Pensions Bulletin 2024/34

Pensions Review – Call for evidence published

Announcements about the Government’s pensions review seem to dribble out, and the latest is the formal Call for Evidence in relation to the first phase which was launched on 4 September 2024. This makes clear that the focus is on the DC market and the Local Government Pension Scheme. This Call for Evidence follows on from the publication of the Terms of Reference for the first phase last month (see Pensions Bulletin 2024/32).

Ten questions are asked, arranged under the headings of scale and consolidation, costs versus value and investing in the UK. They all point to a potential future world in which there is a far more consolidated DC market and greater asset pooling in the LGPS, alongside greater investment in UK asset classes.

The call for evidence closes on 25 September 2024 and it seems that this call is just to get potential contributors thinking as evidence is to be considered on a range of questions, not just those posed.  Those with existing data or unpublished analysis or reports relevant to the ten questions are asked to consider sharing these with the review.

Regulator finalises pensions dashboards compliance and enforcement policy

The Pensions Regulator has finalised its pensions dashboards compliance and enforcement policy, launching it to the world by means of a blog on 5 September 2024. It has also formally responded to its consultation.

The Regulator consulted on this document in November 2022 (see Pensions Bulletin 2022/44) and the delay in finalising it presumably reflects the reset of the roll out of the dashboard announced in March 2023, changes to regulations and the subsequent new connection timeline guidance.

Unsurprisingly, the blog contains the usual calls to action for trustees to get their schemes ready. On having sufficiently clean data to connect, the Regulator will be “engaging with hundreds of schemes this autumn, asking them to account for how they are measuring and improving their data”, with the threat of taking regulatory action where trustees are failing to meet its expectations.

The guidance itself shows that the Regulator’s approach is to be driven by eight “Policy principles”, one of which is a recognition that delivering pensions dashboards is a huge challenge for the industry. Pragmatism is to be the order of the day, but wilful or reckless non-compliance, will result in “a robust enforcement approach”.

The Regulator will receive regular data from the dashboards system run by MaPS that will help it identify breaches (such as failing to connect by the deadline), look at trends across the landscape (for example in schemes all using the same third-party provider), and whether the same scheme fails to meet MaPS’ service levels repeatedly.

As before, perhaps of greatest interest to the reader are the various scenarios set out in the Appendix to the guidance. They provide a window into many of the things that can (and almost certainly will) go wrong and the need for the Regulator to act in a proportionate but influential way to bring the scheme into compliance.

Above inflation increase to State pension likely next April

The publication of July 2024 wage inflation data on 10 September 2024 shows that wage inflation is very likely to drive the triple lock calculation of next year’s increase to State pensions.

The provisional figure for the KAC3 average weekly earnings data (total pay, seasonally adjusted) for the three months to July 2024 was a 4.0%% increase on the same figure 12 months prior. By contrast, CPI inflation is currently running at 2.2% pa.

Under a 4.0% increase scenario the Single Tier State Pension will increase by £460.20 to £11,962.60 pa, whilst the Basic State Pension will increase by £352.56 to £9,166.56 pa.

We will need to wait until 15 October 2024 before a ‘final’ version of the KAC3 figure is published which should then drive next year’s State pension increases. The September CPI inflation figure will be published the following day.

Auto-enrolment extension not a priority for new Government

It is being reported that in a speech on 5 September 2024, addressing executives at the London Stock Exchange’s headquarters, Pensions Minister Emma Reynolds said that whilst increasing auto-enrolment contributions could help people save for retirement, this would not be considered until later, with her priorities being first to increase pension investment in UK productive assets, with the aim of supporting the country’s capital markets and helping to kick-start economic growth and second to improve the income of future retirees by increasing returns they get from their pension pots.

Self-employed need to re-engage with pension savings

The Institute for Fiscal Studies has published a report which examines how well prepared self-employed workers are for retirement and what options policymakers have to encourage more pension saving.  Self-employed workers who want to save in a pension must arrange their own personal pension, in contrast to most employees who will be automatically enrolled into a workplace pension by their employer.

Amongst the report’s key findings are that among the self-employed earning over £10,000 a year, only around 20% are saving into a pension, down from around 60% in 1998. Meanwhile, automatic enrolment has boosted workplace pension participation among employees earning more than £10,000 a year to over 80%.

However, the self-employed accumulate wealth in forms other than pensions and once these are taken into account, including that of partners and potential future inheritances, the picture is not so bleak as is suggested by looking at pension savings alone. Nevertheless, the IFS says that the status quo, in which self-employed people have to arrange their own pension plans without assistance, is no longer fit for purpose, particularly given the effort the state has put into making pension saving easy for employees and the extent to which the self-employed are no longer engaging with personal pensions.

The IFS goes on to suggest that policymakers choose between one of the following options:

• Require all self-employed filing a self-assessment tax return to make an active choice about the level of pension contributions to make at that point (with zero being an option). Any contributions made would then go into either a nominated private pension plan, a government-chosen default pension plan or a Lifetime ISA.
• Establish a form of auto-enrolment, operationalised through the self-assessment tax return, with HMRC selecting a pension provider if no decision was made by the individual and default contribution levels operating.

There is also concern at contribution levels never increasing in cash terms for many who are saving in a private pension. The IFS says a range of options for automatically increasing contributions each year should be provided, perhaps with a default of rising in line with the Consumer Prices Index.

Pension Wise goes digital

The Money and Pensions Service (MaPS) has launched an alternative digital appointment service that is to complement the existing Pension Wise telephone and face-to-face appointments.

Pension Wise is the service for anyone over 50 with DC savings who wishes to receive guidance as to how they should access such savings. DWP regulations and FCA rules require that trustees of occupational pension schemes and contract-based pension providers respectively, in respect of flexible (ie typically DC) benefits, ensure that individuals are referred to Pension Wise and have either received or opted out of receiving it, where they are proposing to access or transfer their DC benefits.

Branded as “Pension Wise Digital”, the new MaPS service can be accessed at any time and individual progress through the platform can be saved and returned to when convenient for the user.

Pensions dashboards – PDP updates its draft technical standards

On 4 September 2024 the Pensions Dashboards Programme (PDP) announced that it had published version 1.1 of its draft technical standards. These should be used by data and dashboard providers so that they can interface with the central technical architecture and/or each other. The PDP said further technical documentation to accompany the technical standards would be released at a later date.

This development follows on from the PDP publishing an updated code of connection in August 2024.