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Pensions: what's new this week -10 October 2022

Welcome to your weekly update from the Allen & Overy Pensions team, covering all the latest legal and regulatory developments in the world of workplace pensions.

This week we cover topics including: DC schemes, illiquid investments and performance fees: consultation on draft regulations; FCA: Cost of living crisis and scam risk; HMRC Pension Schemes Newsletter; Dates for your diary: Pensions Academy Online – 31 October, 2 and 4 November.


DC schemes, illiquid investments and performance fees: consultation on draft regulations

Following its recent confirmation that it intended to accelerate the removal of certain performance fees from the scope of the DC charge cap, the government has published a consultation on draft regulations and guidance that it intends will broaden the investment opportunities of DC schemes. The document also includes the government’s response to part of its March 2022 consultation, on facilitating investment in illiquid assets.

The key proposals are:

  • Relevant DC schemes will be required to disclose and explain their policies on illiquid investment in their default fund statement of investment principles (or main SIP for collective money purchase (CMP) schemes), with the aim of improving transparency about trustee approaches to these asset classes and encouraging industry debate and comparability across pension schemes. This will apply on the first occasion when the SIP is updated after 1 October 2023, and by 1 October 2024 at the latest. Guidance on the new SIP requirements will be published in due course.
  • Relevant DC schemes will be required to disclose and explain in their chair’s statement the proportions of default fund assets allocated to different asset classes at various specified member ages (an age-specific approach is not required for CMP schemes). This will apply to all relevant DC schemes – the £100 million asset threshold previously proposed has been dropped. The legal requirement will be set at a high level; statutory guidance will provide support for trustees who want to provide a more granular level of detail. Disclosure will be required in the chair’s statement for the first scheme year that ends after 1 October 2023.
  • Trustees will be able to exclude specified performance-based fees from the default fund charge cap from 6 April 2023, where they feel this is in members’ interests. Any exempted fees would need to be disclosed in the chair’s statement as a percentage of the average default fund assets during the scheme year, and assessed for value to members. The government acknowledges that some schemes have made commitments not to pay performance fees of any kind; the amendment is intended to provide additional flexibility for those schemes that would like to use it. Current regulations permitting five-year smoothing of the effects of performance fees would be repealed. Draft statutory guidance is also available.

The consultation closes on 10 November 2022.

Read the consultation.

FCA: Cost of living crisis and scam risk

The Financial Conduct Authority has launched a new wave of its ScamSmart campaign, following concerns about members withdrawing money from their pension savings to cover increases in the cost of living. Its ScamSmart website includes a warning list that will help members identify indicators of both pension and investment scams, as well as firms that are actively running scams.

Visit the ScamSmart webpages.

HMRC Pension Schemes Newsletter

HMRC’s latest Pension Schemes Newsletter includes a reminder that although the UK basic rate of income tax will be reduced to 19% from April 2023, schemes that operate tax relief via Relief at Source can continue to claim at 20% throughout tax year 2023/24, to allow time for systems to be updated. The newsletter also includes other reminders relating to relief at source, as well as information on ensuring that any charges paid to HMRC are allocated correctly.

Read the newsletter.

Dates for your diary: Pensions Academy Online – 31 October, 2 and 4 November

Registration opens this week for our next Pensions Academy Online (an update on issues for pension schemes and the people that run them). Look out for your invitation! Sessions will cover:

Transfers: tricks, treats and traps for the unwary? – Monday 31 October, 9:30-10:30 a.m.

The introduction of red and amber flags was meant to help trustees identify points of concern with transfer requests and ensure that members got support from MoneyHelper where relevant – but there are glitches in the system and grey areas in guidance. In this webinar we’ll discuss the tricky areas and how best to deal with them.

Pensions Dashboards - coming, ready or not – Wednesday 2 November, 9:30 – 10:30 a.m.

Get the inside track on dashboard developments from Chris Curry, Principal of the Pensions Dashboards Programme. We’ll update you on lessons learned in the testing phase and look at how trustees should be planning and preparing for implementation.

Legal update: remember, remember... – Friday 4 November, 9:30 – 10:30 a.m.

There’s been a stop/start feel to key pensions developments over the last couple of years, and it can be easy to lose track of where we’ve got to and what’s coming up. We’ll guide you through what’s happening now and what to expect next.