- National Audit Office reports on its investigation into the British Steel pension scheme
- The Divorce, Dissolution and Separation Act 2020 comes into force
- Royal Assent for the Public Service Pensions and Judicial Offices Act 2022
- Second set of CDC regulations laid before Parliament
National Audit Office reports on its investigation into the British Steel pension scheme
The National Audit Office has published a report on its investigation into the circumstances surrounding the 2017 restructuring of the British Steel Pension Scheme, focussing on the advice received by those who chose to transfer their benefits out of the scheme, the poor financial choices that many made and the extent to which they are being compensated for their losses.
This is the third report on the fallout from the Scheme’s restructuring and its publication coincides with the House of Commons Public Accounts Committee announcing an inquiry into the activities that the Financial Conduct Authority has undertaken to regulate financial advice in the Scheme’s case, its plans for supporting steelworkers who may be entitled to redress, and the extent to which compensation is being delivered.
The NAO acknowledges that since the British Steel case the FCA has put in place measures aimed at improving the regulation of the pensions advice market, but sets out three matters for consideration aimed at strengthening preventative measures, on the grounds that prevention is better than compensation after the event. They are as follows:
- With reference to the 2015-introduced pension freedoms, the FCA and HM Treasury should consider whether there are lessons to be learned about the way they work together to identify and mitigate any risks to consumers as policy is being developed
- The regulators and oversight bodies with responsibilities for protecting pension scheme members should consider what further changes can be made to minimise the risks associated with large numbers of members transferring out of a scheme
- The FCA, the Financial Ombudsman and the Financial Services Compensation Scheme should reflect on their experiences in trying to reach affected Scheme members to understand what worked well and what could be improved in future. This analysis should also feed into how they operate the new joint working framework, aimed at addressing similar issues that could have a wider impact across the financial services industry
Comment
The British Steel case exposed the lack of regulatory protection for what turned out to be many scheme members placed in a vulnerable position at the same time as a direct result of the restructuring. Whilst policymakers had required ‘appropriate independent advice’ to be obtained before transferring, it became clear, after the event, that the quality of much of this advice was severely lacking.
The Divorce, Dissolution and Separation Act 2020 comes into force
Regulations have been laid before Parliament bringing into force on 6 April 2022 an Act of Parliament that makes it easier for couples to bring the legal aspect of their relationship to an end. Under the new system couples will not need to prove fault, or have a prolonged period of separation, before a divorce can be granted.
The Divorce, Dissolution and Separation Act 2020 received Royal Assent in June 2020 (see Pensions Bulletin 2020/27), but its implementation was delayed to allow for the necessary changes to court, online and paper processes relating to divorce to take place.
Comment
The Act itself has little impact on how pension assets can be taken into account on divorce – whether through offsetting, sharing or earmarking – but there is a risk that the streamlined divorce process provided for under this Act, including online financial remedy applications, could result in fewer cases where pension wealth is taken into account at the time of divorce leading to greater unfairness in this area than at present. This is explored in a recent paper by LCP partner Steve Webb and specialist barrister Rhys Taylor.
Royal Assent for the Public Service Pensions and Judicial Offices Act 2022
An Act of Parliament to implement, in public service pension schemes, the Government’s decisions following the Court of Appeal judgments in the McCloud and Sargeant cases and raises the mandatory retirement age of certain judicial office holders from 70 to 75, received Royal Assent on 10 March 2022.
The Act also ensures that there are no reductions to members’ benefits in public service pension schemes following completion of the cost control element of the 2016 valuations (see Pensions Bulletin 2020/30 for further details).
Royal Assent for the now Public Service Pensions and Judicial Offices Act 2022 has been followed by a welter of regulations that on 31 March 2022 close to future accrual legacy sections of various public service pension schemes, with active members being moved to replacement schemes from 1 April 2022.
Those affected by the above judgments will be able to exercise the choice between receiving legacy and reformed scheme benefits in respect of their service between 1 April 2015 and 31 March 2022 through the “deferred choice underpin” mechanism that operates at the point that benefits are put into payment. In order to assist those subject to this mechanism understand their benefit options more clearly, the Government Actuary’s Department has developed a retirement calculator.
Comment
Although Royal Assent for this complex Act is a significant milestone, in a sense the true work is only just beginning, with implementation of the deferred choice underpin across public service pension schemes for many members now being required. Further legislation is expected, following on from the Finance Act 2022, to mitigate for those affected, any adverse pensions tax consequences that would otherwise arise as a result of the application of this underpin.
Second set of CDC regulations laid before Parliament
Regulations making necessary consequential and miscellaneous changes to existing pensions legislation in order to accommodate collective defined contribution schemes have been laid before Parliament.
The regulations adjust 12 sets of existing pensions regulations, including measures to provide for a method of calculating cash equivalent transfer values and to provide for a disclosure and publication regime for CDC schemes. The latter includes the following:
- A statement of benefits to be sent to members no later than 12 months after the end of each scheme year (and also certain information to members when benefit adjustments are made)
- On a public website, the scheme’s rules and a detailed statement explaining the scheme’s design; and also following each actuarial valuation, a statement relating to that valuation including any resulting benefit adjustment
- Certain information to be supplied to members and beneficiaries where the trustees have decided to convert to a closed scheme
The Occupational Pension Schemes (Collective Money Purchase Schemes) (Modifications and Consequential and Miscellaneous Amendments) Regulations 2022 (SI 2022/337) come into force on 1 August 2022.
The regulations follow on from the first and substantive set of regulations that were laid before Parliament on 8 March and which also come into force on 1 August 2022 (see Pensions Bulletin 2022/10).
Comment
These regulations appear to be virtually identical to the finalised draft published by the DWP in December 2021 (see Pensions Bulletin 2021/53). The extensive disclosure requirements are arguably the most noteworthy measures, given the need to ensure that members are fully aware of the nature of a CDC scheme, are kept regularly informed of its progress, and in particular are cognisant that accrued benefits can go down as well as up.
