In this insight we summarise the pensions announcements from the Spring Budget and provide an update of the latest Pensions Regulator news including the timing of the new code of practice and a round-up of the latest legislative developments.
Spring Budget 2023: Pensions – LTA abolished, AA to increase to £60,000 and MPAA going up to £10,000
Going further than much of the speculation and press briefings beforehand had anticipated, the Chancellor announced three pensions allowance changes in his 15 March 2023 Budget:
- the lifetime allowance (LTA) charge will be removed from April 2023 with the LTA itself being abolished entirely from April 2024;
- from April 2023, the annual allowance (AA) will be increased from £40,000 to £60,000; and
- the money purchase annual allowance (MPAA) will go up this April from £4,000 to £10,000.
Although the AA and MPAA increases were expected, much of the talk prior to the Chancellor’s announcement was that the LTA would also increase, perhaps up to £1.8m, so it comes as quite a shock that it will be removed entirely.
All three changes will be welcomed by the somewhat limited number of pension savers who will benefit, but we will have to wait and see whether the changes will have the desired effect of incentivising the targeted cohort of highly skilled older people to stay in or return to work.
Pensions Regulator round-up
New code of practice expected to be published this Spring
Pensions Age has reported that the Pensions Regulator expects to publish the new single code of practice this spring. It will be called the General Code.
It was expected that the General Code would be published and laid before Parliament before the end of January 2023 but nothing materialised. Progress on the code has been delayed, initially because of the pandemic and, subsequently, government changes.
It will form a significant part of trustees’ business plans during 2023 and will involve major change for some schemes generally and for all schemes with 100 or more members because of the new requirement for schemes with 100+ members to undertake an own risk assessment.
Regulator blog on importance of engaging early when sponsoring an employer in difficulty
The Pensions Regulator’s latest blog reiterates the importance of trustees of defined benefit (DB) schemes engaging with (and doing so early) the Regulator, the Pension Protection Fund (PPF) and other relevant stakeholders when a scheme’s sponsoring employer experiences difficulties.
The blog comes off the back of an £850m buy-in of full scheme benefits that has been secured for the 8,800 members of the Arcadia Group Pension Scheme following Arcadia’s 2020 administration. It notes that the Regulator can help trustees in protecting members when the scheme’s employer is stressed or failing – for example, by supporting security negotiations. Detail on the Arcadia case is provided by way of illustration.
The Arcadia case
Following liquidity problems in 2019, the Arcadia group proposed company voluntary arrangements to reduce commercial property rents and asked the trustees to accept a 50% deficit repair contribution reduction.
The Regulator and the PPF agreed that the Company Voluntary Arrangements (CVAs) were likely to produce the best outcome for the schemes and they worked with the trustees to protect the schemes’ estimated insolvency outcome through security over group assets to the value of £185m, a cash injection of £100m, a further £25m security and new deficit reduction contributions (DRCs).
Important messages for trustees
The blog pulls out three important messages from this case for trustees – namely, that it is important to: (1) have adequate financial information about the employer that is regularly assessed (preferably quarterly) by independent covenant advisers; (2) involve the Regulator early on when becoming aware of employer difficulty; and (3) ensure that they have both the relevant skills to manage the position and access to suitable advisers.
Legislation round-up
Pensions Dashboards (Prohibition of Indemnification) Bill 2022-23
The Private Members’ Pensions Dashboards (Prohibition of Indemnification) Bill received its second reading in the House of Lords on 3 March 2023. This is the Bill that will expand the prohibition in section 256 of the Pensions Act 2004 that prevents scheme assets in occupational and personal pension schemes from being used to reimburse trustees for certain fines and civil penalties, to include civil penalties in respect of breaches of the pensions dashboards legislation. The next stage for the Bill is the committee stage when the Lords will go through the provisions in detail.
During debate, it was confirmed that the Department for Work and Pensions (DWP) will have a larger role in management of the dashboards as part of the ‘reset’ which the Pensions Minister announced on 2 March 2023 (see our insight).
Ten-Minute Rule Bill on small deferred pots
On 7 March 2023, Conservative MP Anthony Browne introduced a Bill under the Ten-Minute Rule, that would introduce a single lifetime provider/ single pot model solution to deal with the issue of deferred small pension pots. This would be a ‘third’ potential solution that would be used as a supplement to the two that the Government is presently consulting on (a default consolidator model and a ‘pot follows member’ model) (see our insight).
Browne notes that the single pot model is one that is in use in other countries, and which involves a worker having one pot into which their employer’s and their own contributions are paid. To implement this there would be a change in legislation so that employees would be given the right to opt out of their employer’s pension scheme and instead direct that the contributions be paid into their own arrangement.
The Bill is due to be read a second time on 17 March 2023 – whether it gets off the ground and is taken up by the Government is another matter.
Technical amendments to the Pension Protection Fund and Fraud Compensation Fund Regulations
Following a July 2022 consultation, the DWP has confirmed that it is going ahead with changes (see regulations) that will allow the Board of the Pension Protection Fund (PPF) to pay for scheme fees and costs whilst Fraud Compensation Fund (FCF) claims are going through and which will remove current provisions which mean a child dependant loses PPF compensation where they have a gap between qualifying courses of more than a year. The changes will come into force on 6 April 2023.
Revised Data Protection and Digital Information Bill
The Data Protection and Digital Information (No. 2) Bill was introduced into the House of Commons and had its first reading on 8 March 2023. This is an ‘improved’ version of the Data Protection and Digital Information Bill that was introduced into Parliament last July.
The Bill will introduce new data laws to “reduce costs and burdens for British businesses and charities, remove barriers to international trade and cut the number of repetitive data collection pop-ups online”. Amongst other things, the Bill will bring in a ‘business-friendly’ framework that is designed to be simple and cost effective whilst making sure that EU data adequacy is met, reduce paperwork requirements, and clarify when certain safeguards will apply to AI technologies.
The explanatory notes reference the changes including reform of the Information Commissioner, the setting up of a digital verification services framework and clarification of the rules on international transfers and cross-border flows of personal data. The Government believes it will save around £4.7bn in the 10 years following implementation.
The Bill is one to watch for now – updates to existing data protection policies and documentation will likely be required, for example to refer to new terminology.