In this week’s insight we cover the pensions-related measures in the Finance Bill 2022, the publication of two private members’ bills on GMP conversion and public sector exit payments, the updated Pensions Ombudsman’s factsheet on determinations and the Pensions Regulator’s timescales on various initiatives contained in the Regulatory Initiatives Grid.
We also provide an update on proposed changes to the Fraud Compensation Levy, an Ombudsman factsheet on the Fraud Compensation Fund aimed at independent trustees, the Government’s proposals to require certain businesses to undertake mandatory TCFD reporting, and the FCA’s discussion paper on sustainability.
Finance Bill 2022 published
The Finance (No. 2) Bill was published on 4 November 2021 alongside a 4 November 2021 Treasury Update statement on the increase in normal minimum pension age from 55 to 57 on 6 April 2028, one of the pensions-related measures being introduced by the Bill (see our insight update for details of the NMPA changes).
Following feedback, the window during which an individual can join or transfer to a scheme and have a protected pension age below age 57 has been shortened. In the July 2021 draft version of the Bill this window ran until 5 April 2023, but this has been changed to one minute before midnight on 3 November 2021. This means that a protected pension age will be limited to those persons who joined a scheme before 4 November 2021 or who had asked for a transfer before this date, and had an unqualified right to take a benefit before age 57, such right being included in the rules of the scheme on 11 February 2021.
This modification has been introduced to deal with concerns that having the window open till 5 April 2023 could potentially adversely affect the pensions market and savers. Prior notice of the change was not made to prevent instability in the pensions market and to protect savers from potential scam activity.
We discussed two of the three other pensions-related changes being introduced by the Bill in our Autumn Budget 2021 article – they relate to the scheme pays mechanism for the annual allowance charge and tax changes needed in respect of the McCloud age discrimination remedy. The final pension changes being introduced by the Bill relate to the Income Tax Act 2007 and are being made to ensure uniformity in the treatment of pensions tax charges.
Private members' bills published on conversion of GMPs and limiting public sector employee exit payments
In our 16 July 2021 insight update we reported that Margaret Ferrier, Independent MP for Rutherglen and Hamilton West, had tabled a private member's Bill, the Pension Schemes (Conversion of Guaranteed Minimum Pensions) Bill, which makes provision for the amendment of pension schemes regarding the conversion of rights to a guaranteed minimum pension. The Bill has now been published ahead of its second reading in the House of Commons on 26 November 2021.
Another private member's Bill due to have its second reading in the House of Commons has also been published. This is the Public Sector Exit Payments (Limitation) Bill which aims to "limit exit payments made by some public sector organisations to employees; and for connected purposes". As currently drafted, regulations made under the Bill could take effect with regard to any exit payments made on or after 1 April 2022.
Regulatory Initiatives Grid – fourth edition published
On 1 November 2021, the fourth edition of the Regulatory Initiatives Grid was published. This sets out initiatives of the members of the Financial Services Regulatory Initiatives Forum which includes amongst others the Bank of England, the Competition and Markets Authority, the Financial Conduct Authority, HM Treasury, the Information Commissioner's Office, and the Pensions Regulator.
It is clear from the expected timings in the Grid that there are several busy months ahead for the pensions industry with a lot of publications due towards the end of this year and the beginning of next.
Fraud Compensation Fund: Proposed change to the PPF's Fraud Compensation Levy ceiling & TPO factsheet for independent trustees
Fraud Compensation Levy changes
On 1 November 2021, the DWP published a consultation on the review of the Fraud Compensation Levy (the FCL) ceiling, which proposes altering the ceiling as from the 2022/23 levy year.
The FCL is used to fund the Fraud Compensation Fund (the FCF), which compensates occupational pension schemes where, because of an offence involving dishonesty, its assets have been reduced. The FCF is operated by the PPF.
The recent case of the Board of the PPF v Dalriada Trustees Ltd confirmed that, in certain cases, victims of pension scams can receive compensation from the FCF. As a result of the ruling, the PPF confirmed in April 2021 that it would need to increase the levy from 25p per member to 75p per member (30p for master trusts) in 2021/22.
However, this increase will not be sufficient and there are not enough assets within the FCF to satisfy the claims resulting from the Dalriada judgment. This has led to the creation of a power under the Compensation (London Capital & Finance plc and Fraud Compensation Fund) Act 2021) which allows the Secretary of State to make a loan to the Board of the PPF which will be repaid through the FCL. The loan is expected to be for an amount of £250m, which would be provided between 2021 to 2025.
To allow the repayment of the loan to be made within what is considered to be a reasonable period (by 2030/31), the FCL needs to be increased from the current maximum ceiling - it is proposed that this will increase up to a maximum of £1.80 per member (65p for master trusts).
The consultation closes on 10 December 2021.
The Pensions Ombudsman factsheet on the FCF for independent trustees
On 2 November 2021, the Pensions Ombudsman published a factsheet on the FCF for independent trustees.
Government consultation response on mandatory TCFD reporting for businesses
The Government has confirmed in a consultation response its plans to require publicly quoted and large companies, and LLPs to undertake mandatory TCFD (Task Force on Climate-related Financial Disclosures) reporting. The changes are due to come into effect from 6 April 2022. The new requirements should help trustees to meet their own respective climate-related reporting and governance duties where they relate to the companies within scope.
FCA discussion paper published on SDR and investment labels
In a recent insight we reported on the Government's policy paper, Greening Finance: A Roadmap to Sustainable Investing. Off the back of this paper, the FCA has published a discussion paper on sustainability disclosure requirements for asset managers and FCA-regulated asset owners and a new classification and labelling system for sustainable investment products.
The intention is to have common standards and categorisation, and labelling available to consumers. One of the proposed approaches involves having a tiered system of labels and disclosures, which would use the FCA's proposed TCFD-aligned disclosure requirements and include other sustainability elements in addition to climate.
Responses on the discussion paper can be submitted until 7 January 2022.