- Royal Assent for the Pension Schemes Act 2021
- Government consults on implementation as it announces that the minimum age to access retirement benefits will increase to 57
- GMP equalisation – industry guidance on tax issues published
- Cross-border guidance recast
- Government prepares the ground for further extension of insolvency and company law temporary easements
- “TPR talks” on pension scams
- FRC strategy plan reveals delay in reviewing actuarial standards
Royal Assent for the Pension Schemes Act 2021
Royal Assent was signalled for the now Pension Schemes Act 2021 in the House of Lords on 11 February. Welcoming this important addition to pensions legislation, the pensions minister Guy Opperman called 11 February “a historic day for UK pensions” before going on to outline some of the key measures in the Act. Charles Counsell, the Chief Executive of the Pensions Regulator, expressed his pleasure in the Bill becoming law and promised to “work closely with the industry and other stakeholders to produce the necessary codes and guidance to ensure the measures [contained within the Act] are introduced in an effective way”.
David Fairs, Executive Director of Regulatory Policy, Analysis and Advice at the Regulator, published a blog in which he took a “whistle-stop tour” of the Act’s many provisions, mentioning in passing that the Regulator’s second scheme funding code consultation will take place in the second half of 2021 and that ‘later in spring’ the Regulator will be launching its own climate strategy.
When the Bill completed its passage through Parliament in January LCP produced a short summary and a more detailed guide covering the provisions of this important Act. We also launched a Pension Schemes Act insight hub setting out further comments and thoughts from our technical experts on what this Act will mean.
Comment
Royal Assent is a significant moment in the life of any Parliamentary Bill, but in a sense only from now does the real work begin on this Act, of filling in all the necessary detail through regulations, guidance and other matters. The DWP, Pensions Regulator and MaPS now have a very full agenda to deliver. Some is likely to be delivered quite soon, some later, with the pensions dashboard likely to trail in last of all.
Government consults on implementation as it announces that the minimum age to access retirement benefits will increase to 57
On 11 February HM Treasury launched a consultation confirming its intent to increase the minimum age “NMPA”, from 55 to 57, at which retirement benefits from registered pension schemes can be accessed (outside the ill-health rules), and seeking comment on implementation details.
The increase will occur, as planned, on 6 April 2028. So those born before 6 April 1971 (ie now age 50 so already age 57 by 2028), are not affected. Those born after 6 April 1971 may have to wait up to an extra two years to access their benefits, unless they are in the limited group that will have a protection (see below). Members of the armed forces, police and fire services will not see their access age increase in their public sector schemes.
The first part of the consultation document sets out the rationale for the increase, but it is the second part, dealing with implementation and protections, which is of interest. In it the following is proposed:
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A member of any registered pension scheme (whether occupational or non-occupational) who has a “right under the scheme rules” at 11 February 2021 to take pension benefits before 57 will retain this right in the scheme
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Those with existing “old” protected pension ages will retain these protections (these are from the introduction of the A day regime, when the minimum age was set at 50 on 6 April 2006 and when it rose to 55 on 6 April 2010 – and apply dependent on a scheme’s rules as at 10 December 2003)
In a nod to the ‘freedom and choice’ tax rules those protected against the new increase will not lose their protection if they:
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Draw benefits under their scheme before 57 even if they are still working (in contrast to the position for those with existing protected ages if below age 50)
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Stagger when they take (ie crystallise) their benefits from the scheme (again in contrast to the position for all those under the older protections who have to take all their benefits on the same day)
It is also proposed that if a member qualifies for the protection in a scheme, this will apply to all benefits in the scheme (so including future accrual and transfers-in).
However (and as for the older protections), those protected against the increase will not retain their protection on transfer to another pension scheme unless it is a so-called “block transfer”. If this term is defined in law in the same way as for those currently protected, there are various pitfalls.
Consultation closes on 22 April. The Government then intends to publish draft legislation in summer 2021 and to legislate for the increase in the subsequent Finance Bill.
Comment
Following some six or so years of silence on the issue, this consultation is not a surprise, given the statement in the House of Commons last September that this increase “will be legislated for in due course” (see Pensions Bulletin 2020/37).
