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Pensions: what's new this week - 20 March 2023

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: Spring Budget – significant pensions tax changes; TPR: guidance on Employer Related Investments; updated dashboards guidance; HMRC Pension Schemes Newsletter; Pensions Academy Online – 28, 29 and 30 March 2023; The Gender Pensions Gap: what it is and how to fix it – 23 May 2023.

Spring Budget – significant pensions tax changes

The key headline in the Chancellor’s Spring Budget was the abolition of the lifetime allowance (LTA) (the limit on the amount of pension a person can build up tax efficiently over their lifetime). The LTA charge will be abolished from 6 April 2023, so people will not incur a penalty tax charge for exceeding their LTA after that point. The task of removing the LTA from legislation will be achieved in a future Finance Bill by April 2024.

A cap on the maximum Pension Commencement Lump Sum (PCLS) will be introduced for those without specific lump sum protection - this will be retained at its current level of GBP268,275 and will be frozen thereafter. HMRC’s latest Pension Schemes Newsletter (see below) gives more detail, stating:

‘Members who hold a valid enhanced protection or any valid fixed protections, where this protection was applied for before 15 March 2023, and a certificate or reference number subsequently issued, from 6 April 2023 will be able to accrue new pension benefits, join new arrangements or transfer without losing this protection. They will also keep their entitlement to a higher PCLS’.

As well as the removal of the tax charge on funds in excess of the LTA, there will also be an impact on other lump sums, such as serious ill-health lump sums, uncrystallised funds pension lump sums (UFPLS), and defined benefit lump sum death benefits; these are currently taxed at 55% in some circumstances where they exceed a member’s LTA, but this will be changed to the recipient’s marginal tax rate from 6 April 2023.

Alongside this, the annual allowance (the amount that can be tax efficiently saved into a pension each tax year) is to be increased from GBP40,000 to GBP60,000 from 6 April 2023. Individuals will continue to be able to carry forward unused annual allowances from the 3 previous tax years. The money purchase annual allowance, which applies once pension savings have been accessed flexibly, will be increased from GBP4,000 to GBP10,000 from 6 April 2023. The adjusted income threshold for the tapered annual allowance (a reduction in the annual allowance for high earners) will also be increased from GBP240,000 to GBP260,000 and the minimum tapered annual allowance will be increased from GBP4,000 to GBP10,000 from 6 April 2023.

There will be a number of practical issues for schemes to consider in relation to the tax changes. For example, employees who have ceased to accrue benefits due to LTA protection are likely to wish to join or re-join a scheme; areas where LTA protections (which entitle a member to a higher LTA) are currently a consideration, including auto-enrolment, transfers and the treatment of protected members in GMP equalisation and rectification exercises, may need to be reviewed; and member communications will need to be updated. HMRC’s Pension Schemes Newsletter (see below) highlights that until the LTA is fully removed from legislation, scheme administrators will need to continue to operate LTA checks when paying benefits (for example assessing whether an individual has any available LTA) and to issue benefit crystallisation event statements.

The Budget also announced that the Autumn statement will include measures designed to unlock funds from DC pension schemes for investment in science and technology companies.

Read the Budget documents.

TPR: guidance on Employer Related Investments

The Pensions Regulator (TPR) has published guidance for schemes about restrictions on using pension scheme funds for Employer Related Investments (ERI). The guidance gives a reminder of the rules on ERI: generally not more than 5% of the current market value of pension scheme assets may at any time be invested in ERI and some types of ERI, including employer-related loans or guarantees and transactions at an undervalue, are absolutely prohibited. Trustees are under obligations to disclose ERI and any breach of the restrictions, and may be subject to penalties for non-compliance.

Read the guidance.

Updated dashboards guidance

TPR has updated its initial guidance on pensions dashboards, to reflect the finalised Pensions Dashboards Regulations 2022 and current Money and Pensions Service (MaPS) standards. The DWP has announced that deadlines for scheme connection to the dashboard infrastructure will be delayed but the TPR guidance notes that there will be significant work involved in complying with dashboards duties and TPR ‘strongly advises’ trustees to ‘make the most of the time available’.

There is a range of new material throughout the guidance, as well as an updated checklist of actions which TPR advises that schemes should already be working on to prepare for connection. The guidance includes new sections on: scenarios in and out of scope of the dashboards (covering administration outside of the UK, schemes in the process of buy-out or wind-up, and schemes in a PPF assessment period); areas for discussion with third party providers; a summary of the MaPS standards; preparing data for connection; connecting to the digital architecture; common issues to consider when selecting matching criteria and more detail on matching (including the need to produce a data protection impact assessment); and ongoing connection and record-keeping requirements. It also gives updated guidance on requirements and timescales for providing data.

Separately, the Pensions Dashboards Programme (PDP) has published some frequently asked questions around the recently announced delay to connection deadlines. In relation to the cause of the delay, it says that the work required to deliver dashboards includes ‘finalising the supporting documentation, and ensuring a smooth and stable connection journey for industry’. It echoes the DWP’s statement that no changes are expected to the requirements, only to the connection deadlines, and that an update will be provided to Parliament before summer recess. It emphasises that schemes should still be cleansing and preparing data; interrogating and improving data accuracy; developing an approach to matching; and determining the method of connection.

Read TPR’s guidance.

Read the PDP FAQs.

HMRC Pension Schemes Newsletter

HMRC has published Pension Schemes Newsletter 148, which includes a summary of the pension tax changes made in the Spring Budget (see above), plus guidance on submitting an annual return for Relief at Source purposes and on submitting Event Reports, and other matters.

Read the Newsletter.

Pensions Academy Online – 28, 29 and 30 March 2023

Pensions Academy is back for 2023. Over three days we will be holding a series of webinars on topical issues for pension schemes and the people who run them:

The new DB Funding Code – outstanding questions and upcoming challenges for pension schemes –Tuesday 28 March, 9:30 – 10:30

Jon Forsyth of LCP will join Andy Cork to discuss practical actuarial and legal issues for defined benefit schemes preparing for the introduction of the new DB funding Code. They will identify key areas of uncertainty and concern and give practical tips on what schemes should be doing to prepare for its arrival.

Pensions in dispute – lessons from the courts and the Pensions Ombudsman – Wednesday 29 March, 9:30 – 10:30

Jason Shaw and Angela Stafford will draw out the most interesting cases and themes from recent pensions decisions, with a focus on those with a practical impact for schemes and lessons that trustees can carry over.

Legal update – what’s changing, now and next – Thursday 30 March, 9:30 – 10:30

With new Codes of Practice, ever-changing reporting requirements and a value for money framework on the horizon, the trustee agenda is full and keeping up to date is a formidable task. Helen Powell and Joan Whybray will help you navigate recent and upcoming developments, highlighting the key things to be aware of and action points to be taking.

If you would like to attend any of the sessions, please sign up here.

The Gender Pensions Gap: what it is and how to fix it – 23 May 2023

The Gender Pensions Gap – the difference between the pension incomes that men and women can expect at retirement – is estimated to be twice the size of the Gender Pay Gap. Why is that, and how can we close the gap? Join us at our offices on Tuesday 23 May 2023 when we will be welcoming Legal & General Investment Management’s (LGIM) Stuart Murphy, Co-Head of DC and Alexandra Miles, Senior DC strategist to discuss the gap and what can be done to address it.

Sign up here.