Pensions Bulletin 2023/44
Pensions & benefits Pensions dashboards Policy & regulation
- First King’s Speech is silent on pensions
- First connection to pensions dashboard not likely until 2025
- FRC increases most accumulation rate assumptions for money purchase projections
- Pensions Regulator promises guidance on DC decumulation in 2024
- Court of Appeal rules that the Pensions Ombudsman is not a “competent court”
- First Superfund transaction announced
First King’s Speech is silent on pensions
The first King’s Speech for over 70 years, that was the highlight of the ceremonial opening of Parliament on 7 November 2023, contained little of consequence for pension schemes.
Two Bills with a connection to pensions that had been introduced in the last session and were carried forward to this session were mentioned:
- Data Protection and Digital Information Bill – which makes a number of changes to the Data Protection Act 2018 and the UK General Data Protection Regulation (see Pensions Bulletin 2023/10)
- Economic Activity of Public Bodies (Overseas Matters) Bill – which places new limitations on local government pension schemes’ powers to invest (see Pensions Bulletin 2023/26)
Not mentioned, but a Finance Bill is expected, possibly shortly after the 22 November Autumn Statement, that will implement the abolition of the pensions tax Lifetime Allowance. This assumes that the Government still intends to abolish the LTA from 6 April 2024.
The Financial Reporting Council is disappointed that the Audit Reform Bill was not mentioned, having been promised in the May 2022 Queen’s Speech (see Pensions Bulletin 2022/18). However, the FRC still holds out hope that the Government will bring forward legislation “when Parliamentary time allows”.
The FRC has also used the opportunity to announce that it will take forward only a small number of the changes it intended to make to the UK Corporate Governance Code (see Pensions Bulletin 2023/22). It intends to publish an updated Code in January 2024. And the timescale for the review of the Stewardship Code (see Pensions Bulletin 2023/35) has slipped from Q4 2023 to the project starting in 2024.
Comment
A new Pensions Bill is needed if the Government is to deliver on many of its July 2023 Mansion House pensions policies (see Pensions Bulletin 2023/28). Without such a Bill there will be severe limits as to what can be achieved this side of the General Election. Some policies will have to remain in limbo, or be delivered without any regulatory teeth, such as through interim guidance from the Pensions Regulator. We now need to wait until the Autumn Statement to see how the Government intends to take forward its pensions reform agenda.
As for the Audit Reform Bill, its absence from the King’s Speech likely means that the FRC’s intended transition to the Audit, Reporting and Governance Authority (ARGA) will need to take place, if at all, after the General Election.
First connection to pensions dashboard not likely until 2025
The Pensions Dashboards Programme’s (PDP’s) latest six-monthly progress update continues to remain coy as to when pension schemes will be asked to connect to the dashboard ecosystem, saying that industry engagement on the long-promised guidance will take place in “autumn 2023”, with an aim of publishing at a time to provide at least 12 months’ notice ahead of the first connection date in the guidance. This suggests that the first schemes are not going to be asked to connect until 2025, resulting in an overall delay of around 18 months because of the need, disclosed in March 2023 (see Pensions Bulletin 2023/09), for the project to be reset due to issues arising with the IT build. The first schemes, the largest DC master trusts, had been due to connect by 31 August 2023.
Other items in the update include a number of arguments as to why pensions dashboards are needed, details of volunteer participants “on developing the connection journey for the rest of the industry” and a listing of various collaboration groups. There is also a reminder about the PDP standards being created, with a promise that further engagement will take place over winter 2023/24 on refinements to them ahead of final publication and approval by the Secretary of State. And also a promise that the PDP will be producing further guidance for organisations seeking to provide a dashboard.
Comment
This latest update signals further delay with no indication as to whether all the issues that caused the reset have now been overcome. The PDP and the Pensions Regulator continue the call for schemes to prepare to connect, but with the first connections now highly unlikely this side of the General Election, uncertainty over the pensions dashboard project can only grow.
FRC increases most accumulation rate assumptions for money purchase projections
The Financial Reporting Council is proposing to increase most of its accumulation rate assumptions that it requires to be used in statutory money purchase illustrations (SMPIs). The changes, set out in a consultation paper, are intended to come into effect for calculations performed on or after 6 April 2024.