At the policy level (in the context of its confirmed decision to delay earliest access by up to two years for those now 50 or under), the Government could have chosen the “simpler” route of no protections; the decision to offer protection seems fair, but it brings challenges, as we know from the older protections.
The framing of the ‘before 57 protection’ is by reference to what rights are given by a scheme’s rules as at 11 February 2021: but rules come in a myriad of forms, so there is a challenge (for legal advisers) of interpretation (without draft legislation) and some prospect of a ‘rules lottery’ centred around wording.
And this is a matter of some urgency: members under age 50 taking actions now, such as transferring their benefits from one scheme to another, could unwittingly lose an (uncertain) protection. Similarly, trustees could take actions that lose some members the (uncertain) protection.
There are a number of pitfalls in the operation of the “old” protections. Until we see the draft legislation it will not be clear whether they will be repeated. For example, the condition that a member cannot have been a member of the receiving scheme for more than 12 months in order for the block transfer protection to apply is problematic in the context of bulk DC transfers to master trusts.
Past experience is that rules giving a “right” to early access are more prevalent in the DC world than DB. This time round the protection regime brings in contract-based schemes, not just trust-based schemes. The challenges will have important immediate implications for providers and advisers – and for consolidation issues. We watch this space with interest on the outcome of the consultation.
GMP equalisation – industry guidance on tax issues published
In a welcome move, a good practice guidance note on tax issues by the industry group looking into the various practical issues surrounding GMP equalisation exercises has been published.
After some introductory sections, this lengthy but very accessible industry guidance looks at the benefit adjustments emerging from a GMP equalisation exercise using the dual record-keeping approach. These are then examined from four perspectives for those who will receive adjustments – before the member’s benefits come into payment, after they come into payment, any necessary arrears for those whose benefits are already in payment and previous and future lump sum payments.
In each area the tax issues are explained clearly along with the group’s reading of HMRC’s newsletters published in February and July last year (see Pensions Bulletin 2020/08 and Pensions Bulletin 2020/30 respectively). However, although it does consider the content of the second newsletter, the group intends to provide further guidance in relation to lump sum payments in its next iteration.
GMP conversion is given a brief mention, but unsurprisingly, as HMRC has not yet tackled explaining or addressing the pension tax issues arising under this equalisation method, and that there is now a separate industry group looking into this option, it only serves as a marker. Separately, HMRC has confirmed at an industry forum that until it has considered conversion further and determined if ministers want to change the legislation, “the existing guidance will apply”.
The industry guidance concludes with a helpful resume of various pensions tax protections and how equalisation might affect them and two template member communications. The first template is to inform impacted members of the need to consider the tax effects of recalculated benefit crystallisation events and any actions that might result, whilst the second informs those receiving an arrears payment how it can be split across tax years if this would assist the member in paying no more additional income tax than is necessary.
Comment
The group has had to put together two very complex subjects – GMP equalisation and pensions tax – and has managed to deliver guidance of remarkable clarity, with a mindset to identifying practical approaches to challenges.
The group has spent some time considering the HMRC guidance issued last year, not just to explain the technical aspects, but to collate and share good practice ideas to deal with the complexities: a great service to those who need to get to grips with this subject. This industry guidance is likely to become a very welcome reference point for those undertaking equalisation exercises.
Cross-border guidance recast
The Pensions Regulator has updated some of its guidance for cross-border schemes. Previously called “Guidance in the Event of a No deal Brexit” it has now been renamed “Arrangements following the end of the Brexit transition period”. The previous guidance was concerned with the EU law on cross-border schemes, which had been implemented in the UK, but was completely repealed with effect from 31 December 2020.
The new guidance, by contrast, is written by reference to any overseas country, making only the occasional mention of the EU.
UK-based cross-border occupational pension schemes
These schemes are told that UK law does not prevent an employer in another country contributing to the scheme, but the rules of the other country should be checked to see if that country allows this to happen and whether there are any restrictions.
