Pensions Bulletin 2024/44

Chancellor to give Mansion House speech tonight 

Rachel Reeves is to give her first Mansion House speech in the City of London tonight at which she is expected to make some announcements relating to the pensions review that she launched in July (see Pensions Bulletin 2024/28). 

We expect to hear further on her Government’s plans to encourage DC schemes to commit more of their funds to UK productive assets and to deliver efficiencies within the Local Government Pension Scheme.     

We will report in full on what she has to say in next week’s Pensions Bulletin. 

Finance Bill published with pension clauses as expected 

Following the Autumn Budget (see Pensions Bulletin 2024/42) the Finance Bill was published on 7 November 2024. Insofar as pension provision is concerned there are just three clauses of interest. 

Clause 32 is concerned with the withdrawal of the exclusion from the overseas transfer charge for transfers made from a registered pension scheme to a QROPS established in an EEA State or Gibraltar, where the member is resident in the UK or an EEA state. This clause came into force on 30 October 2024, but the exclusion continues to operate for transfers to such destinations that were requested before this date, so long as they complete by 30 April 2025.   

Clause 33 changes the definition of an “overseas pension scheme” and a “recognised overseas pension scheme“ with effect from 6 April 2025, ending the different treatment that such schemes had if established in an EEA state compared to if they were established in the rest of the world.  

Clause 34 provides that, from 6 April 2026, the Scheme Administrator of a registered pension scheme can no longer be resident in the EU or a non-EU EEA state (Scheme Administrator residency in other overseas locations was already precluded). From this date they have to be resident in the UK. For the avoidance of doubt, the Finance Act 2004 provides that the Scheme Administrator is the person or persons appointed in accordance with the rules of the scheme to be responsible for the scheme’s tax administration. They are typically the trustees, and where this is so, if some individual trustees are overseas and some are UK based it would be prudent to check for any impact this change may have. Our understanding is that trustee companies incorporated in the UK should be unaffected regardless of the location of its directors and officers. 

The clauses applying inheritance tax to pension funds and death benefits will not form part of this Finance Bill. 

FCA finalises rules and guidance for pensions dashboard providers  

The Financial Conduct Authority has finalised its rules that firms must follow when designing and operating a commercial pensions dashboard. This follows a consultation earlier this year (see Pensions Bulletin 2024/13) which itself followed a consultation in 2022. The FCA’s final rules are largely unchanged from these consultations, with some amendments for clarification purposes where respondents interpreted its proposals differently from its original intent. The FCA has also summarised feedback to the 2022 and 2024 consultation papers on the proposed regulatory framework. 

However, the FCA is not yet taking applications from interested parties and will only do so when the Government and the Pensions Dashboard Programme have produced all the information necessary for a firm to design and build a pensions dashboard service. There is also the possibility that the FCA will revisit its now settled rules as there are other FCA and Government activities in progress that could change the future landscape in which dashboards operate. On this, the FCA highlights the Government’s small DC pots initiative and the FCA’s advice / guidance boundary review, both of which may necessitate changes to the FCA’s commercial dashboard rules.  

FRC consults on revised Stewardship Code 

As promised in July (see Pensions Bulletin 2024/28), the Financial Reporting Council has published its consultation on updating the UK Stewardship Code, proposing to streamline reporting requirements and reduce burdens for signatories, while ensuring a clearer focus on the purpose of stewardship and the outcomes that it delivers.  

The FRC states that the purpose of the Stewardship Code is to “set high standards for stewardship and make stewardship approaches, activities and outcomes more transparent”. It proposes to amend the definition of stewardship to be “the responsible allocation, management and oversight of capital to create long-term sustainable value for clients and beneficiaries”, which it hopes will provide clarity that it is for each signatory to determine their specific investment objectives.    

The previously signalled reduction of the reporting burden is set out, with the FRC proposing to amend the twelve existing Principles of the Code for asset owners and asset managers and split them into two sections: 

• The Policy and Context Disclosure section contains five Principles covering information about the signatory’s organisation, governance and resourcing. The FRC proposes that this reporting only needs to be updated as necessary by the signatory and expects to formally assess once every three years unless there are significant changes. 
• The Activities and Outcomes Report section contains six Principles covering how the signatory has exercised stewardship in the preceding year. Of these Principles, the FRC proposes that three are applicable to all signatories, while one only applies to those who manage assets through third parties and two only apply to those who manage their assets directly. This section may also include an optional Introductory Statement. The FRC expects to formally assess every signatory’s Report annually.   

A similar approach is being proposed for service providers such as investment consultants and proxy advisers. The FRC further proposes that each Principle should be supported by prompts on “how to report” and guidance material and has provided example guidance to one Principle although guidance will not be subject to consultation. Instead of a comprehensive “one-stop-shop” stewardship report, going forward the FRC proposes that signatories can cross-reference information they have disclosed outside the stewardship report as part of their submission.  

Consultation closes on 19 February 2025. The FRC expects to publish the updated Code in the first half of 2025, with an effective date of 1 January 2026. 

DB Funding Code comes into force  

The DB Funding Code that was laid before Parliament on 29 July 2024 (see Pensions Bulletin 2024/29) came into force on 12 November 2024. This considerable delay is a function of the law that requires the Code to lie before Parliament for 40 days, with recess periods not counting, before the DWP is able to legislate to bring it into force. 

The Pensions Act 2004 (Code of Practice) (Defined Benefit Funding) Appointed Day Order 2024 (SI 2024/1143) appoints 12 November 2024 as the day for the coming into effect of the DB Funding Code. The Pensions Regulator marked the occasion by issuing a press release welcoming the news. It has also now embedded the DB Funding Code within the Funding defined benefits section of its online Code of practice materials.

FRC proposes no change to AS TM1  

The Financial Reporting Council is consulting on a proposal to maintain the current version of the technical standard that governs statutory money purchase illustrations (SMPIs) following its annual review. The FRC says that there has been limited change in market volatility and return expectations and so it is appropriate that the volatility and return expectations set out in the current version 5.1 of AS TM1 continue to be used for calculations performed between 6 April 2025 and 5 April 2026. 

In support of this view the FRC has published an analysis of market conditions and fund returns up to 30 September 2024. Consultation closes on 7 December 2024 and results of the consultation are expected to be published by 15 February 2025.