- Pensions Regulator publishes guidance on regulated apportionment arrangements
- Society of Pension Professionals sets out its 2030 vision for the future of DB scheme investment
- Pension SuperFund withdraws from the DB superfund market
- HMRC pensions tax statistics for 2021/22 published
- PPF launches Trustmark badge for panel firms
Pensions Regulator publishes guidance on regulated apportionment arrangements
The Pensions Regulator has published new guidance on an arrangement, available under the employer debt legislation, in which an employer facing inevitable insolvency can detach itself from the liabilities of an underfunded DB scheme, so that the employer may continue to trade.
This guidance, which has appeared without any announcement, relates to “regulated apportionment arrangements”, a facility that has been available since 6 April 2008 when the employer debt legislation was completely recast.
The guidance first outlines what such an arrangement is and when it can be considered – all of which is contained in the employer debt legislation. The Regulator needs to approve these arrangements, something the Regulator says it will not do lightly, with all other options needing to be considered and ruled out before an application for a regulated apportionment arrangement is made.
Where the guidance provides some real value is in setting out the principles the Regulator expects to be met in respect of any application made to it, along with some examples of evidence for each of them.
There are six principles as follows:
- The employer’s insolvency is inevitable within the next 12 months
- The upfront cash consideration proposed is significantly greater than the recovery expected for the scheme in the case of the employer’s insolvency
- A better outcome could not be attained for the scheme by other means, including through the use of the Regulator’s powers where relevant
- It would not be reasonable for the wider employer group or any entity within it to support the scheme or its employer in the future
- The scheme is receiving equitable treatment in comparison to the employer’s other creditors, shareholders and other stakeholders
- The scheme receives an appropriate portion of the equity in the employer departing the scheme under the arrangement
These principles are consistent with those published by the Pension Protection Fund who, under the regulations, must not object to the proposed arrangement.
The guidance provides further detail on what is meant by “equitable treatment” and how the Regulator will assess that this has been met. It makes clear that the Regulator also expects the above principles to be followed in respect of other agreements, which produce a similar outcome to a regulated apportionment arrangement. Finally, it describes the process for making an application to the Regulator to gain its approval to the arrangement.
Comment
This guidance builds on the now withdrawn statement issued in August 2010, which covered similar ground but did not contain examples of the evidence needed to support an application. It should be a useful resource for distressed employers and their advisers.
Society of Pension Professionals sets out its 2030 vision for the future of DB scheme investment
The Society of Pension Professionals has published a paper that looks to the future of DB scheme investment. In it the SPP outlines the changed funding and investment circumstances of many DB pension schemes, the dynamics that will likely define schemes’ investment strategies over the next decade, the challenges trustees will have to face and how they might rethink the endgame target ahead of them.
The paper highlights the implications for both pension schemes’ long-term investments and endgame options of the call for evidence on new options for DB schemes (see Pensions Bulletin 2023/28), issued immediately following Chancellor Jeremy Hunt’s July 2023 Mansion House speech. It then discusses the sharpened focus on investment resilience following the gilts liquidity crisis in late 2022 and how schemes are likely to work towards improving that resilience. The paper moves on to discuss why there might now be good reasons to run on a scheme over the long term (or pursue an alternative end game solution), rather than necessarily seeking an insurance buyout – and what considerations would come into play in making such a decision.
In conclusion, the SPP says that while the current regulatory, legislative and tax framework incentivises trustees and sponsors to transfer DB pension assets and liabilities to an insurer, the current focus on options for DB schemes shows that policymakers are open to changing this – and goes on to make some suggestions on adjustments that could incentivise trustees and/or companies to run on DB schemes instead.
Comment
These are interesting times for DB schemes, with this well-constructed paper highlighting various topical considerations for trustees and sponsors. In particular it continues the discussion on the various proposals that have been made on how to incentivise DB schemes to undertake greater investment in productive assets and invest for surplus, including LCP’s own “powering possibility in pensions” proposal.
Pension SuperFund withdraws from the DB superfund market
Coming up to two years after the Pensions Regulator announced that the first entity had met the requirements of the Regulator’s interim framework for DB superfunds (Clara – see Pensions Bulletin 2021/50), we understand that the Pension SuperFund, the proposition for which was first put forward in 2018, has decided to withdraw its proposal from the market for the time being after a number of unsuccessful attempts to meet the Regulator’s requirements.
The consolidated scheme model put forward by the Pension SuperFund was reliant on capital providers being able to extract profits, subject to the funding level in the SuperFund being in excess of fully funded. However, the Regulator has yet to publish guidance on this aspect, with the latest news, when it updated its guidance in August 2023 (see Pensions Bulletin 2023/32), being a promise to cover this in due course.
We understand the team behind the Pension SuperFund are investigating alternative options to offer DB schemes, and that they may revisit their superfund proposal in the future (eg depending on future amendments to the guidance).
Comment
This development is unsurprising given that the attraction of the Pension Superfund model to capital providers is the “return of excess capital” in specified circumstances. Therefore, the lack of clarity on this point – in the words of CEO Luke Webster, giving oral evidence to the Work and Pensions Committee earlier this month – “renders the proposal uninvestable at this stage”.
HMRC pensions tax statistics for 2021/22 published
This year’s HMRC reporting of private pension statistics shows significant increases in annual and lifetime allowance charges. There is a 66% increase in contributions/accrual incurring annual allowance charges (up from £202m to £335m) and a 27% increase in the total of lifetime allowance charges paid for 2021/22 (up from £391m to £497m).
HMRC says that the increase in annual allowance charges may be partly due to changes to the tapered AA thresholds in 2020/21, which may have made more individuals eligible to use Scheme Pays to pay the charge, which in turn may have increased the charges reported by schemes. There has clearly been a big surge in the use of Scheme Pays, up from 17,280 to 49,380 cases. There has also been a significant rise in the amount of personal contributions over the annual allowance via tax returns – up from £814m to £1.213bn.
HMRC goes on to say that the increase in lifetime allowance charges may be due to the LTA being frozen, along with some individuals bringing forward their retirement as a result of the pandemic. The number paying the LTA charge has increased from 8,820 to 11,660 people.
By contrast, the estimated cost of pension income tax and national insurance contribution relief has remained stable, with the headline figure for relief for both sources, net of tax paid by today’s pensioners, given as £48.3bn, unchanged from 2020/21.
For further details and commentary see our press release.
PPF launches Trustmark badge for panel firms
The Pension Protection Fund is allowing firms who are on any of its six current panels of experts to use a ‘Trustmark’ badge which recognises their specialist knowledge, collaborative working with the PPF, and commitment to delivering the high standards of service set by the PPF. The badge can be used in a variety of ways as set out, and controlled by the PPF, including in member communications for schemes in PPF assessment, on online member portals, and on scheme specific websites.
Announcing this new initiative, the PPF said that since it was set up in 2005 over 1,090 DB schemes, where the employer failed and the scheme was underfunded, have transferred to the PPF through an assessment period that takes on average between 18-24 months.
Comment
LCP was appointed to the PPF+ panel in 2022 and we welcome this new initiative from the PPF.
This Pensions Bulletin does not constitute advice, nor should it be taken as an authoritative statement of the law. For further help, please contact David Everett at our London office or the partner who normally advises you.
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