Pensions Bulletin 2022/40

• Age discrimination law – a DWP win and an early Brexit impact
• Pensions Dashboards Programme provides a further update
• FCA settles pensions dashboard rules for contract-based pension providers
• Ten years of auto-enrolment
• Survey of DB schemes finds de-risking model well understood
• Royal Assent for the Health and Social Care Levy (Repeal) Act 2022

Age discrimination law – a DWP win and an early Brexit impact

The Employment Appeals Tribunal has overturned a potentially significant finding by the Employment Tribunal in January 2022 that could have put at risk the 10% reduction in PPF compensation applicable to those who have yet to reach normal pension age when a scheme goes into PPF assessment. And in so doing has shown the weakening grip that EU requirements, imposed when the UK was a member state, are now having on court processes.

The Employment Tribunal had held that an exemption in UK law for age discrimination in relation to pensionable service before 1 December 2006 was incompatible with an EU Framework Directive (see Pensions Bulletin 2022/15). This could have allowed certain pensioner members of the T&N Retirement Benefits Scheme, which has been in PPF assessment for many years, to obtain PPF compensation without the above 10% reduction applying.

The Department for Work and Pensions appealed this decision and on 27 October 2022, the Employment Appeals Tribunal sided with the DWP, for all but two pensioner members, on one of the four grounds that the DWP put forward. The effect of this is that the Employment Tribunal proceedings will continue for the two pensioner members, but the age discrimination claims brought by the remaining claimants are dismissed.

The reason for this is that, other than for the two pensioner members, the claims were brought after the Brexit implementation period ended on 31 December 2020. As the Framework Directive had not been incorporated into UK law under the European Union (Withdrawal) Act 2018, the Employment Appeals Tribunal found that the rights the claimants said they had were no longer available under UK law.

Comment

For now it seems that this clearly age discriminatory aspect of PPF compensation design continues to stand, which must be a relief to the DWP and PPF given all the other Court cases that have impacted on PPF compensation in recent years. But had the decision gone the other way, it wouldn’t have been just the PPF who would have been affected.

All occupational pension schemes may have had to re-examine their benefit structures to see if any aspects in relation to pre-1 December 2006 pensionable service could be held to be age discriminatory – a recipe for potential chaos. And what this case seems to be telling us is that any future claims that some piece of UK law is not compatible with an EU Directive may well not succeed.

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Pensions Dashboards Programme provides a further update

The Pensions Dashboards Programme has published its latest progress update report introduced, once more, by PDP Principal Chris Curry. The report summarises activity between April 2022 and October 2022 before going on to set out areas of focus to April 2023, alongside the activity of partner organisations.

On progress to date the report says that the central digital architecture has now been built and is undergoing testing, with the PDP working with over 20 early participants who are supporting the PDP with its testing and refining how schemes will connect.

Looking forward the PDP promises the following:

• Standards – to publish in the winter the updated draft of its various standards on which consultation started in July and August 2022 (see Pensions Bulletin 2022/28). Once the dashboards regulations have been approved by Parliament and come into force, MaPS will formally seek approval from the Secretary of State for Work and Pensions for these drafts to be the mandatory standards under the regulations. There will also be a separate consultation in the winter of the PDP’s proposed design standards – to be finalised in 2023
• Testing – the dashboards ecosystem is to now ready to be tested with real data and first will be State Pension data provided by the DWP. And in early 2023 the early participants mentioned above will start to supply real data to the dashboard ecosystem
• Consumer protection – an update on consumer protection to clearly explain the extent of the obligations of pension providers and schemes, and dashboard providers
• Connection hub – this will be available in early 2023 on the PDP website where schemes and providers will find a range of supporting content to help them start the connection process. In addition, the PDP will run webinars and a programme of engagement to support providers, schemes and other organisations who will be completing the process

Insofar as the partner organisations are concerned, the PDP reports that the Pensions Regulator has begun writing to schemes about their duties – all schemes can expect several communications, starting at least 12 months ahead of their deadline. The Regulator will also be consulting on its proposed compliance and enforcement policy at the end of 2022. Mention is also made of two actions with the Financial Conduct Authority (see article below).

Comment

The underlying message behind all this activity is that pensions dashboards are most definitely coming and now on a clear timescale. By this time next year the largest money purchase schemes will be connected and should be capable of responding to member queries, even though it will be quite some time before the Secretary of State switches the system on.

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FCA settles pensions dashboard rules for contract-based pension providers

The Financial Conduct Authority has finalised its rules and guidance that require FCA-regulated pension providers to provide information about their personal and stakeholder pensions to pensions dashboards. This follows a consultation the FCA launched in February (see Pensions Bulletin 2022/06).

