In this week’s digest we set out the expected timetable for the Pension Schemes Act 2021 secondary legislation and discuss the Spring 2021 Budget, the delay of the CMA consultation response, the Government’s responses on the auto-enrolment alternative quality requirements review and general levy consultation, public sector exit payments, the PPF’s guidance on CIGA, the WPC’s second strand of the pension freedoms and scams inquiry and preparation for pension dashboards.
Pension Schemes Act 2021: Pensions Minister sets out next steps for secondary legislation
In a written ministerial statement, the Pensions Minister, Guy Opperman, has set out the next steps for the Pension Schemes Act 2021 (the Act) and the secondary legislation which will bring many of the operative parts of the Act into effect:
Provision |
Next step |
Timescale |
Majority of extended Pensions Regulator (the Regulator) powers |
Consultation on draft regulations |
Spring 2021 |
Commence powers & criminal offence measures |
Autumn 2021 |
Extended Regulator powers – notifiable events framework |
Consultation on draft regulations |
Later this year |
Commencement of regulations |
As soon as practicable afterwards |
Climate change |
Regulations laid |
Summer 2021 |
Regulations come into force |
Ahead of the UN Climate Change Conference of the Parties (COP26) which starts on 1 November 2021 |
Transfer fraud prevention |
Consultation on draft regulations |
Early Summer 2021 |
Commencement of regulations |
Early Autumn 2021 |
Collective defined contribution schemes |
Consultation on draft regulations |
Early Summer 2021 |
Defined benefit scheme funding |
Consultation on draft regulations |
During 2021 |
Pensions dashboard |
Consultation on proposed regulations |
During 2021 |
Draft regulations laid before Parliament |
2022 |
The spring 2021 budget and pensions
The Spring 2021 Budget included the anticipated announcements in relation to the extension of the Coronavirus Job Retention Scheme (the CJRS) and freezing of the Lifetime Allowance and also details of potential investment reform and a further consultation on defined contribution (DC) investments and charge cap barriers:
- Extension of the Coronavirus Job Retention Scheme: the CJRS is being extended to the end of September 2021 – no employer contributions beyond NICs and pension contributions will be required to the end of June with an employer contribution required as from July starting at 10% and increasing to 20% in August and September.
- Freezing of Lifetime Allowance: this will be kept at £1,073,100 until April 2026.
- Investment reform: The Chancellor’s Budget Speech referred to "taking steps to give the pensions industry more flexibility to unlock billions of pounds from pension funds into innovative new ventures" and the introduction of a new direct co-investment product, the Future Fund: Breakthrough, in which £375m will be provided to support the scale up of innovative businesses. In association with this initiative, the Financial Conduct Authority will shortly consult on issues raised by the review which was undertaken by Lord Hill on UK Listings and how to make the UK the "best place for high-growth, innovative businesses to publicly list".
- Consultation on DC investments: with investment reform for pension funds on the agenda, the Government will consult within the next month on whether specific costs within the current 0.75% DC charge cap impact on investment in a 'broader range' of assets. The DWP will also publish draft regulations to facilitate such investment within the scope of the charge cap by smoothing performance fees. This follows the September 2020 DWP consultation on the part that the measurement of performance fees and the charge cap could play in restricting the ability of auto-enrolment schemes to invest in less liquid investment classes.
DWP outcome of competition and markets authority (CMA) consultation delayed
Development:
The DWP has announced that there will be a further delay in its publication of the response to the consultation on the draft regulations which will implement the CMA's recommendations to require trustees, subject to limited exceptions, to carry out a tender process for fiduciary management services and set objectives for investment consultants with Regulator oversight.
Key point:
These requirements are currently implemented through the Competition and Markets Authority Order 2019 (the CMA Order) with the intention being to integrate them into the draft regulations. The response and final regulations are not expected now until the first half of 2022 – in the meantime, trustees must continue to comply with the CMA Order.
The delay also means that trustees will need to submit the next annual compliance submission to the CMA by 7 January 2022 rather than to the Regulator via the scheme return.
Auto-enrolment: DWP concludes that alternative quality requirements should continue without adjustment
Development:
The Government has published its response to the September 2020 call for evidence on reviewing the alternative quality requirements for DB and hybrid schemes.
The two alternative quality tests were introduced following the end of contracting-out in April 2016 to allow for simpler alternative tests to be used so that a defined benefit (DB) or hybrid scheme can demonstrate that it is of sufficient quality for use as an automatic enrolment scheme.
