Pensions Insight: weeks ending 16 & 23 September 2022

In this edition of our Insight, we cover the pensions-related measures in the Chancellor’s recent ‘mini-budget’, various pensions changes coming into effect on 1 October, and timings updates on key Regulator developments, Guy Opperman’s removal as Pensions Minister, HMRC’s updated trusts guidance and the latest PPF 7800 Index funding figures.

Mini-budget 2022 – DC charge cap measures

Amid the rather expansive raft of tax changes announced by the Chancellor in his 23 September 2022 mini-budget (referred to as the Growth Plan), was the announcement that the Government proposes to bring forward draft regulations that will remove ‘well-designed’ performance fees from the 0.75% charge cap in DC default arrangements. As the Growth Plan notes, the aim is to assist investment in long-term illiquid ‘innovative businesses and productive assets’ while also allowing potentially higher investment returns for savers.

This announcement follows the DWP’s March 2022 consultation in which the Government said that it would look into the issue of removing performance fees further (see our Insights (1) & (2)).

What is coming into effect on 1 October 2022?

There are various pensions changes coming into effect on or from 1 October 2022 – a brief recap is set out below.

Climate change

There are two legislative changes relating to climate change that are being brought in as from 1 October 2022:

1. The governance and reporting obligations of the Occupational Pension Schemes (Climate Change Governance and Reporting) Regulations 2021 will be extended to schemes with assets of £1bn or more (already a requirement for schemes with assets of £5bn or more) (see our Insight for further details); and
2. Schemes within scope will also need to report on 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.

Action

Trustees of applicable schemes should already have taken preparatory steps to satisfy the new obligations and should now ensure they are ready to meet the new requirements.

Investment consultancy (IC) and fiduciary management (FM)

The Occupational Pension Schemes (Governance and Registration) (Amendment) Regulations 2019 come into effect on 1 October 2022. These integrate the CMA Order requirements which require trustees to carry out a qualifying tender process for FM services and to set objectives for ICs into pensions legislation (subject to certain differences). See our Insight for further information.

Action

Check if the changes will have an impact (see the Pensions Regulator’s IC guidance and FM guidance for a summary of the key differences – see also our Insight on the guidance).

Trustees need to ensure they are annually assessing IC providers against their objectives and reviewing the objectives at least triennially and without delay after a significant change in investment policy. They also need to make sure they are complying with the FM requirements.

Implementation statements and statements of investment principles (SIPs)

Guidance on reporting on implementation statements (statutory) and SIPs (non-statutory) was published by the DWP on 17 June 2022. The SIP parts were effective from the date of publication while the implementation statements parts are effective in relation to scheme years ending on or after 1 October 2022. Our Insight has further details.

Action

The guidance should be taken into consideration for SIPs and implementation statements relating to scheme years ending on or after 1 October 2022.

Simpler annual benefit statements

The simpler annual benefit statement requirements for DC auto-enrolment schemes are being introduced (see our Insight).

Action

Trustees of schemes within scope should check with their scheme administrators that they can comply with the requirements if they have not done so already.

ERI for DC master trusts

Draft ERI regulations that will remove some employer-related investment restrictions for master trust schemes with 500 or more active participating employers will be introduced on 1 October 2022. See our Insight.

Action

Master trusts within scope will wish to consider the effect of the changes for their investment arrangements.

The Pensions Regulator provides update on timings for forthcoming developments

Charles Counsell, chief executive of the Pensions Regulator, provided a timing update on key forthcoming Regulator developments at a recent Society of Pension Professionals conference:

• Revised DB funding code of practice: it is expected that this will be published later this year. The Regulator has been waiting to see the responses to the August 2022 DWP consultation on the draft DB funding and investment regulations before progressing the code consultation (see our insight for further information on the regulations);
• Single code of practice: Mr Counsell said the finalised version is expected ‘soon’ – he intimated that publication would be either before the end of this calendar year or the Regulator’s financial year (31 March);
• Expanded notifiable events regime (code of practice); no update was given – this is in the ‘hands of ministers’ (see our Insight for further information).

Guy Opperman steps down as Pensions Minister

Guy Opperman has confirmed that he will no longer be the Pensions Minister following the recent ministerial reshuffle. Mr Opperman was the longest serving Pensions Minister following his appointment on 14 June 2017 and having served until 8 September 2022. Alex Burghart has been appointed as the new Pensions Minister.

HMRC updated trusts guidance on new business relationships

HMRC’s updated trusts guidance contains new provisions relating to providing information when starting a new business relationship.

The new requirements relate to ‘relevant persons’, that is an “organisation working in a professional capacity that must carry out due diligence checks under anti-money laundering regulations”. This would include a financial institution and a legal professional. Relevant persons must request proof of a trust's registration with HMRC before starting a new business relationship.

The updated guidance lets trustees know how to obtain copies of the requisite documents from HMRC.

Latest PPF 7800 Index Report shows funding has increased

The latest PPF 7800 index update setting out the estimated funding position on a section 179 basis as at the end of August 2022 of the eligible 5,215 DB schemes shows that:

• the aggregate surplus of these schemes increased over the month to £313.8bn from a surplus of £254.3bn at the end of July 2022;
• the funding ratio increased from 118.2% at the end of July 2022 to 125.1% at the end of August; and
• the aggregate deficit of the schemes in deficit decreased to £14.3bn from £29.8bn at the end of July 2022.