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Royal Assent for the Finance Bill
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Royal Assent for the Dormant Assets Bill
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Private Members’ pensions Bills – an update
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Climate risk – Pensions Regulator publishes step-by-step guide to compliance
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Calls to action in HMRC Newsletter 137
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Statutory LGPS investment guidance to become lawful following Supreme Court defeat
Royal Assent for the Finance Bill
The Finance Bill that followed on from the October 2021 Budget has now received Royal Assent. The Finance Act 2022 contains three changes to pensions tax law as we previously reported in Pensions Bulletin 2021/47:
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An increase in the age at which pension benefits can normally be first accessed (the normal minimum pension age) – from 55 to 57 on 6 April 2028, along with certain protections against this increase for some individuals
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An extension to the notice and payment deadlines for mandatory Scheme Pays so that members can access this right later (and without late payment penalty) – intended for use where there has been a retrospective change of facts on annual allowance usage
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Enabling provisions for regulations to mitigate any adverse tax consequences that would otherwise arise as a result of the application of the ‘deferred choice underpin’ method of rectifying discrimination in public service pension schemes (the McCloud judgment having found such discrimination to be unlawful)
The legislation relating to all of the above has not altered from when the Bill was introduced to Parliament in November 2021.
Consultation on regulations associated with the mandatory Scheme Pays extension has already begun (see Pensions Bulletin 2022/07).
Comment
The first of these changes – the increase in normal minimum pension age – is the most significant. Although the increase doesn’t happen for some time, the law has now been set. Everyone born after 5 April 1973 is potentially affected, with most having to wait an extra two years before the earliest point at which they can start to access retirement income. Further detail of the transition from 55 to 57 is awaited with regulations almost certainly needed.
Royal Assent for the Dormant Assets Bill
The Dormant Assets Bill, introduced to Parliament last May (see Pensions Bulletin 2021/21), has now completed its journey through Parliament and received Royal Assent on 24 February 2022. The Dormant Assets Act 2022 expands the Dormant Assets Scheme established by a 2008 Act, in a number of areas.
Until now, pension assets have fallen outside the Scheme. However, under the 2022 Act, eligibility under the expanded Scheme is extended as follows:
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To certain personal pension scheme benefits that have become payable*
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To the proceeds of annuities with a guaranteed payment term and deferred annuities*
*in both cases where any of a number of dormancy conditions have been met.
The Act also contains a power to extend the Scheme in future to cover new dormant assets, which could include other pension assets.
The Department for Digital, Culture, Media & Sport, noting Royal Assent, said that the measures contained within the Act will release £880m (over time) from dormant assets in the insurance, pensions, investment and wealth management and securities sectors to boost opportunities around the country. A consultation is promised for the summer to consider which good causes should benefit from the expanded Scheme.
Comment
The 2022 Act should enable insurers to pass a certain proportion of pension assets that have been left unclaimed by policyholders or their potential beneficiaries to the Reclaim Fund for onward distribution, whilst at the same time transferring claim rights from the insurer to the Fund. For now, occupational pension schemes are outside the scope of the Scheme.
Private Members’ pensions Bills – an update
Two Private Members’ Bills relating to pensions were due to be debated in the House of Commons on 25 February 2022. It was good news for one, but disappointment for the other.
GMP conversion
The Pension Schemes (Conversion of Guaranteed Minimum Pensions) Bill (see Pensions Bulletin 2022/05) had its Third Reading and, as before, attracted widespread support. It now makes its way to the House of Lords where it seems that it needs to complete all its stages and achieve Royal Assent before Parliament is pro-rogued ahead of the Queen’s Speech this May.
In a letter sent by Guy Opperman to Matt Rodda MP, who had raised a number of questions including pensions tax issues around GMP conversion, there is a promise that DWP “will work closely with HMRC on the wider issues associated with the conversion method”.
Auto-enrolment extension
By contrast it looks like it is curtains for the Pensions (Extension of Automatic Enrolment) Bill which proposed certain extensions to the current auto-enrolment law.
The Bill was published on 24 February 2022, just ahead of its scheduled Second Reading debate the following day. However, it failed to be called for debate and so is awaiting a date in future when it might be called which now seems unlikely.
The Bill itself turned out to be a simple one-page Bill which proposed the following with immediate effect:
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A reduction from 22 to 18 in the lower age limit from which the employer duty to auto-enrol applies
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The removal of the lower limit of the qualifying earnings band (currently £6,240 pa) within which minimum contributions are determined, so that contributions are calculated on all earnings up to the upper limit of the band (currently £50,270 pa)
It did not propose the removal of the £10,000 pa earnings trigger, despite that being hinted at when the Bill had its First Reading in January (see Pensions Bulletin 2022/01).
Speaking in the debate on the GMP conversion Bill, pensions minister Guy Opperman said that “in the fullness of time” the Government will bring forward or support legislation to take the recommendations of the 2017 auto-enrolment review forward as there is no real way in which the above auto-enrolment extension Bill will get through both Houses in the limited time available before the Queen’s Speech in May.
