Pensions Bulletin 2023/49
Pensions & benefits Pensions dashboards Policy & regulation
- Finance Bill removes the Lifetime Allowance
- Digitisation of relief at source put back
- Regulatory Grid reveals more slippage in pensions delivery
- FCA confirms the go ahead on sustainability disclosure requirements and investment labels
- ONS introduces new data into inflation indices and publishes household cost indices
- Further engagement promised on dashboard standards
- Occupational Pensions Revaluation Order issued
- FCA’s new rules on non-workplace pensions come into force
Finance Bill removes the Lifetime Allowance
Following confirmation in the Autumn Statement that the abolition of the Lifetime Allowance is to go ahead with effect from 6 April 2024 (see Pensions Bulletin 2023/47), the Finance Bill published on 29 November 2023 contains the necessary and very extensive legislation to achieve this.
In our News Alert published on 4 December 2023 we examine this legislation which has been significantly extended from that published in draft in July 2023.
Separately, in its latest pension schemes newsletter, HMRC promises to publish a Lifetime Allowance newsletter providing further details to support schemes through the implementation period of the LTA’s abolition. Incidentally, the same newsletter also confirms that the free-standing tax charge that applies when a sponsoring employer receives an authorised surplus payment from a registered pension schemes will reduce to 25% from 6 April 2024.
Comment
As there is now little doubt that there will be significant changes to pensions tax legislation from 6 April 2024, scheme administrators in particular will need to focus closely on what the Finance Bill contains, so they are ready to operate the new regime in less than four months’ time. We look forward to hearing more from HMRC on the changes it is putting through so that schemes can prepare.
For most pension savers there should be relatively little impact as a result of the abolition of the LTA. However, there is a lot of detail in the legislation to wade through, so there may be some surprises.
Digitisation of relief at source put back
The other pensions tax legislation of note released for consultation in July 2023 (see Pensions Bulletin 2023/29) concerned necessary updates to the Finance Act 2004 so that the relief at source mechanism for delivering tax relief on member contributions can move from its current paper-based system to being fully digitised. The intention then was for the new system to operate from 6 April 2025.
However, the necessary legislation does not appear in the Finance Bill. This is because it has become apparent that a solution for digitising relief at source processes that could be delivered by then would not meet the needs of the largest schemes. The Government now intends to provide an appropriate digitisation solution no earlier than April 2027 and for this reason the proposed legislation has not been taken forward into the Bill. This news is also relayed in HMRC’s latest pension schemes newsletter.
Regulatory Grid reveals more slippage in pensions delivery
Every six months or so the Bank of England publishes a listing of the ‘regulatory pipeline’ for the financial services industry, which can be a useful check on where things have reached, especially where they are experiencing significant delay. Contributors include the Pensions Regulator, the Financial Conduct Authority and the Financial Reporting Council.
The following spring out from the latest edition of the grid published on 30 November 2023:
DB scheme funding
The DWP funding and investment regulations are expected to be laid in Parliament in Q1 2024, with the Pensions Regulator’s DB Funding Code expected to be in force in Q2 2024, both “subject to parliamentary timetable”.
This is broadly consistent with what the Regulator told MP’s last week, where it said that it expects the regulations to be introduced in the New Year, to be in force by 6 April 2024, but to impact valuation effective dates only from autumn 2024 onwards. Until fairly recently the understanding was that the new regime would be in force for valuation dates from April 2024 onwards, and this in turn was the latest in many resets of the intended go live date.
General Code of Practice
This is now expected to be in force in April 2024 “subject to parliamentary timetable”. So yet further delay for a Code that we understand was ready to be issued over a year ago. It remains far from clear why it is taking so long to issue what in large part is no more than the Regulator bringing most of its pre-existing Codes up to date.
Notifiable Events
These are part of a package of enhanced Regulator powers, introduced in the Pension Schemes Act 2021. All but these have now been delivered and we now find out that there is “significant uncertainty around delivery” of the notifiable events changes. No further detail is given on why this is so. Important changes had been intended to the requirements for employers to notify the Pensions Regulator about certain corporate events that might adversely affect the employer covenant.
This is the first time we have heard that something is wrong and may help to explain why there has been silence on this topic for well over two years.
Comment
All these delays can be firmly placed at the DWPs’ door. Hopefully, the new pensions minister can push to get the first over the line, simply publish the second and explain why the third cannot now be delivered.
And as the year draws to a close it is becoming apparent that the pensions regulatory machine that generally churns out new and amended requirements year in and year out has been notably poor in 2023 at getting things over the line. A possible New Year’s Resolution is to get on and deliver what has been worked up and not get distracted by new initiatives that clearly have a long way to go.
FCA confirms the go ahead on sustainability disclosure requirements and investment labels
The Financial Conduct Authority has announced that it is putting in place new sustainability disclosure requirements (SDR) and an investment labels regime following consultation with a range of stakeholders.
