Pensions: what’s new this week 24 January 2022
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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: ‘Stronger nudge’ to guidance; Latest HMRC Newsletter: guidance on increased minimum pension ages; TPR: schemes are failing to report scams; High Court confirms construction of scheme revaluation rule: De La Rue Plc; and Dates for your diary: Pension Academy Online, 7-11 March 2022.
- ‘Stronger nudge’ to guidance
- Latest HMRC Newsletter: guidance on increased minimum pension ages
- TPR: schemes are failing to report scams
- High Court confirms construction of scheme revaluation rule: De La Rue Plc
- Dates for your diary: Pensions Academy Online, 7-11 March 2022, 9.30-10.30 a.m.
The government has published a consultation response confirming that it will require trustees to give members a ‘stronger nudge’ to pensions guidance. The stronger nudge will apply in relation to a person aged 50 or above who has a right to flexible benefits (and to individuals aged under 50 who are accessing benefits due to ill health). The requirements are triggered when an individual contacts a scheme about accessing those benefits or transferring them with the intention of accessing the pension flexibilities (previously the proposed trigger point was receipt of an application). The requirements do not apply when a request is for any purpose other than accessing flexible benefits (so will not apply to transfers for consolidation purposes).
Schemes will have to provide information about appropriate pensions guidance and offer to book a Pension Wise appointment for the individual. The consultation response confirms that this requirement may be satisfied in different ways, for example by providing a phone number for individuals to call if they wish the scheme to book an appointment on their behalf, alongside details of how to book an appointment themselves. Confirmation of attendance at a Pension Wise appointment or an opt-out will need to be provided before an application can proceed, and schemes will be required to keep records. Opt-outs must be in a standalone communication where a member is considering accessing benefits (transfers have now been excluded from this requirement). This could be a separate phone call, separate digital form, or separate postal form.
Certain exemptions are included where beneficiaries have received guidance or regulated financial advice on the transaction in the past 12 months, or where they are entitled to a serious ill-health lump sum. There is no exemption for small pots. The revised regulations remove the requirement for transferring schemes to provide the stronger nudge where this has been done by a receiving scheme.
The regulations will come into force on 1 June 2022 and the Pensions Regulator (TPR) has announced that it will publish guidance before then. Schemes will need to update their systems to ensure that the need to provide the stronger nudge is flagged in appropriate cases.
HMRC’s latest newsletter (no. 136) includes guidance on the proposed increase to normal minimum pension age (NMPA) from 55 to 57 on 6 April 2028. NMPA is the earliest age at which most individuals can take their benefits (other than on ill-health grounds or where they have a protected pension age under earlier tax rules).
Some individuals will be protected from the increase. In principle, members of a registered pension scheme will be able to take their entitlement to benefits before age 57 (referred to as ‘2028 protection’) if:
- the rules of the pension scheme included on 11 February 2021 an unqualified right to take the entitlement to scheme benefits before age 57; and
- on or before 4 November 2021 the individual was a member of the scheme or was in the process of a substantive transfer to a scheme (meaning that there was an instruction to make a specific transfer which is completed after 4 November 2021, not a ‘casual enquiry’).
The newsletter confirms HMRC’s view that where scheme rules do not state a specific age at which members can take benefits, but merely refer to the NMPA or its underlying legislation (for example, ‘minimum pension age as set out in law from time to time’), there would not be an unqualified right to a protected pension age.
There will be some differences between 2028 protection and the existing protected pension age regime. Broadly, there will be fewer restrictions on maintaining 2028 protection on a block transfer (transfer of two or more individuals) and where individuals remain in employment while drawing part of those benefits. Members can also retain 2028 protection on an individual transfer of rights at arrangement level, but that protection will not apply to other rights in the receiving scheme or rights that are subsequently transferred – i.e. the protected transferred rights must be ring-fenced in the receiving scheme. For members with an existing protected pension age of 55 or less, their current protection is not affected.
HMRC is continuing to work on transitional issues, for example where a member has reached age 55 but not age 57 by 6 April 2028. Regulations are likely to be required.
The newsletter also includes changes to Scheme Pays reporting; an update on notification of residency status reports for schemes using relief at source; confirmation that some temporary Covid-19 related easements are being extended until 31 March 2024; and an update on migration to the Managing Pension Schemes service.
TPR has published a new press release stating that too few pension scheme trustees are protecting savers by reporting suspected scams to Action Fraud. It notes that almost 400 schemes have engaged with its Pledge to Combat Pension Scams (which includes a commitment to report scams) but it has seen little evidence that the pensions industry is reporting suspected cases. TPR says more must be done on reporting and every administrator, trustee and provider should take responsibility for protecting savers, including reporting suspicions to help TPR accurately determine the scale of the problem and respond appropriately.
The High Court has determined that, where scheme rules cross-referred from the revaluation rule to a rule primarily about pension increases, the proper interpretation was a narrow one: the intention was to provide statutory revaluation, rather than offering a higher rate on a ‘greater of revaluation or indexation’ basis.
The need for clarification arose because the rule on revaluation of deferred benefits included a sub-clause stating that it would ‘only apply if it would provide a greater increase in deferred benefits’ than rule 21. However, rule 21 provided for annual increases to pensions in payment, rather than revaluation of deferred benefits.
The wider interpretation of the rules considered by the Court would have meant that members were entitled, during deferment, to the greater increase under either rule. The Court rejected this construction, stating that significant weight had to be given to the language chosen by the draftsperson, and that a purposive construction may be appropriate where required to give reasonable and practical effect to the rules. Dismissing the argument that its interpretation meant that the wording would have limited, if any, practical effect, the Court was satisfied that it was included for the avoidance of doubt and as a restatement of what the law would provide in any case.
The programme for our next Pensions Academy Online (an update on issues for pension schemes and the people who run them) is now available: please see the list below.
7 March Money laundering and proceeds of crime – what trustees need to know
8 March Pension Schemes Act 2021: new offences and notifiable events – where are we now?
9 March Handling an investigation
10 March Legal update – including transfers, dashboards, single code, superfunds and more
11 March Climate change governance and reporting – theory and practice