Welcome to your weekly update from the Allen & Overy Pensions team, covering all the latest legal and regulatory developments in the world of workplace pensions.
This week we cover topics including: Spring Budget tax changes: further HMRC guidance; State pension age review published; TPR: Equality, diversity and inclusion guidance; TPR value for members initiative; Extension of pension scheme clearing exemption; PASA dashboards guidance; PLSA stewardship and voting guidelines; PPF updated buy-out assumptions; The Gender Pensions Gap: what it is and how to fix it – 23 May 2023; Next edition
Spring Budget tax changes: further HMRC guidance
HMRC has published a newsletter setting out further guidance on the abolition of the lifetime allowance (LTA – the limit on the amount of tax efficient pension saving that can be made over a person’s lifetime), as outlined in the Spring Budget.
Operation of LTA protections
The newsletter explains how HMRC intends the rules on LTA protections to work after 5 April 2023. After that point, enhanced protection and fixed protection, which give an individual a higher LTA, will no longer be lost on accrual of new benefits, transfer or joining a new arrangement. This is the case provided that the protection was successfully applied for before 15 March 2023.
Members who have enhanced protection with lump sum protection will still be entitled to a higher pension commencement lump sum (PCLS), but the value of the lump sum will be limited based on the value of their pension rights on 5 April 2023. This means that scheme administrators will need to be able to provide members with a valuation as at 5 April 2023; any contributions made on or after 6 April 2023 will not count towards the PCLS for these members.
If an application for fixed protection 2016 (or a successful late application for another form of protection) is made on or after 15 March 2023, the individual will be entitled to a higher PCLS but will be subject to all existing rules for protection cessation events: if they accrue new benefits, transfer or join a new arrangement after 6 April 2023, they will lose their LTA protection.
The newsletter gives a number of examples to demonstrate how these rules will work for the different protections and scenarios.
Other administrative issues
The newsletter reminds administrators that, because the LTA will remain in place until April 2024, they will need to continue to complete LTA checks when paying benefits and to issue benefit crystallisation event statements. However, because the charge for exceeding the LTA will not apply after 5 April 2023, there will be no requirement to report those charges on the Accounting for Tax Return from that point.
Lifetime allowance excess lump sums, and other lump sums which currently trigger a 55% LTA charge in certain circumstances, will be charged at the recipient’s marginal rate. The other relevant lump sums are: serious ill-health lump sums, defined benefits lump sum death benefits and uncrystallised funds lump sum death benefits. From 6 April 2023, normal PAYE rules will apply to these payments, and they will be treated as pension income. The newsletter gives guidance on the tax codes that should be used in different scenarios and what to do where too much tax is charged as a result of using emergency codes. It also gives guidance on process changes when paying the two death benefit lump sums.
The newsletter includes a section on reporting and paying any excess amount above the LTA through employer payroll and how this can be achieved in the period before payroll systems can be updated. HMRC expects systems to be updated by 30 September 2023.
Read the newsletter.
State pension age review published
The government has published its review of the state pension age (SPA). It has confirmed that the SPA will rise to 67 by the end of 2028, as planned. The government has decided not to increase the SPA further to age 68 at this stage but it will hold a further review within two years of the next Parliament to reconsider this.
Read more.
TPR: Equality, diversity and inclusion guidance
The Pensions Regulator (TPR) has released guidance for pension scheme governing bodies and employers on improving equality, diversity and inclusion (ED&I) on scheme boards, together with other resources.
The guidance for scheme governing bodies:
- highlights the important role of the Chair in driving and promoting ED&I and sets out steps for getting started with training and policy development;
- includes a section on encouraging an inclusive governing body culture, including reasonable adjustments for those with disabilities or health conditions and gives suggestions on ways to attract more diverse candidates through recruitment; and
- encourages using advisers or gathering views from members, forums and committees to gain more diverse input on specific issues and considering ED&I as part of adviser tendering processes.
The employer guidance focuses on encouraging ED&I in trustee and Chair recruitment and discusses the implications of section 46 of the Employment Rights Act 1996, which requires that employees should not be subjected to any detriment by their employer as a result of acting as a trustee of their employer’s scheme.
View the ED&I resources.
TPR value for members initiative
TPR has launched an initiative to check that DC schemes with assets under management of less than GBP100 million are complying with the requirement to complete a value for members assessment. TPR will contact selected schemes later this year, including those that have indicated they have failed the assessment. It will then check that trustees have plans in place to improve their assessments. Where improvements cannot be evidenced, TPR will ultimately expect trustees to wind up and consolidate into a better run scheme.
Read more.
Extension of pension scheme clearing exemption
The government has announced that it intends to extend the exemption for UK pension funds from the clearing requirements for over-the-counter derivatives under UK EMIR, currently due to end on 18 June 2023, by a period of two years. HM Treasury will conduct a review of the pension fund exemption ahead of its expiry on 18 June 2025, allowing time for consideration and implementation of a longer-term approach. This change relates to the UK clearing exemption only; the similar EU exemption for European pension scheme arrangements is still currently due to end on 18 June 2023.
Read more.
PASA dashboards guidance
The Pensions Administration Standards Association (PASA) has published two new pieces of guidance in relation to pensions dashboards. The first includes suggested wording to be provided in response to a range of questions that members may raise about dashboards, such as ‘what will I be able to do with a pensions dashboard?’ and ‘when can I use a pensions dashboard?’ The wording could be used in pension service call centre scripts and/or in response to email queries.
The second is an addendum to its existing data matching guidance (on how schemes should match the data provided by pensions dashboards to its records to identify whether an individual has a pension with it). The addendum gives guidance on matching where a national insurance number is not provided and on possible match responses (where the scheme is unsure whether or not a record is a match).
Read the member responses guidance and the data matching guidance.
PLSA stewardship and voting guidelines
The Pensions and Lifetime Savings Association (PLSA) has published updated guidelines for pension scheme trustees on what they see as the key issues that schemes should be considering on stewardship and exercising voting rights. It includes a policy framework for corporate governance and stewardship; guidance on taking a holistic approach to stewardship; a corporate governance policy setting out what the PLSA believes good corporate governance looks like; and voting guidelines.
Read the guidelines.
PPF updated buy-out assumptions
The Pension Protection Fund (PPF) has published a response to consultation on changes to the assumptions used when valuing a scheme after an employer has entered insolvency. The valuations are used to determine whether the scheme enters the PPF or can secure higher benefits through the insurance market.
The response confirms that the proposals, which are intended to make the PPF’s valuations better reflect the assumptions used by insurers and lower pricing in the bulk annuity market, will go ahead. The changes include: adopting a yield curve approach to determining liabilities in some circumstances; increasing the discount rates for certain tranches of benefit; a new model for mortality projections; and amending the calculation of expenses. The new assumptions will take effect from 1 May 2023; updated assumptions guidance documents are now available on the PPF’s website.
Read the consultation response and the updated assumptions guidance.
The Gender Pensions Gap: what it is and how to fix it – 23 May 2023
The Gender Pensions Gap – the difference between the pension incomes that men and women can expect at retirement – is estimated to be twice the size of the Gender Pay Gap. Why is that, and how can we close the gap? Join us at our offices on Tuesday 23 May 2023 when we will be welcoming Legal & General Investment Management’s (LGIM) Stuart Murphy, Co-Head of DC, and Alexandra Miles, Senior DC strategist, to discuss the gap and what can be done to address it.
Sign up here.
Next edition
Due to the upcoming bank holidays, the next edition of What’s New This Week will be published on 17 April.
