Pensions Insight: week ended 18 November 2022
In this edition of our Insight, we cover the pensions-related measures from Jeremy Hunt’s first budget as Chancellor and other relevant pensions developments.
17 November 2022 Budget – pensions
There are likely to be winners and losers in respect of state pensions. The headline is that existing pensioners are being well protected.
It was confirmed in the Autumn Statement that the Government is raising the State Pension, in line with inflation from April 2023, ensuring they increase by over 10% and in line with the commitment to the Triple Lock. The standard minimum income guarantee in Pension Credit is also increasing in line with inflation from April 2023 (rather than in line with average earnings growth). This is designed to ensure pensioners on the lowest incomes are protected from inflation and do not suffer a loss of some of their State Pension increase in the Pension Credit means test.
Whilst existing pensioners are the winners, the Autumn Statement confirmed that the State Pension age is legislated to increase over the next 25 years and that there is currently a review of the State Pension age being carried out which is considering whether the existing timetable remains appropriate.
The statement provides that “The Secretary of State for Work and Pensions will publish the Government’s Review of the State Pension age in early 2023. The Review will need to carefully balance important factors, including fiscal sustainability, the economic context, the latest life expectancy data and fairness both to pensioners and taxpayers.” This may raise concerns for many that the generational divide for pensions is widening as the implication is that current taxpayers will be funding expensive increases in the State Pension for a generation which widely benefits from separate defined benefit provision, but will themselves have to wait much longer than age 65 to receive their State Pension. Such further increase of the State Pension age is also likely to have a social and employment impact over time as many employees may not be able to afford to retire until much later, and will result in an ageing workforce. The 2023 State Pension Age Review is therefore likely to be eagerly anticipated.
The income tax additional rate threshold (ART) will be lowered from £150,000 to £125,140 from 6 April 2023. The Government will legislate in the Autumn Finance Bill 2022. With more higher earners caught by the ART, employers and pension providers may see employees seeking to increase their pension contributions to take advantage of the increased tax relief available on such contributions through salary sacrifice, especially given the likely increase in State Pension age. However, such a widescale move would reduce the amount of revenue generated by the Government from this tax change, so it will be interesting to see how much additional revenue it will raise in practice.
Along with freezes in the inheritance tax, national insurance and the VAT thresholds, the basic and the higher rate income tax thresholds will be frozen resulting in higher effective tax rates because of inflation, all until April 2028. The pensions annual allowance has already been frozen at £1m until April 2026, so it will also be interesting to see if it will be frozen until April 2028 too.
TPO updated Determinations Factsheet
The Pensions Ombudsman has published an updated Determinations Factsheet. The Factsheet includes helpful guidance on anonymised publication of determinations, the duty to make sure documents and information on the investigation are kept confidential, compliance with directions – essential unless there is an appeal, how to enforce a direction, and the appeal process (which must be lodged within 28 days in England and Wales and 14 days for Scotland).
ICO blog on new transfer risk assessment guidance for international data transfers
The ICO has published a blog regarding the updating of its international data transfer guidance and the inclusion of a new section on transfer risk assessments (TRAs) and a TRA tool.
Following the decision in Schrems II, organisations should carry out a TRA when transferring ‘restricted’ personal data from the UK and relying on one of the ‘appropriate safeguards’ in the UK GDPR. (The result of Schrems II is that organisations must consider whether there are appropriate safeguards when making an international transfer to a country without an adequacy decision.)
A TRA assesses whether, despite the presence of the data transfer safeguarding mechanism, UK data protection will be undermined in the receiving country.
The ICO’s new TRA guidance provides an alternative approach to that of the European Data Protection Board.
COP27 global climate change conference ends
Climate change is playing an increasingly prominent role in many areas, not least pensions, and it is important that trustees ensure that they comply with relevant requirements in this area. Such requirements include:
- a requirement for larger schemes to maintain effective governance and disclosure in respect of climate change risks and opportunities;
- trustees of schemes with 100 or more members setting out their policies on stewardship and on ESG considerations in their statement of investment principles; and
- new expectations for all occupational schemes in the Pensions Regulator’s new single code of practice.
The latest UN Climate Change Conference of the Parties (COP27) which was held in Sharm el-Sheikh, Egypt, ended on 20 November 2022 with a raft of decisions which, although seen as advancements in certain areas have also been seen by some as not going far enough to enable the Paris Agreement goal of limiting increase in the global temperature to 1.5˚ Celsius above pre-industrial levels to be met.
Perhaps most notable of the various outcomes was:
- the setting up of a loss and damage fund which will set up funding for developing countries having to deal with loss and damage caused by climate change;
- an agreement to make further efforts to limit the increase in temperature to 1.5˚; and
- agreeing to reduce greenhouse gas emissions and increase low emission and renewable energy with a ‘phasedown’ of coal power and ‘phase-out’ of inefficient fossil fuel subsidies (which wording did not go far enough for some).
Trustees should ensure that they keep up-to-date with climate change developments and note the expectations of the Regulator in this area which, as currently outlined in the draft new code, include trustees “talk[ing] to their advisers and asset managers about how short and long-term climate change risks and opportunities are built into their recommendations” and “understand[ing] what measures are being taken to reflect climate change risk within investment portfolios”.
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