Pensions: what's new this week - 11 December 2023
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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 workplace pensions.
This week we cover the following topics: PASA guidance on being ‘connection ready’ for dashboards; Timeframes for expected regulatory developments; Court of Appeal rules that payments for adverse pension changes are taxable; PPF publishes latest Purple Book; Regulations made to maintain retained EU law pensions judgments.
PASA guidance on being ‘connection ready’ for dashboards
The Pensions Administration Standards Association (PASA) has published guidance defining what it means for a scheme to be ‘connection ready’ for pensions dashboards – that is, requiring only the process of actual connection to the dashboard ecosystem by the scheme’s assigned deadline date (guidance connection dates are expected to be published in Spring 2024). The guidance suggests that the expected timeline for reaching this point is around 18 months due to industry-wide capacity constraints. Also published is a ‘Call to Action’ outlining five key actions for schemes to take now.
Timeframes for expected regulatory developments
The November 2023 edition of the Regulatory Initiatives Grid published by multiple regulators, including the Financial Conduct Authority (FCA) and the Pensions Regulator (TPR), sets out expected timeframes, as at the date of publication, for a range of regulatory initiatives.
While timings remain subject to change, the following comments are of interest:
- On the introduction of new notifiable events, no projected timing is provided ‘due to significant uncertainty around delivery’.
- The General Code is expected to be in force in April 2024, subject to the Parliamentary timetable.
- The DB funding Code is also expected to be in force in April 2024, with regulations laid in Q1 2024, subject to the Parliamentary timetable.
- Guidance on productive finance was expected from TPR in autumn 2023; the grid states that there is ‘potential’ for this to be issued in H1 2024.
- The FCA, working with the DWP and TPR, will consult on proposed rules for the value for money framework and regulatory regime for workplace DC pensions in H1 2024 (primary legislation will be required before this can be implemented for trust-based schemes).
Court of Appeal rules that payments for adverse pension changes are taxable
The Court of Appeal has ruled that ‘Facilitation Payments’ that were made in relation to adverse changes to a DB scheme (for future service only), were subject to income tax and national insurance contributions because they were paid as an inducement to DB members to agree to a change in their future terms of employment: HMRC v E.ON.
Although the pensions changes were part of a wider package of changes including a pay deal, the Facilitation Payment was only available to members of the DB scheme. The First Tier Tribunal found that payments of this type were subject to income tax and NICs; however, this was later reversed by the Upper Tribunal and HMRC then appealed. The question for the Court of Appeal was whether the payment comprised earnings or remuneration ‘from’ the employment – was it either: (a) a payment for agreeing to a change in the future terms of employment; or (b) compensation for the adverse changes being made to rights and expectations in relation to pension arrangements?
The decision of the Court was that the payments were taxable as remuneration, with Lord Justice Falk stating that ‘the package related to the rewards and benefits of future employment... It was an inducement to work willingly for the future. There are numerous occasions on which such inducements have been found to be taxable as earnings’. Lord Justice Nugee further took the view that presenting (a) and (b) above as alternatives created a false dichotomy – they were two different ways of saying the same thing.
The comments of the Court indicate a disinclination to separate compensation for adverse future pension changes from wider employment terms and conditions. A previous decision (Tilley v Wales) suggested that compensation for losing pension rights was not ‘from’ employment, but the Court took the view that this decision related only to compensation for loss of accrued rights, and should not be applied more broadly. Advice should be sought where packages of measures are structured in reliance on the previous Upper Tribunal ruling and on the assumption that compensation for pension changes will be non-taxable, since similar future challenges by HMRC are likely.
PPF publishes latest Purple Book
The Pension Protection Fund (PPF) has published the 18th edition of its Pensions Universe Risk Profile (known as the Purple Book), providing data and analysis of the UK defined benefit pensions landscape. The publication tracks trends in DB memberships, scheme funding, demographics, asset allocation, risk reduction and more.
One point flagged by the PPF relates to the information provided by schemes on their leveraged Liability Driven Investment (LDI) exposure, with some schemes reporting this within their bond proportions and others in the scheme return risk factor stresses instead. The PPF is working with TPR to clarify the scheme return help text to encourage schemes to include as much of their LDI exposure as possible in the scheme return bond proportion.
Regulations made to maintain retained EU law pensions judgments
Two new sets of regulations will come into force immediately before the end of 2023 that maintain the effects of retained EU law rather than allowing them to ‘sunset’ under the Retained EU Law (Revocation and Reform) Act 2023.
The Pensions Act 2004 and the Equality Act 2010 (Amendment) (Equal Treatment by Occupational Pension Schemes) Regulations 2023 reflect the rulings in Walker v Innospec (on same-sex survivor pensions) and Allonby v Accrington and Rossendale College (on the use of notional comparators in cases where guaranteed minimum pension provisions create discrimination); the Pensions Act 2004 (Amendment) (Pension Protection Fund Compensation) Regulations 2023 amend PPF compensation provisions to reflect the rulings in the Hampshire and Hughes cases.