The Government is legally required to review the regulations which introduced the alternative quality requirements every 3 years.
Key point:
The DWP has concluded that there should be no changes to the requirements and that their overall objective, to act as simplified quality tests, is being satisfied. The next review will be in 2023.
DWP confirms changes to structure and rates of the general levy
Development:
In our 8 January 2021 update we reported on the Government's consultation into changes to the structure and rates of the general levy which is paid by pension schemes to recover funding provided by the DWP to the Regulator, the Pensions Ombudsman and part of the Money and Pensions Service.
Key point:
The Government's response confirms that the levy rates will be increased and that the current two sets of rates for occupational and personal pension schemes will be changed into four sets (DB, occupational DC schemes other than master trusts, DC master trusts and personal pension schemes).
The estimated additional cost to DB and hybrid schemes will be £1.3m in 2021/22 increasing through to £16.3m in 2023/24 – for example, the minimum rates for schemes with 1,000 to 4,999 members will increase to £2,080 in 2020/21 and go up to £4,580 in 2023/24.
Public sector exit payments – top ups mandatory
Development:
We reported in our previous update that the Government had decided to disapply the £95,000 cap on public sector exit payments and that the guidance accompanying the removal of the cap referred to an expectation that employers would pay affected former employees any additional sums owed in respect of exit payments which had been subjected to the cap.
Key point:
The draft regulations which will revoke the cap change this expectation to a mandatory requirement. They provide that relevant public sector authorities will have to make an additional payment (together with interest) in respect of any former employees who received a capped exit payment between 4 November 2020 and 19 March 2021 (when the regulations come into force).
PPF guidance on CIGA
Development:
The Pension Protection Fund (the PPF) has produced interim guidance on the Corporate Insolvency and Governance Act 2020 (CIGA).
By way of reminder, CIGA introduced various temporary measures aimed at addressing the impact of the pandemic and two new insolvency processes; moratorium periods and restructuring plans.
These processes are not qualifying insolvency events for PPF purposes but, where there is a DB pension scheme, this is 'likely to be a substantial creditor' of the sponsoring employer and the PPF will exercise various creditor rights instead of the trustees.
The PPF guidance notes that, as at February 2021, the procedures have not been widely used but should prove useful in the 'post Covid environment' although care will be required in the application of CIGA and pensions legislation.
The PPF expects that the directors and insolvency practitioners/advisers 'fully engage' with the trustees, the PPF and the Regulator. It also considers that the trustees' vote exercised by the PPF should have the value of the estimated debt that would be due from the employer if Section 75, Pensions Act 1995 applied.
Key point:
As regards moratoriums, the PPF "is supportive of genuine attempts to restructure viable businesses to enable them to continue and meet their commitments to” defined benefit pension schemes but it has to be "likely that a moratorium for the company would result in the rescue of the company as a going concern" (PPF emphasis added) – subject to any temporary amendments applied due to the pandemic. The PPF sees this as a 'very high bar' – if checks on this or monitoring is not undertaken, the PPF may challenge matters in court.
As regards restructuring plans, the PPF specifically references interaction with pensions legislation noting in particular that directors should ensure that restructuring plan proposals "would not compromise the pension scheme's eligibility for PPF protection" and that such plans must not be used to attempt to abandon pension schemes.
Our insight update provides further information about CIGA and the pension implications.
WPC commences second stage of pension freedoms and protection of savers inquiry
Development:
We have reported previously on the Work and Pensions Committee's (WPC) three strand inquiry into the impact of the pension freedoms and the protection of savers.
The first part which concluded in January 2021 considered pension scams and the WPC has now issued a call for evidence for the second stage which will consider "how savers are prepared and protected to move from saving for retirement to using their pension savings".
Key point:
This part of the inquiry will look at the options for accessing pensions, the available advice and guidance and the information required to be able to make an informed choice. Written evidence must be provided by 14 April 2021. The final strand of the inquiry which will consider "what more can be done to help people plan and save for retirement" and will include consideration of the gender pension gap, self-employer and gig economy workers will begin later this year.
PASA guidance on preparing for pensions dashboards
The Pensions Administration Standards Association (PASA) has launched guidance on getting ready for pensions dashboards. It includes a one-page flier - What can I do now? The principal take away is that schemes should start preparing now if they have not already done so. Trustees should liaise with their scheme administrators to identify what steps can be taken now to prepare. Future guidance will include guidance on data management plans.