Under these rules, FCA regulated pension providers must by 31 August 2023:

• Complete connection of their personal and stakeholder pension schemes to the MaPS digital architecture in line with MaPS’ connection, security and technical standards and having regard to MaPS’ guidance on connection
• Be ready to receive requests to find pensions, and search records for data matches
• Be ready to return pensions information to the consumer’s chosen pensions dashboard

The final rules are largely unchanged from the draft rules consulted on except for the following:

• The implementation deadline has been moved back from 30 June 2023 to 31 August 2023, to align with the Government’s extension to the connection deadline for the first cohort of occupational pension schemes
• The scope of a transitional provision has been extended in response to concerns about the availability of integrated service providers (ISPs). Now, those pension providers that have fewer than 5,000 DC pots in accumulation and who rely on an ISP to achieve compliance can have a later connection deadline of 31 October 2024, so long as they notify the FCA by 30 April 2023
• Where costs and charges information for a particular pension is not currently available online, the signposted website need not detail the actual costs and charges but must, as a minimum, explain clearly to the consumer how they can obtain details about the costs and charges that apply specifically to their plan

Other changes include reflecting, where possible the corresponding changes in the regulations for occupational pension scheme trustees as these were settled (see Pensions Bulletin 2022/38). However, unlike the rules for occupational pension schemes, the FCA is not offering an explicit deferral application process for schemes under its remit (although there is mention of FCA’s general power to grant waivers and modifications to its rules).

The FCA will shortly consult on its proposed regulatory framework for commercial parties offering a pensions dashboard service and intends this to be open to authorisation submissions in Summer 2023.

Comment

These rules have been settled as one would expect, with the FCA having little leeway in practice given the need to be consistent with the DWP’s regulations for occupational pension scheme trustees. It is for the pension providers to take the necessary action; not their client schemes, which explains why, unlike occupational pension schemes, there is not an extended connection period which is dependent, amongst other things, on the size of the scheme.

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Ten years of auto-enrolment

The Department for Work and Pensions has published its latest report examining the role that its auto-enrolment policy has played in improving people’s quality of life, by addressing poverty through increasing financial resilience.

Auto-enrolment started in October 2012 and since then, the report finds that participation has increased among private sector eligible employees in every industry and occupation between 2012 and 2021, including those with historically low rates of employees saving into a workplace pension. This has been replicated in every region of Great Britain, and in the most common private sector eligible employee jobs within each region.

The total annual workplace pension contribution of all private sector eligible employees has increased in real terms from £41.5 billion in 2012 to £62.3 billion in 2021. These increases have been replicated across all industries and all occupations, except for the Energy and Water sector.

The report also shows the latest data from master trust providers. This shows, over the period from January 2020 to August 2022, an increase in active members of the 11 largest master trusts, with contributions 32% higher in August 2022 than in January 2020. For such trusts the proportion of new members that decided to opt out of auto-enrolment has oscillated over this period and stood at 10.4% in August 2022 compared to 7.6% in January 2020, whilst the proportion of those actively saving who stopped saving stood around the 3% mark throughout this period.

Comment

This is all good news and there is little doubting the success of the auto-enrolment policy in getting more people to save for their retirement. However, for many, the rate at which they save is far from adequate.

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Survey of DB schemes finds de-risking model well understood

The Pensions Regulator has published a report summarising the findings from its annual survey of trust-based occupational DB pension schemes. The primary objectives of the research were stated to be to assess current DB funding and investment practices and provide insight into other key areas such as consolidation, climate change, pensions dashboards and the Regulator’s forthcoming Single Code of Practice.

In relation to DB funding, key findings include the following:

• Long term objective – 88% of trustees and 87% of employers reported that their scheme had a long-term objective (LTO) – with 55% intending to buy out and 40% intending to reach a position of low dependency on the employer. 69% of trustees and 56% of employers hoped to reach their LTO within ten years, with 26% and 20% respectively aiming to do so within five years
• Journey plan – 70% of schemes had a journey plan, 91% of which were aligned with the scheme’s technical provisions and 95% to investment de-risking
• Covenant – 51% of trustees considered covenant risk ‘to a great extent’ when setting the recovery plan, 47% when setting the investment strategy and 43% when setting the technical provisions. 49% of schemes had contingent support in place
• Investment – 51% of schemes had an endgame investment strategy, and 45% had de-risking funding triggers
• Recovery plan – 71% of schemes had a recovery plan in place. When structuring the plan, 90% of trustees considered the affordability of the employer’s contributions, 87% the maturity of the scheme, 66% the likelihood of employer insolvency and 50% the value, terms and enforceability of any contingent security
• Risk management – 95% of trustees felt that the information received from the employer was sufficient for good risk management and 97% were confident they could document and articulate their approach to risk management, with appropriate evidence

On other matters there was a worrying lack of engagement with pensions dashboards, with large schemes showing only slightly more engagement than medium schemes. However, as the field work for the survey was undertaken between November 2021 and February 2022, hopefully some 9-12 months on there is much more engagement.

Comment

The survey results in relation to DB funding and investment practices are encouraging, but perhaps not surprising given that the Regulator has placed great store on integrated risk management and journey planning for a number of years, and as evidenced in its annual funding statements.

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Royal Assent for the Health and Social Care Levy (Repeal) Act 2022

The Bill introduced alongside the Truss Government’s mini-budget (see Pensions Bulletin 2022/35) which reverses the temporary 1.25% point rise in national insurance contributions, along with a complete cancellation of the 1.25% Health and Social Care levy due to start on 6 April 2023, received Royal Assent on 25 October 2022.

The Health and Social Care Levy (Repeal) Act 2022 came into force with immediate effect.

Comment

Employees should see their NICs fall in respect of pay periods from 6 November 2022, although some may need to wait until December 2022 or January 2023 to receive a backdated cut due to complexities of some payroll software systems.

The self-employed and company directors paying Class 4 NICs have these assessed on an annual basis after the end of the tax year. They will pay a blended rate, taking into account the change in rates through the 2022/23 tax year.

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