Pensions UK: What's New this Week 26 July 2021
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Welcome to your weekly update from the Allen & Overy Pensions team, covering all the latest legal and regulatory developments in the world of occupational pensions.
This week we cover topics including: the latest development on upcoming climate-change related duties for trustees; a consultation on the draft Finance Bill; and the Court of Appeal decision in PPF v Hughes.
- Upcoming climate change-related duties: update
- Government consults on draft Finance Bill
- PPF compensation cap: PPF v Hughes
- Government consults on draft regulations for collective DC schemes
Last week we reported that the key regulations imposing new climate-change related duties on occupational pension scheme trustees had been made into law, but that we were awaiting a further set of regulations (containing previously announced changes, including to trustee knowledge and understanding and disclosure obligations). These regulations have now been made into law and are due to come into force on 1 October 2021. There are no changes to the draft version published earlier this summer.
Trust-based schemes in the first phase of the rollout (those with GBP5 billion or more in relevant assets) have little time to prepare for compliance, including familiarising themselves with the new obligations and reviewing processes. Contact your usual Allen & Overy adviser for further information and to arrange training.
The government is running a technical consultation on the draft Finance Bill, before the Bill is introduced to Parliament. Two areas of interest are set out below. The technical consultation closes on 14 September 2021.
Increasing the normal minimum pension age
Earlier this year the government consulted on implementing its planned increase to normal minimum pension age (NMPA) from age 55 to 57 in April 2028. NMPA is the earliest age at which most individuals can take their benefits (other than on ill-health grounds or unless they have a protected pension age of 50 under earlier tax rules). The government has now published the draft legislation, together with its consultation response.
The government is going ahead with its proposal to implement the change from 6 April 2028, subject to some changes following the consultation. There will be a carve-out for members of some public service pension schemes, and a provision for other individuals to retain an NMPA below age 57 (a protected pension age) in certain circumstances. The protected pension age would apply to individuals who, on 5 April 2023, have an actual or prospective right under a pension scheme to any benefit from an age of less than 57, where the scheme rules on 11 February 2021 included provision for this. This means that individuals would have a ‘window’ to transfer into a relevant scheme before 2023 to benefit from a protected pension age. The protected pension age would also apply to benefits accrued after 5 April 2028 in a relevant scheme. There will also be provision for individuals to retain their protected pension age after a block or individual transfer, but the government only intends for this to apply to the transferred-in rights that benefit from the protection (and not all benefits in a receiving scheme), meaning that ring-fencing may be required.
The consultation response indicates that most respondents asked for the government to provide further clarification about eligibility and, in particular, what scheme rules needed to state on 11 February 2021 in order for members to qualify for eligibility. The government has said that HMRC will publish guidance and examples, and its intention is that where rules expressly state that benefits can be drawn from age 55, this would amount to an eligible right, but that where rules refer to NMPA or the underlying legislation (the Finance Act 2004), this would not give rise to a protected pension age. The consultation response also notes that the government will provide further advice on proposed transitional arrangements and provisions. It gives the example of members who do not have a protected pension age and have reached age 55 but not age 57 by 6 April 2028 and for whom a transitional issue may arise. Individuals who currently have a protected pension age of 50 will retain this (subject to the rules on when this is lost).
Mandatory scheme pays
The government is also consulting on proposed changes to the mandatory ‘scheme pays’ facility, which would be retrospective from 6 April 2016. This applies where a member has incurred an annual allowance charge of GBP2,000 or more, and gives notice to the scheme administrator for the scheme to pay the charge by the relevant deadline (subject to meeting the qualifying criteria).
The proposed changes include an extension to the current deadline by which an individual must give notice to the scheme administrator where there is a retrospective change to the pension input amount, and a change to the deadline by which the scheme administrator must report and pay the charge (so that this reflects when the scheme administrator was notified rather than a fixed period after the end of the tax year). The changes have arisen in the context of the government’s proposed remedy for age discrimination in public service pension schemes (the McCloud remedy), but would apply more widely to all individuals who meet the conditions for scheme pays.
Last year the High Court ruled that the Pension Protection Fund (PPF) compensation cap involved unlawful age discrimination; the Court of Appeal has now dismissed an appeal against that finding, although it has allowed the PPF’s appeal against some aspects of the earlier decision: Secretary of State for Work and Pensions and the PPF v Hughes.
In 2018 the Court of Justice of the European Union ruled in Hampshire that EU law requires compensation for each eligible member to be equivalent to at least 50% of the value of their accrued entitlement. Following that decision the PPF adopted a method to determine whether the 50% requirement was met, and for an uplift to be paid in some cases (the Hampshire uplift method). The lawfulness of both the PPF’s approach and the statutory compensation cap were challenged before the High Court in the first Hughes decision.
The Court of Appeal has allowed the PPF’s appeal relating to findings by the High Court on the Hampshire uplift method and benefits for survivors. However, it dismissed the government’s appeal against the decision on the compensation cap. The Court of Appeal concluded that the High Court was not wrong to decide that the cap amounted to discrimination on the grounds of age which was not justified.
The PPF has published a press release stating that at present it will continue to pay members their current level of benefits, and will provide more information on the implementation of the judgment as soon as possible.
The government is consulting on proposed regulations for collective DC schemes. The Pension Schemes Act 2021 contains a new framework for collective DC schemes, but regulations and regulatory materials from the Pensions Regulator will set out the detailed framework. The government is seeking feedback on proposed regulations.
The consultation covers issues including: the application process; authorisation and supervision; valuation and benefit adjustment; disclosure of information; and member protection and transfers. The CDC model will initially be restricted to single employer or connected multi-employer schemes, although the government has said that it is looking forward to opening up CDC provision to a broader range of models in the near future.
The government is seeking input on specific aspects of the draft regulations, as well as broader views on whether they meet the policy intention. The Pensions Regulator will also consult on a draft code of practice in due course.
The consultation closes on 31 August 2021.