UK employers contributing to occupational pension schemes based outside the UK
These employers are also told that they may be able to continue to contribute to such a scheme but should take steps to assess whether this is possible, including checking with the regulatory body in the overseas country and potentially taking legal advice. From the UK’s perspective, such non-UK schemes must be established under trust, and have a trustee or a trustee appointed representative who is UK resident. The scheme may also need to be registered with HMRC in the UK for tax purposes.
Comment
From an occupational pensions perspective our exit from the EU has been one of ‘no deal’ and so inevitably the guidance treats EU countries no differently from other overseas countries.
It is now clear that the few schemes operating cross-border within the EU with some UK participation will need to take it upon themselves to see whether they can continue functioning as before and that in this regard what will be relevant is the laws of the EU states they are operating in and the outlook of their pension regulators, rather than anything laid down at the EU level.
Somewhat confusingly, the Regulator’s initial guidance for EU-legislated cross-border schemes remains live on its website, but one imagines that it is only a question of time before it is adjusted or taken down.
Government prepares the ground for further extension of insolvency and company law temporary easements
Draft regulations have been published which extend by a year the ability of the Government to continue to legislate for temporary easements to insolvency and company law introduced by the Corporate Insolvency and Governance Act 2020.
The Act delivered, amongst other things, some temporary modifications and easements to insolvency and company law, in connection with mitigating the impact on businesses of the pandemic. In addition, it provided a power for these modifications and easements to be extended by regulations. However, there is a 30 April 2021 backstop. The draft regulations extend this backstop to 29 April 2022.
The extension has been necessitated by the continuing pandemic and enables, for example, the Government to further suspend the wrongful trading provisions (see Pensions Bulletin 2020/51).
Comment
Although the draft regulations by themselves do not directly affect any of the temporary easements the Government put into place last year, they do provide a good indication that the Government intends to further extend them.
Pension schemes are generally not directly affected by these extensions, but DB scheme trustees may wish to bear in mind that the amount of assets available to a scheme following the insolvency of an employer could change as a result of the measures and temporary easements available within the Corporate Insolvency and Governance Act 2020.
“TPR talks” on pension scams
In the first of what promises to be a series of podcasts from the Pensions Regulator, Nicola Parish, Executive Director of Frontline Regulation, is in conversation with Margaret Snowdon, Chair of the Pension Scams Industry Group (PSIG), on a number of issues relating to pension scams.
Amongst other things they touch on the scale of the problem, the material underreporting, and voice their support for plans by Guy Opperman to write to those pensions providers who are not currently sharing market intelligence about scams through PSIG, asking them why they aren’t. They also discuss the possibility of the PSIG’s Code being put on a statutory footing as part of the changes to the transfer legislation following on from the Pension Schemes Act 2021.
The Code itself is being updated, with the biggest change being its re-arrangement into a practitioner’s guide, a technical guide and a resource pack. PSIG is hoping to publish it in March. As for Project Bloom, the scam-fighting multiagency group, there is a possibility of it being put on a statutory footing, with dedicated funding financed either through an industry levy or by Government backing.
Comment
This 26-minute podcast is well worth listening to for those with an interest in pension scams and what actions may be taken in the near future by the authorities and PSIG.
FRC strategy plan reveals delay in reviewing actuarial standards
The Financial Reporting Council has published a draft strategy and plan and budget for 2021/22 in which it sets out further details of its transformation ahead of promised legislation to replace it with a new Audit, Reporting and Governance Authority (ARGA) – possibly happening in 2023.
There will be a significant cost increase over 2021/22, half of which funds FRC’s development and maturity and half the establishment of the UK Endorsement Board following the UK’s exit from the EU. Some of the increase is for the actuarial regulation role undertaken by the FRC and this is financed by three parties including occupational pension schemes with 5,000 or more members.
Comment
There is no further news on who is to take over the FRC’s role in regulating actuaries. The FRC’s promise last July (see Pensions Bulletin 2020/30) to launch in 2020/21 a post-implementation review of the Technical Actuarial Standards (which the FRC recast in 2016), has been put back to 2021/22.
