Forewarned is forearmed
5th January, 2022
With a number of changes that were expected in 2021 being pushed back, 2022 is going to be a very busy time for pension scheme trustees, sponsoring employers and their advisers.
In this blog we set out, alphabetically, our predictions for the key developments in pensions law and practice over the next 12 months. Some may not take effect until later years, but when final requirements are passed, enacted or otherwise published, then stakeholders should have these developments on their radar and monitor their progress. As stated in the heading – forewarned is forearmed!
Annual benefit statements
New regulations will, from 1 October 2022, require DC schemes used for auto-enrolment to provide annual benefit statements not exceeding one double-sided sheet of A4 paper when printed. Also, a consultation is expected on a mandatory approach to the timing of annual benefit statements (a so-called “statement season”).
Chair Statements from 2022
Trustees of ‘specified schemes’ (broadly, a DC scheme with assets of less than £100 million), for their first scheme year that ends after 31 December 2021 and at intervals of no more than one year thereafter, are required to carry out a more detailed value for members (VfM) assessment. The outcome of the VfM assessment must be reported in the annual chair’s statement and must be reported to The Pensions Regulator (TPR) via the annual scheme return.
Climate change and ESG
From 1 October 2022, schemes with £1 billion or more in assets will be required to align governance processes and disclosures with the Task Force on Climate-related Financial Disclosures (TCFD) recommendations. The Government has also consulted on proposed amendments to those requirements, which will mean that trustees must measure and report on the extent to which their investments are aligned with the Paris Agreement goal of pursuing efforts to limit the global average temperature increase to 1.5°C above pre-industrial levels. It is expected that these changes will also be effective from 1 October 2022.
Separately, the Government has published a consultation on the effectiveness of trustees’ current policies and practices in relation to social factors (i.e. the “S” in ESG). This was an information gathering exercise, but could lead to new requirements.
Collective defined contribution (CDC)
The DWP has published its response to a consultation on the draft regulations which set out what CDC schemes must do to become authorised, to operate effectively in the market under regulatory oversight, and what happens if changes need to be made to their schemes.
The interim regulatory regime for assessing and supervising defined benefit ‘superfunds’ is in place and TPR has added the first superfund – Clara Pensions – to its list of superfunds which have been assessed. The first superfund transaction is likely to happen in 2022.
Also on the theme of consolidation, the Government published a call for evidence on barriers to greater scheme consolidation in the DC pension market. A response to that call for evidence is expected in 2022.
Regulations introducing a de minimis pot size (set at £100) below which flat fees cannot be charged are intended to come into force on 6 April 2022. Also, the Government has consulted on two other proposals; viz, a proposal to move to a single, permitted universal charging structure for use within the default fund of qualifying DC schemes used for auto-enrolment; and a proposal to remove well-designed performance-based fees from the list of charges which are subject to the charge cap.
Fraud Compensation Levy (FCL)
The government is proposing a change to allow the FCL rates to be reset at levels that will enable a loan that the Government intends to make to the PPF, to be repaid by 2030 to 2031. Under the proposals, the FCL levy ceiling would allow for levy rates to be set by the PPF — not exceeding £0.65 per member for master trusts and £1.80 per member for other eligible occupational schemes. The background to this is the decision in The Board of the PPF v Dalriada Trustees Ltd which clarified that pension liberation schemes, if they satisfied specified criteria were, in principle, eligible to make a claim on the Fraud Compensation Fund.
The Pension Schemes (Conversion of Guaranteed Minimum Pensions) Bill, a Private Member’s Bill, is working its way through Parliament. If enacted, it will amend provisions in the Pension Schemes Act 1993 to allow occupational pension schemes to convert Guaranteed Minimum Pension (GMP) benefits into other scheme benefits. The amendments aim to simplify and clarify how these provisions operate, and to reassure the pension industry that they can carry out their legal duties to equalise for the effect of GMPs using the methodology that government has published.
Normal minimum pension age
The Finance Bill 2021-22 includes provisions that will increase normal minimum pension age from age 55 to age 57. Whilst this change is not due to take effect until 2028, trustees need to plan any changes to scheme rules and communications.
Under the Pension Schemes Act 2021, important changes, expected to take effect from April 2022, are made to the existing notifiable events regime with the intent of alerting TPR and trustees at an earlier stage to financial decisions that could impact pension schemes.
Draft regulations have been consulted on that will require trustees to ensure that members, who wish to access or transfer their pension savings, are first referred to appropriate pensions guidance. The regulations are expected to come into force from April 2022.
The Government is planning to align the Retail Prices Index with the Consumer Prices Index Including Owner Occupiers’ Housing Costs (CPIH) from 2030. However, the trustees of the BT Pension Scheme, Ford Pension Schemes and Marks and Spencer Pension Scheme have brought a judicial review of this decision, which is expected to be heard in the first half of 2022.
The Government is expected to consult on draft regulations setting out the detail of the new statutory funding regime for DB pension schemes. Also, TPR has announced that it will be publishing a consultation on its draft code of practice in “late summer 2022”. The new regime is not likely to take effect before 2023.
Single Code of Practice
TPR has consulted on the first phase of its work on combining the content of its 15 current codes of practice into a single, ‘super code’. The new code should become effective in summer 2022. This will also trigger the requirement for trustees of schemes with 100 or more members to carry out an own risk assessment of the scheme within the following 12 months.