- LDI – Bank of England to develop lending tool for pension schemes
- HMRC publishes McCloud pensions tax support materials
LDI – Bank of England to develop lending tool for pension schemes
The Bank of England is developing a new lending tool for non-bank financial institutions, starting with insurance companies and pension schemes, as part of its plans to tackle systemic risks in market-based finance, such as those presented by LDI funds. So says Andrew Hauser, Executive Director for Markets, in a recent speech in London.
Whilst accepting that resilience amongst LDI funds has improved following standards put in place following the volatility in the gilt market in September and October 2022, which in turn has significantly bolstered the resilience of the wider DB scheme sector, Mr Hauser says that, “just as for banks, it is unrealistic for the private sector to self-insure against the most severe system-wide liquidity shocks” and that “in such cases, safeguarding financial stability requires an effective public backstop”.
Given that in many stress scenarios, pension schemes may only be seeking temporary liquidity, such a backstop to market functioning could be by the Bank lending directly to schemes against high quality collateral, which could potentially be wider than just gilts.
The Bank is “with immediate effect” to start the process of designing such a lending facility and will work with pension schemes and the Pensions Regulator to overcome operational challenges.
Comment
The idea of the Bank lending to pension schemes is new, not having been suggested when the Bank addressed LDI minimum resilience in March 2023 (see Pensions Bulletin 2023/14). Whilst of course the devil will be in the detail, we agree that it makes sense for the Bank to explore using this type of approach as part of a suite of tools to mitigate systemic risks associated with LDI funds.
As to when the Bank’s new tool may become available, Mr Hauser said that the design process was the first step in a “journey of 1000 miles”, and so giving a strong steer that this will not be happening any time soon.
HMRC publishes McCloud pensions tax support materials
To coincide with the McCloud remedy becoming operational from 1 October 2023 in public service pension schemes, HMRC has published some materials to help schemes and their members with the remedy’s implications for members’ annual allowance and lifetime allowance pensions tax positions.
All this is bound up in a newsletter and this points to the following:
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A “calculate your public service pension adjustment service” for members if they need to correct their annual or lifetime allowance positions (including making claims for compensation) as a result of the remedy. “Directions” have also been published relating to the delivery of information under the above calculation
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“Interactive guidance” that allows members to check if they are affected by the McCloud remedy
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“Full guidance” for members and scheme administrators
Comment
These materials follow on from regulations laid earlier this year (see, for example, Pensions Bulletin 2023/33), setting out changes to how the pensions tax rules will apply to pension scheme administrators and members of public service pension schemes, to help manage through the McCloud remedy reforms.
If the remedy results in increased lifetime allowance usage in a public sector scheme, this could (retrospectively) create a lifetime allowance charge for any benefits the individual has drawn from other pension schemes. The guidance confirms that a private sector scheme can apply for an exemption from this additional charge, which will then fall back on to the public sector scheme.
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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