Comment
It's good news for the GMP conversion Bill, but the timetable to Royal Assent is tight. And even better news that DWP is working with HMRC on the pensions tax issues as these will come into sharp relief once the revised DWP law is in place.
But the wait continues for the 2017 review to be implemented. Possibly in the next Parliamentary session; quite possibly not. The likely failure of this session’s auto-enrolment extension Bill is a disappointment, but the truth of it is that it was too far down the list of Private Members’ Bills to have a realistic chance of making it into law in the limited time available.
Climate risk – Pensions Regulator publishes step-by-step guide to compliance
The Pensions Regulator has published an example of the sort of process that trustees of a pension scheme might undertake where they are subject to the DWP’s legislation and statutory guidance on the governance and reporting of climate-related risks and opportunities.
This follows calls for the Regulator to provide more information and examples during consultation on its own guidance that it finalised in December 2021 (see Pensions Bulletin 2021/53). The example itself forms a new appendix to the December guidance.
The example relates to a fictitious pension scheme and shows how the trustees, after some initial considerations, go about meeting the various requirements – on governance, strategy and scenario analysis, risk management, metrics and targets – and then go on to document their approach and complete and publish their report.
Comment
The example, which relates to a scheme with DB and DC sections, is expressed in somewhat generic terms, such that aspects of the processes suggested should strike a chord with those needing to undertake this work. It is also apparent, on reading, how involved such a process is going to be
Importantly, this is just an example – there being no suggestion that its content will guide the Regulator in assessing whether a scheme is in compliance with its climate risk and reporting duties. However, it does add another layer of detail on to the December guidance. What with the regulations and statutory guidance, this is fast becoming a crowded area of written official material, making the role of the climate adviser ever more vital to guide trustees through what they need to do.
Calls to action in HMRC Newsletter 137
HMRC’s latest newsletter contains six items of which three are worth highlighting.
Public sector scheme members with fixed or enhanced protection
Public sector scheme employers and administrators are reminded that they must engage with members who hold some form of fixed or enhanced protection from lifetime allowance charges as these members will need to take action before 1 April 2022 to avoid losing those protections.
This includes those members who lost such protections solely as a result of joining the Government’s new career average schemes in 2015. In 2023 they are to be returned to their legacy schemes for the period 1 April 2015 to 31 March 2022 as part of the “deferred choice underpin” solution chosen to remedy the treatment found to be discriminatory by the McCloud judgement (see Pensions Bulletin 2021/06), and will be treated as if they had not lost their protections on the above account. However, they will lose their protections if they accrue benefits under the reformed scheme from 1 April 2022.
Further guidance is promised, at a later date, on what members need to do to reinstate their protection as a result of the 2023 McCloud remedy.
Digitisation of relief at source
The newsletter also contains an invitation to join a new working group being set up to help inform the design of the new digital service being developed to improve the tax administration for schemes operating a relief at source system (see Pensions Bulletin 2021/44).
Managing pension schemes service
Finally, the newsletter confirms that the date from which scheme administrators will be able to migrate their pension schemes from HMRC’s current Pension Schemes Online service to its new Managing Pension Schemes service will be 11 April 2022. Further details are given, some of which were published in HMRC’s previous newsletter (see Pensions Bulletin 2021/49). There is also a reconfirmation that from 14 March 2022 it will no longer be possible to compile and submit any new Accounting for Tax (AFT) returns for any quarter from 1 April 2020 on the Pension Schemes Online service. There are also some other matters related to such AFT returns.
Comment
The first article reflects a looming deadline for those impacted, and hopefully public sector schemes are on top of the issue. The last article is of much wider application and requires early action by scheme administrators, especially by those who need to submit an AFT return for the quarter ending 31 March 2022 (the deadline for which is 15 May 2022).
Statutory LGPS investment guidance to become lawful following Supreme Court defeat
On 22 February 2022 a clause was added to the Public Service Pensions and Judicial Offices Bill that will enable the Government to issue guidance to those that administer public sector pension schemes, including the Local Government Pension Scheme (LGPS), that they may not make investment decisions that conflict with the UK’s foreign and defence policy.
The clause, sponsored by Conservative MP Robert Jenrick and backed by many others, came as the Bill was reaching its closing stages in Parliament. However, the clause was not without controversy and required lengthy debate and being put to the vote before it was accepted into the Bill.
The clause was set against a background of a number of public sector pension schemes coming under pressure to disinvest from certain assets, particularly with respect to those linked to Israel.
The Bill itself is intended to ensure equal treatment for all members within each of the main public service pension schemes, implementing the Government’s decisions following the Court of Appeal judgments in the McCloud and Sargeant cases. It will also raise the mandatory retirement age of judicial office holders from 70 to 75.
Comment
This new clause would seem to bring to an end the successful challenge mounted to 2016 guidance issued by the Government to the LGPS. In 2020 this guidance was found by the Supreme Court to be unlawful, after a campaign mounted by Palestine Solidarity Campaign Ltd (see Pensions Bulletin 2020/19).