In a lengthy policy statement containing the final rules and guidance, the FCA says that its package includes the following:
-
An anti-greenwashing rule for all FCA-authorised firms to reinforce that sustainability-related claims must be fair, clear and not misleading. The FCA is also consulting on supporting guidance, the deadline for which is 26 January 2024
-
Four labels to help predominantly retail consumers navigate the investment product landscape and enhance consumer trust. They are sustainability focus, sustainability improvers, sustainability impact and a new sustainability mixed goals label (see here for more details on each of the labels)
-
Naming and marketing rules for investment products, to ensure the use of sustainability-related terms is accurate
-
Consumer-facing information to provide consumers with better, more accessible information to help them understand the key sustainability features of a product
-
Detailed information in pre-contractual, ongoing product-level, and entity-level disclosures, targeted at institutional investors and consumers seeking more information
-
Requirements for distributors to ensure that product-level information (including the labels) is made available to consumers
The above requirements are very similar to those on which the FCA consulted in October 2022 (see Pensions Bulletin 2022/39), which in turn had followed on from the July 2021 announcement by the then Chancellor, Rishi Sunak, that sustainability disclosure requirements were to be introduced for certain large businesses, pension schemes, investment products, asset managers and other asset owners (see Pensions Bulletin 2021/43).
The requirements are to come into force over a staggered timetable, starting with the anti-greenwashing rule from 31 May 2024. Firms can begin to use the investment labels from 31 July 2024. The naming and marketing rules for asset managers come into effect from 2 December 2024.
The FCA says that this package is a starting point and that it intends to expand and evolve the regime in future, including in the following areas:
-
Introducing sustainability labels for portfolio management – a consultation will be launched in early 2024
-
Working with HM Treasury to understand the options for extending the regime to overseas recognised funds
-
Extending the regime to pension and other investment products over the medium term
-
Setting up an independent working group for the financial advice industry to work together to build on existing capabilities in sustainable finance, including how the SDR and the labels regime support their role
Comment
This is the first “job done” under the SDR heading, with clearly more on the FCA’s agenda. The regulatory grid (see article above) says that further parts of the overall SDR regime will be consulted on by relevant government departments and regulators in due course, but does not give any timings.
The implementation of SDR for investment products provides an indication of how these sorts of requirements to disclose sustainability-related information may apply to pension arrangements, including occupational pension schemes, in future.
ONS introduces new data into inflation indices and publishes household cost indices
The Office for National Statistics has published a substantive update on its rolling programme to improve the calculation of inflation indices through the use of bigger and better data. From February 2024, the main “private housing rental” and “second hand car” aspects of CPI, CPIH and RPI will all be based on new (improved) methods of data collection.
Based on the ONS analysis, in summary, CPI and RPI (as currently calculated) are expected to remain broadly similar, CPIH might be expected to be perhaps 0.2% higher in the longer term (depending on how private housing rental inflation evolves in the future) with RPI therefore also expected to reflect this after 2030 from which point it is expected to be based on the CPIH formula.
Separately the ONS has also published its first quarterly bulletin of “Household Cost Indices” (HCIs), looking at the period between January 2021 and September 2023. These show how rising prices have had different impacts on people in different socio-economic groups and income levels. These indices have been in development for some time and have previously been published intermittently. They remain “experimental” (ie subject to revision) but going forward it is planned that they will be regularly published each quarter.
Comment
As you can see, the impact on actual inflation statistics of the new methods of data collection, are expected to be non-trivial and therefore worth noting.
The Household Cost Indices may be of interest to, for example, pension scheme trustees deciding on discretionary pension increases where the cost of living for pensioners is relevant. The planned quarterly publication will make them more practical to use.
Further engagement promised on dashboard standards
A blog published by the Pensions Dashboards Programme on 30 November 2023 states that further engagement is to take place on dashboard standards over winter 2023/24, ahead of final publication and approval by the Secretary of State for Work and Pensions.
It is intended that data standards will be made available ahead of other standards, timed to coincide with publication of the connection guidance. There is no news on when this connection guidance will be published (it had been promised for this autumn), but the blog also says that if pension providers and schemes connect in line with the staging profile set out in the (as yet unseen) guidance, then the dashboard could be switched on before 31 October 2026.
Comment
Until it becomes clear that the dashboard is happening one can be forgiven by parking this issue well down the agenda.
Occupational Pensions Revaluation Order issued
The Occupational Pensions (Revaluation) Order 2023 (SI 2023/1265) has been laid before Parliament and comes into force on 1 January 2024. It sets out the revaluation percentages applicable in respect of deferred pensions (in excess of GMP) for various deferral periods ending with the member reaching normal pension age in 2024.
Comment
The revaluation percentages are as we expected (see Pensions Bulletin 2023/41). Due to the presence of much lower inflation in the past, the 6.7% CPI increase to September 2023 should come through in full in respect of 5% capped deferred pensions other than for the shortest revaluation periods. However, for 2.5% capped deferred pensions this does not seem likely for any revaluation period.
FCA’s new rules on non-workplace pensions come into force
The Financial Conduct Authority’s rules, requiring non-workplace pension providers to offer non-advised pension savers a default investment option and provide warnings about the risk of inflation eroding the value of significant and sustained levels of cash holdings (see Pensions Bulletin 2022/45), came into force on 1 December 2023.
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.
