In this edition of our Insight, we provide our usual round-up of recent pensions developments including the latest news on pensions dashboards, HMRC’s guidance on the taxation of pension scheme arrears interest payments, and regulations on climate change and the PSA 2021.
Pensions dashboards round-up
The Pensions Regulator publishes pensions dashboards guidance with a warning to begin preparations
The Pensions Regulator has published initial guidance on pensions dashboards with a warning that trustees who have not done so already, must begin preparations now for their scheme’s pensions dashboards deadline. This follows its research findings that not enough has been done to date, meaning that certain schemes may risk breaching their legal obligations when they come into force.
The guidance is based on the indicative draft regulations that were the subject of DWP consultation back in January of this year – the Government response to the consultation is expected this Summer with the regulations expected to be finalised in the Autumn. The guidance covers when schemes need to connect, the connection process, matching people to their pensions, information to provide to members, failing to comply, a checklist for connecting, and staying in touch with developments.
The legal requirements of pensions dashboards include registering the scheme with MaPS and connecting to dashboards by a set date, receiving personal information on members, searching and matching members to their pensions, giving pension information to members through the dashboard, co-operating with MaPS and reporting certain information to MaPS and the Regulator.
Large scheme – 1,000+ active and deferred members, and all master trusts, public service and CDC schemes.
Staging dates: between June 2023 and September 2024.
Medium scheme – 100 to 999 active and deferred members.
Staging dates: between October 2024 and October 2025.
Small and micro scheme – 99 or fewer active and deferred members.
These schemes are not in scope of the draft regulations but they may be included in future legislation. They can apply to connect on a voluntary basis.
[Source: the Pensions Regulator - dashboards guidance]
The staging date can be deferred for up to a year in certain limited cases such as if the scheme’s administrator is being replaced. Schemes will have a one month window prior to the deadline to connect to the system (three months for larger master trusts with a deadline of 30 June 2023).
Data accuracy will be paramount – the guidance notes that if the data is incorrect it could end up with the Regulator or Information Commissioner’s Office stepping in and taking enforcement action. Schemes will also need to comply with their UK General Data Protection Regulation obligations as data controllers given that providing data will count as the processing of scheme members’ and beneficiaries’ personal data.
Failure to comply
The Regulator will have new powers for failing to comply with the dashboards’ requirements in the form of compliance notices and penalties. These will exist alongside current Regulator powers such as information requests and taking action against a trustee, for example, suspension. The Regulator will consult on a dashboards compliance and enforcement policy this Autumn.
The Regulator will be issuing additional information and guidance throughout 2022 and early 2023.
As the guidance states, if they have not done so already, trustees of registrable occupational pension schemes with 100 or more members and UK-based non-registrable public service pension schemes should liaise with the relevant organisations that will need to be involved to begin preparing for the connection requirements. The Regulator suggests they should do this ‘as soon as possible’ irrespective of the scheme’s staging date. Such organisations will include the scheme administrator, software providers, actuary, and legal advisers. It may also include the employer and external data suppliers such as the provider of additional voluntary contributions.
The Regulator will be in touch with all schemes at least 12 months before their connection deadline.
DWP publishes further pensions dashboards consultation
On 28 June 2022, the DWP published a second consultation on the draft Pensions Dashboards Regulations (see our Insight for details of the first consultation) seeking views on two additional matters that were not covered in the initial consultation:
- The Dashboards Available Point: The DAP is the point at which the services will be made available to the public which is dependent upon dashboards being at suitably progressed stage to satisfy the DWP’s objectives of having the service and the system being ready to support widespread use. The proposal is that the DAP will be provided for in the regulations and will be such a date as set by Secretary of State for Work and Pensions (with an advance notice period of at least 90 days); and
- Information disclosure: Proposals to support the sharing of information between MaPS (the Money and Pensions Service) and the Pensions Regulator with a provision in the regulations to provide MaPs with the power to disclose information to the Regulator and provision to be made in the Pensions Act 2004 to permit the Regulator to share restricted information with MaPS.
The consultation closes on 19 July 2022.
HMRC pension schemes newsletter 140: taxation of interest payments on pension scheme arrears
Amongst other things, HMRC’s pension schemes newsletter 140 confirms the position as regards the tax treatment of interest paid on pension scheme arrears:
- Scheme administration payment: where interest is provided on an ‘arm’s length commercial basis’, meaning it is no more than a “reasonable commercial rate of interest”, the interest payment will qualify as an authorised scheme administration member payment.
So far as interest paid on pension arrears relating to equalising for the effect of unequal GMPs, where interest is provided at 1% above base rate, on either a simple or compound basis, or at the rate provided for under the scheme rules it will be treated as a scheme administration member payment.
- Taxation: interest payments that qualify as scheme administration member payments are taxable as interest arising in the tax year of payment – HMRC’s guidance on interest taxation can be found here.
- Deduction of tax: where the interest is treated as ‘yearly’ (which is likely in the case of GMP equalisation related interest payments), the scheme will generally not need to deduct income tax at source unless the recipient usually lives outside the UK. For further HMRC guidance on this, click here.
This guidance follows on from the pension industry reports on HMRC’s position as reported on in our April 2022 Insight.
- Guidance on pension arrears relating to GMP equalisation: the newsletter refers readers to HMRC’s February 2020 GMP equalisation newsletter for guidance on the payment and taxation of the pension arrears themselves.
Climate change regulations
On 30 June 2022, final regulations were made which, from 1 October 2022, will require trustees of large occupational pension schemes to adopt a new portfolio alignment metric that will explain the degree to which the scheme’s investments align with the Paris Agreement goal of limiting increase in the global temperature to 1.5˚ Celsius above pre-industrial levels. For further information on the regulations see our June 2022 Insight.
Pension Schemes Act 2021: sixth commencement regulations
The sixth set of Pension Schemes Act 2021 commencement regulations were made on 28 June 2022. These bring into force provisions relating to the Pensions Regulator’s powers (in relation to inspection of premises, offences of providing false or misleading information and other minor and consequential amendments) and collective money purchase schemes which will be able to make applications for authorisation from the Regulator as from 1 August 2022 (see our June 2022 Insight).
Updated Regulator DC scheme return guidance
The Pensions Regulator has updated its DC scheme return guidance website page confirming that it will send out scheme return notices to those schemes that have to complete one between July and December 2022. Those DC schemes with between two and 11 members have to complete a return triennially and those with 12 or more members are required to do so annually.
The questions on this year’s return will be the same as last year and the Regulator includes an example DC scheme return that can be used to see what information might be required.
PASA guidance on administration implications of past transfers out
PASA (The Pensions Administration Standards Association) has published guidance on the administration implications of past transfers out in relation to GMP equalisation. It consists of a checklist of generic questions with details of the decision the trustees may have to make in relation to each issue together with the administrative implications. As the guidance says, the checklist can be used by trustees to “inform discussions, capture the decisions made and provide an audit trail…”. The checklist covers matters such as treatment of non-statutory individual transfer values, interest payments, application of a de-minimis policy, contractual arrangements, form of the top up and keeping records.