Each year the FRC reviews the appropriateness of accumulation rate assumptions and volatility group boundaries, based on 30 September data. In January this year the FRC concluded that no changes were needed arising from an examination of 30 September 2022 data (see Pensions Bulletin 2023/04), although the technical analysis paper published alongside it acknowledged that looking forward, market conditions and outlook had changed.
This year, the FRC has decided that higher long-term interest rates and gilt yields, that have clearly been sustained over the last 12 months, now necessitate higher expected long-term returns for funds in volatility groups 1-3. For each of these the FRC is proposing that the accumulation rate assumption increases by 1%, so the 1%, 3% and 5% rates for groups 1-3 respectively become 2%, 4% and 6%. The FRC intends to keep the 7% assumption for volatility group 4 unchanged as it feels that this continues to be consistent with the experience over the long term of returns on higher volatility investments, after a suitable adjustment for prudence. No changes are proposed to the boundaries of the four volatility groups.
In addition to the consultation paper, the FRC has published an exposure draft for what will become AS TM1 version 5.1 and a technical analysis paper. Consultation closes on 4 December 2023.
Comment
We are not surprised that the FRC is seeking to increase most accumulation rates. The financial world has changed and accumulation rates that had been generated on a smoothed view of the past are no longer a guide to the future.
Pensions Regulator promises guidance on DC decumulation in 2024
In a speech at the launch of a new report from the Pensions Policy Institute, Nausicaa Delfas, Chief Executive of the Pensions Regulator, said that the Regulator will publish interim guidance on DC decumulation in 2024, with fuller guidance to be developed over a longer timescale. This interim guidance is to “provide a pathway to decumulation becoming part of the value for money framework by encouraging schemes to set their own metrics” (presumably under the quality of services heading). Although no further details were given of this guidance, the speech set out five principles to guide what ‘good’ looks like in this area. Amongst these is a call for the market to “innovate to provide genuine choice”, and for schemes to provide “wrap around and personalised support” in the lead up to and during decumulation and post-retirement.
Nausicaa Delfas also said that in the near future, the DWP will respond to its July 2023 consultation on DC decumulation (see Pensions Bulletin 2023/28) and set out the next steps. She went on to say that the long-term expectation is that all (presumably DC) schemes should offer decumulation products, either directly or through partnerships, and if they won’t or cannot, they will come under pressure to consolidate.
Comment
The DWP signalled the production of this guidance back in July 2023 when it responded to its earlier Call for Evidence and issued a consultation on the form of the trustee duty to provide decumulation services. It may well be the case that this interim guidance is all we are going to get in this area this side of the General Election.
Court of Appeal rules that the Pensions Ombudsman is not a “competent court”
If a pension scheme overpays benefits to a beneficiary then its trustees can be entitled to recoup the overpayments, but if the member objects then the relevant legislation requires that any enforcement of the recoupment must be through an order of a “competent court”.
The question of whether or not the Pensions Ombudsman is a competent court has been in doubt for some time. In the case of Burgess v BIC (concerning fixing mistakes – see Pensions Bulletin 2019/19) the judge made some remarks about the Pensions Ombudsman not being a competent court. The Pensions Ombudsman objected to this, even issuing an FAQ that said that it was. Then in 2022 there was a further case concerning the construction of a forfeiture clause (see Pensions Bulletin 2022/34) which the Pensions Ombudsman decided to appeal on the narrow question (not really at issue at first instance) of whether it is a competent court. The Court of Appeal has now held that the Ombudsman is not, for reasons which, to us as lay readers of the case, seem to amount to “it is obviously not a court”.
Comment
We now seem to have a clear position on this matter, which is welcome. Although trustees seeking recoupment where the member has objected will now need to go to the County Court to enforce a Pensions Ombudsman determination, hopefully, this will simply be procedural, with it not having to consider the matter afresh. However, it will further delay matters.
First Superfund transaction announced
Two years after successfully passing the Pensions Regulator’s assessment process (see Pensions Bulletin 2021/50), Clara, the sole DB superfund that is able to transact business, has announced its first superfund deal.
The Sears Retail Pension Scheme is to transfer its liabilities and assets to the Clara Pensions Trust, having received clearance from the Pensions Regulator. Under the ‘bridge to buyout’ mechanism used by Clara, the intention is that at some point in five to ten years’ time the 9,600 member scheme will have its benefits secured with an insurance company.
Comment
LCP has welcomed this transaction, on which we helped to support the investment aspects and the transition to Clara.
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.
If you would like to receive the weekly pensions bulletin automatically by email please fill in this form.
