Pensions Insight: weeks ended 20 & 27 May & 3 June 2022
In this edition of our Insight we provide a round-up of recent Pensions Regulator news, and report on other relevant pensions developments.
This includes: recent changes to the Pensions Tax Manual to reflect the increase in Normal Minimum Pension Age to 57, delays to the uncapping of PPF members' compensation and confirmation of a return to the triple lock for state pensions.
The Pensions Regulator round-up
Annual funding statement analysis 2022 published
The Pensions Regulator has published annual funding statement analysis 2022 setting out the expected positions of DB schemes with valuation dates between 22 September 2021 and 21 September 2022 (Tranche 17).
The analysis is somewhat technical in nature providing further detail to the annual funding statement 2022 (see our In Depth Insight).
In summary, the analysis confirms that:
- Most major asset classes invested in by UK pension schemes achieved 'substantially positive' returns over the 3 years to December 2021 and 3 years to 31 March 2022;
- The Russia/Ukraine situation, COVID-19 & Brexit may have affected employer covenant which will in turn be reflected in technical provisions. The Regulator has not included employer affordability trends because of the uncertainties caused by the pandemic;
- The Regulator's modelling shows that schemes with valuation dates as at 31 December 2021 and 31 March 2022 should have improved funding levels from the previous 3 years. This is primarily due to additional returns on assets to the end of March 2022 together with deficit repair contributions that have been paid, and with financial conditions increasing the liabilities by a much lesser amount; and
- 68% of Tranche 17 schemes (based on certain assumptions) will be able to keep deficit repair contributions at the same level or reduce them, just 1% will have to increase them but generally such contributions may be limited by employer affordability.
Stronger nudge: Pensions Regulator highlights online tool for booking Pension Wise appointments
The Pensions Regulator has revised its DC scheme communicating and reporting guidance to add a link to the online tool trustees can use to book Pension Wise appointments for those members who, from 1 June 2022, will receive Pension Wise guidance before transferring or receiving flexible benefits. The new requirement to refer certain members to pensions guidance was brought in by the recently introduced 'stronger nudge' regulations (see our Insight). The Regulator made various updates to the guidance back in March 2022 to incorporate references to stronger nudge.
Where a member within scope accepts a trustee offer to book them an appointment with Pension Wise, the trustees must take reasonable steps to book that appointment at a time and date that is convenient to the member.
The Pensions Regulator and FCA respond to discussion paper on VfM
The Pensions Regulator and the Financial Conduct Authority have published a feedback statement on their joint September 2021 discussion paper: driving value for money (VfM) in defined contribution pensions (see our Insight).
The discussion paper looked at creating a framework for information disclosure on assessing value for money in DC arrangements regulated by either the Regulator or the FCA. This framework is intended to help measure VfM given the difficulties in being able to consistently compare the key components. In turn this should help drive competition and encourage value to be improved.
The statement details the responses received. Although it does not set out any policy response from the regulators themselves, it does confirm that the Regulator and the FCA will continue developing a common approach which will enable a proper comparison of VfM. The feedback statement notes that external comparisons of VfM are essential for assessment and consistency is required. It notes that the 61 respondents' feedback "highlighted complex questions about how to achieve" the information disclosure framework – therefore, additional work is required before any further steps are taken especially given the lack of consensus about how to achieve required metrics.
Both regulators will carry on working with relevant pensions groups and a joint Regulator, FCA and DWP consultation will be published towards the end of 2022. The approach is currently concentrating on workplace scheme accumulation and specifically default arrangements.
Pensions Tax Manual updated to include references to NMPA increase
HMRC has updated various pages of its Pensions Tax Manual (the PTM) to reflect the increase in NMPA ('normal minimum pension age') from 55 to 57 from 6 April 2028 as legislated for in the Finance Act 2022 (see our Insight for details of the NMPA changes that are being made and our Insight for further details of the Finance Act 2022).
The changes made include:
- inserting references to the increase in pages relating to 'general principles' of taxation and pension age, and in those pages relating to member benefits such as 'essential principles: pensions' and the NMPA section of 'pensions: pension age';
- an update to the basic principles of a protected pension age page and the right to keep a protected pension age after transfers or winding up page to direct readers to a new page for the 2028 regime (see below); and
- two new pages on having a 2028 regime protected pension age which will entitle a member to a NMPA of 57 after 6 April 2028; (1) the right to take benefits before age 57, and (2) the right to keep a protected pension age after transfers.
PPF taking longer than anticipated to pay arrears to uncapped members
The Pension Protection Fund has written to members informing them that it is taking more time than it had initially anticipated to calculate relevant PPF members' uncapped compensation and to provide arrears payments. Uncapping is required following the court's ruling in the Hughes case (see our Insight) that the compensation cap which limits the total amount of pension payable to members who are below the normal pension age at the date of the employer's insolvency amounted to unlawful age discrimination.
The delay is primarily because the PPF does not have all the historical information it needs to undertake the calculations as it only held the data needed to calculate compensation not all the information needed to uncap. It has also identified certain mistakes in existing data and providing members with the option to take some of the uncapped part as a lump sum has proved particularly complex and time consuming.
However, progress has been made and implementing an automated system to carry out the individual calculations should help matters. The PPF will issue a further update by August 2022.
PASA Cybercrime Protection Checklist published
PASA has published a Cybercrime Protection Checklist designed to assist administrators prevent cyber attacks. This supplements PASA's November 2020 Cybercrime Guidance which provided information on cybercrime, how it has changed and protection.
The checklist gives examples of how to increase resilience to meet standards, understand the organisation's vulnerability, ensure resilience, and be able to fulfil key functions.
Return of the triple lock for state pensions confirmed
Rishi Sunak, the Chancellor of the Exchequer, recently confirmed that the triple lock will be reinstated in April 2023 so that the uprating of state pensions will be increased by the highest of the increase in earnings, the increase in prices (by reference to CPI) and 2.5%. The triple lock was suspended in respect of the April 2022 increase by setting aside the earnings part of the mechanism due to the large spike in earnings during the review period (see our Insight) – the suspension was stated to be for one year only and Mr Sunak's recent statement confirms that this will indeed be the case.
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