January has been a fairly quiet month for pensions so far – this week’s Insight catches up on the latest developments including HMRC’s provisional guidance on the NMPA changes and the Stronger Nudge to pensions guidance legislation as well as other legal and regulatory developments and news relevant for trustees and pensions advisers.
Provisional HMRC guidance on increase to NMPA changes
HMRC's latest pension schemes newsletter contains some much awaited, albeit provisional, guidance on the increase to normal minimum pension age (NMPA) to 57 which is being legislated for in the Finance (No. 2) Bill that is currently making its way through Parliament.
As we explained in our July and November 2021 Insights, with the exception of certain uniformed service pension schemes, NMPA is being increased from 55 to 57 from 6 April 2028.
The change is subject to a 2028 protection regime for members of registered pension schemes who will still be able to take benefits before age 57 if, as the newsletter explains, on or before 4 November 2021, they either:
- had an unqualified right to do so under the rules as they stood on 11 February 2021; or
- were "in the process of a substantive transfer to a scheme… offering an unqualified right to a protected pension age of less than 57".
This means not requiring consent from another party. The newsletter picks up on four other points:
- Consent & discretion: it explains in the context of trustee consent that trustees always using their discretion to permit early access to benefits does not count as an unqualified right.
- Reference to NMPA / underlying legislation: scheme rules that refer to the NMPA or underlying legislation do not give an unqualified right to a protected pension age.
- Seeking professional advice: trustees should seek professional advice in "more nuanced cases".
- Existing PTM guidance: other examples of an unqualified right are contained in the Pensions Tax Manual.
The newsletter explains that an individual must have joined, or made a substantive request to join, a scheme providing an unqualified right to a PPA of less than 57, on or before 4 November 2021.
A substantive transfer request is more than a casual enquiry – it is where a member has submitted a request to a scheme which it is required to action, an instruction to "transfer £X or X% of their pension funds to a named pension scheme".
Block and individual transfers
The newsletter also discusses how protection is retained on a block transfer and the limitations on individual transfer protections whereby a PPA only attaches to the member's transferred-in rights in a receiving scheme, not other rights and should be ring-fenced.
There is an acknowledgement that there may be transitional issues such as members who do not have a PPA but who have reached age 55 but not age 57 by 6 April 2028. Work on transitional matters is 'underway' with legislative regulatory changes likely to be required.
The latest HMRC information on the NMPA changes is helpful . Trustees should ensure they understand what their scheme rules provide as regards NMPA and that they are familiar with the transfer parts of the changes. We will report on future developments although there is no timeline at present for when additional details will be made available.
Pensions Regulator press release notes not enough trustees are reporting pension scams
The Pensions Regulator's 18 January 2022 press release says that not enough trustees are reporting suspected pension scams. Although almost 400 schemes have pledged or self-certified that they meet the Pledge to Combat Pension Scams principles, the Regulator believes that more action should be taken on reporting and calls for all administrators, trustees and pension providers to join the Pledge. Not reporting means that data is inaccurate, and the scope of scam behaviour is difficult to determine.
This latest pension scam publication from the Regulator comes not long after the introduction of new transfer value regulations which place additional requirements on schemes when processing transfer requests – you can find out more about the regulations in our In-depth Insight.
Latest PPF 7800 Index Report shows funding has increased
The latest PPF 7800 index setting out the estimated funding position on a section 179 basis as at the end of December 2021 of the eligible 5,215 DB schemes shows that:
- The aggregate surplus of these schemes increased over the month to £129.3bn from a surplus of £81.4bn at the end of November 2021;
- The funding ratio increased from 104.6% at the end of November 2021 to 107.7% at the end of November; and
- The deficit of the schemes in deficit decreased to £97.0bn from £125.9bn at the end of November 2021.
Pension reform: Stronger Nudge to pensions guidance
On 17 January 2022, the DWP published the Government's response to the stronger nudge to pensions guidance consultation (see our July 2021 Insight) together with final regulations.
At present, trustees and managers are required to inform members who are considering accessing flexible benefits (broadly DC benefits) that free and impartial pensions guidance is available, to remind members to consider taking independent advice, and to provide members with details on how they may access pensions guidance.
However, they do not have to ensure that members have either opted out of receiving guidance or have received guidance and do not need to facilitate the booking of a guidance appointment.
This is changing: The Stronger Nudge to pensions guidance
This is changing and a Stronger Nudge to pensions guidance is being introduced for trustees or managers of occupational pension schemes which provide flexible benefits.
On or after 1 June 2022, trustees (or managers) must take the following steps when they receive an application (or related communication) from a member or survivor (a beneficiary) with flexible benefits to either (1) transfer any rights to flexible benefits, or (2) to begin receiving flexible benefits. They must:
- refer the beneficiary to appropriate pensions guidance from Pension Wise;
- provide the beneficiary with an explanation of the nature and purpose of such guidance;
- offer to book a guidance appointment for the beneficiary, which if accepted, the trustees must take reasonable steps to book;
- if not accepted, or if not able to book a suitable appointment, provide details of how to book a guidance appointment; and
- explain to the beneficiary that the application cannot proceed unless they have received, and have told the trustees that they have received, guidance or the beneficiary opts-out by providing an opt-out notification.
Repeating the process: If the beneficiary does not confirm receipt of guidance or provide an opt-out notification, certain parts of the process must be repeated in further dealings with the beneficiary on the same application.
Exceptions: There are limited exceptions to the Stronger Nudge requirements including where the beneficiary is under age 50, the application is not made for the purpose of receiving flexible benefits (e.g. for consolidation) and where the beneficiary has been through the Stronger Nudge guidance process with another scheme.
Record-keeping: There are also record-keeping requirements in respect of the key parts of the process such as offering to book an appointment.
Action: trustees should liaise with their advisers as regards the operational changes needed to ensure the new requirements can be met. They should also look out for the Pensions Regulator's guidance on this which is expected imminently – its recent blog refers to the guidance being published this month.
DC: Regulations prohibiting flat fees for small pension pots published
Regulations banning an annual flat fee from being charged to members in respect of DC default pension pots used for auto-enrolment where the fee would take the value of the member's rights to less than £100 were published on 10 January 2022. The regulations also introduce changes so that if more than one flat fee charge is levied in a single charges year, the member's rights are restored to the position they would have been in if only one charge had been imposed.
The changes are designed to prevent the value of small pension pots being eroded by charges and are due to come into force on 6 April 2022. The DWP's charge cap guidance has been updated to take account of the changes. You can find further details about these changes in our Insight.