Pensions: what's new this week - 24 July 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 topics including: Draft legislation on abolition of LTA; Dashboards: updated guidance and FAQs; Draft legislation on securitisation holdings; Draft legislation on relief at source; HMRC Pension Schemes Newsletter.
Draft legislation on abolition of LTA
The government has published draft provisions intended to remove the lifetime allowance (LTA – the limit on the amount of pension a person can build up tax efficiently over their lifetime) from pensions tax legislation with effect from 6 April 2024. Technical consultation on the draft legislation will take place until 12 September 2023.
The abolition of the LTA was announced as part of the Spring Budget; the LTA charge stopped applying from 6 April 2023 but this new legislation will abolish the LTA and sets out the tax treatment of lump sums and lump sum death benefits in the absence of the LTA. It introduces a cap on the maximum Pension Commencement Lump Sum (PCLS), set at the current level of GBP268,275, for those without specific lump sum protection. The legislation also introduces a new limit of GBP1,073,100 on the total amount of lump sums and death benefit lump sums an individual can receive before marginal rate taxation applies, unless they hold a valid lifetime allowance protection. The amount of remaining lump sum and death benefit allowance (LSDBA) will be tested at each relevant benefit crystallisation amount (when a member becomes entitled to an authorised lump sum or authorised death benefit lump sum). The introduction of the LSDBA, as drafted, would bring some funds that are currently payable tax-free into marginal rate tax – this could happen where funds have been inherited as a beneficiary’s drawdown fund from a member who died aged below 75.
Dashboards: updated guidance and FAQs
The Pensions Regulator (TPR) has updated its initial guidance on pensions dashboards to set out its expectations of how schemes will have regard to staging timelines (which will now be set out in guidance, rather than in legislation – read more). While compliance with the staging timelines is not mandatory, having regard to them is a requirement.
The revised guidance states that trustees will be expected to demonstrate how they have done this, which means (but is not limited to) the following:
- trustees should not make final decisions about connecting and whether to follow the connection date until they have engaged with the guidance;
- trustees must be able to demonstrate that they have adequate governance and processes for making such decisions. The reasoning for these decisions should be clearly considered and documented, as well as how relevant risks are identified, evaluated and managed; and
- trustees should make sure that they have access to all the relevant information before making decisions and acting upon them. Clear and accurate audit trails should be kept to demonstrate the decisions made, the reasons for them and the actions taken.
In addition, the Pensions Dashboards Programme (PDP) has updated its dashboards FAQs. The FAQs include questions such as ‘when are you likely to complete the development of the MaPS pensions dashboard?’, ‘Why won’t you set a date for when dashboards will be available to the public?’ and ‘What will be done to mitigate the risk of users being scammed?’
Draft legislation on securitisation holdings
The government has published a ‘near final’ draft statutory instrument (SI) with provisions relating to securitisation. This is part of the government’s drive to replace EU law currently retained in UK statute books. The SI creates a new framework for the regulation of securitisation, replacing the Securitisation Regulation (originating from EU law) and related legislation.
The framework restates and amends due diligence requirements for occupational pension schemes (OPS) when investing in securitisations directly. Some of the requirements have been reformed with the intention of making them clearer and more principle-based, and to reduce barriers to investment in securities. The SI also clarifies issues relating to liability where schemes delegate their responsibilities: where an OPS delegates its investment management decisions and due diligence obligations for investing in a securitisation to another institutional investor, sanctions for failure to comply would be imposed on the managing party, and not the delegating scheme. Conversely, in the rare situation that an FCA firm or a PRA firm delegates its investment management and due diligence obligations to an OPS, sanctions for failure to comply would not be imposed on the OPS as the managing party – FCA and PRA firms are expected to be better placed to fulfil the due diligence requirements. OPS providing securitisations (on the sell-side) will be subject to FCA rules and supervised for these activities by the FCA, rather than TPR as at present.
Technical comments on the draft can be made until 21 August 2023.
Draft legislation on relief at source
The government has also published draft provisions altering the way that registered pension schemes using relief at source (RAS) arrangements will claim tax relief on members’ pension contributions from 6 April 2025. The draft allows the relevant rate that can be retained from a contribution to be amended by regulations and provides that non-compliance with the RAS requirements would be grounds for de-registration of a pension scheme. More detail will be set out in regulations which will be published for consultation ‘in due course’. HMRC is also looking to digitise the RAS system.
HMRC Pension Schemes Newsletter
HMRC has published its latest Pension Schemes Newsletter (no.152), including commentary on:
- the draft legislation on abolition of the LTA and changes to relief at source described above;
- submitting annual returns of information and APSS590 declarations for 2022 to 2023: as the deadline has passed, if a 2022 to 2023 annual return of information is still outstanding, any interim repayments will be withheld until HMRC receives both the outstanding return and APSS590 declaration; and
- the requirement that registered pension schemes must be established and maintained wholly or mainly for the purpose of making authorised payments of pensions and lump sums. If a scheme has particularly restrictive terms and conditions and a customer would have to transfer to another scheme to obtain access to their funds, then it is unlikely to be satisfying the wholly or mainly test and HMRC will consider de-registering the scheme.