’s financial position that relate to coronavirus when considering whether the company is rescuable for the purposes of having a moratorium. The regulations also terminate at that date the relaxation of the conditions for extending, monitoring and terminating of the moratorium on the grounds that any worsening of the company’s financial position, because of coronavirus, should be disregarded.
Separate regulations made under the Coronavirus Act 2020 extend the moratorium on the eviction of tenants of commercial properties for non-payment of rent from 30 September 2020 to 31 December 2020.
Comment
The extension of these temporary measures is not surprising. Whilst their extension may be of little consequence for many pension schemes, DB trustees may wish to use this latest news as a trigger to review the potential impact of those measures within the Corporate Insolvency and Governance Act 2020 that could have a bearing on employer support, especially where the business is known to be under strain as a result of the economic effects of the pandemic.
HMRC announces further extension to easements on pension processes
HMRC’s latest pension schemes newsletter reports on a number of matters, starting with further extensions to some registered pension scheme process easements announced earlier in the year in order to help administrators during the coronavirus pandemic. In June many of these easements had been given an end October cut off (see Pensions Bulletin 2020/27). HMRC is now keeping these easements in play until 31 March 2021.
The newsletter also contains some items on relief at source and HMRC’s Managing Pension Schemes service, including a warning that those who, over the last three years, have not signed into either the Pension Schemes Online service or its Managing Pension Schemes service, will likely have their credentials deleted shortly unless they do sign in.
PLSA publishes vote reporting templates
The Pensions and Lifetime Savings Association has published vote reporting templates to help pension schemes, investment managers and platform providers disclose how they enact their shareholder voting rights.
Recent changes to the law, which come into effect in October, mean pension fund trustees must demonstrate how they are acting as effective stewards of their assets. An important way to demonstrate this is to disclose how they are using their voting rights to support or sanction corporate behaviour among their investee companies.
Importantly, the new regulations require trustees to disclose not only their own voting behaviour, but also the votes of investment managers acting on their behalf.
To promote consistent and uniform reporting of this information, two different sets of guidance have been published to accompany the templates – one for pension schemes and the other for their underlying investment managers.
The templates are designed to be used as companions to the recently published PLSA implementation statement guidance (see Pensions Bulletin 2020/32), which includes a specific chapter on how to produce clear, effective and meaningful disclosures on voting behaviour in trustees’ implementation statements.
Comment
As with all industry-wide templates, if these are widely adopted (and there is no reason to think they won’t be) then this should ultimately reduce the costs of compliance for pension schemes.
