Pensions: what's new this week - 25 September 2023
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This week we cover the following topics: PLSA updated guidance on charging for information in pension sharing cases; Updated TPR guidance on Regulated Apportionment Arrangements; HMRC Managing pension schemes service newsletter; Act on extension of auto-enrolment; Regulations on PPF compensation; Regulations on same-sex partners’ death benefits and opposite sex comparators for GMP discrimination; DWP review of TPR; Pensions Academy Online: 26 and 28 September 2023.
PLSA updated guidance on charging for information in pension sharing cases
The Pensions and Lifetime Savings Association (PLSA) has published revised guidance on helping members with pension sharing orders (PSOs) on divorce. This sets out suggested ranges of charges that private sector occupational pension schemes should consider making when providing information or taking other steps in relation to a PSO. The guidance notes that the suggested ranges are indicative only, and schemes may find it appropriate to charge higher or lower amounts, contingent on the circumstances of each member’s request. It also includes a flowchart for establishing when schemes can apply these charges.
The updated guidance will apply from 2 January 2024.
Updated TPR guidance on Regulated Apportionment Arrangements
The Pensions Regulator (TPR) has published updated guidance on Regulated Apportionment Arrangements (RAAs). This replaces its previous 2010 guidance, which was complemented by a ‘quick guide’ in 2017.
An RAA is an arrangement which allows a financially distressed employer to stop participating in a defined benefit scheme and apportion most of its liabilities to another participating employer (‘Fallco’). Typically, Fallco will then cease its participation in the scheme, triggering a debt under section 75 of the Pensions Act 1995 which cannot be paid, causing the scheme to enter the Pension Protection Fund (PPF). Certain conditions must be met to enter into an RAA, including obtaining TPR’s approval.
The new guidance is generally consistent with TPR’s existing approach but is considerably more detailed than the previous publications. TPR appears to be strengthening its expectations on some of its criteria for determining whether or not to approve an RAA (though this may be a difference of tone rather than approach). It now expects the following principles to be satisfied (and provides examples of the evidence it expects to see in each case):
- the employer’s insolvency is inevitable within the next 12 months;
- the upfront cash consideration proposed is significantly greater than the recovery expected for the scheme in the case of the employer’s insolvency;
- a better outcome could not be attained for the scheme by other means, including through the use of TPR’s powers, where relevant;
- it would not be reasonable for the wider employer group or any entity within it to support the scheme or its employer in the future;
- the scheme is receiving equitable treatment in comparison to the employer’s other creditors, shareholders and other stakeholders (the guidance sets out what TPR means by ‘equitable treatment’ and how it will assess this); and
- the scheme receives an appropriate portion of the equity in the employer departing the scheme under the RAA.
The PPF also has its own principles that it expects to be followed in respect of any restructuring or rescue proposal put to it, which should be considered in the context of an RAA.
TPR will apply its RAA principles to other arrangements that produce a similar outcome to an RAA (for example, a clearance application in respect of an agreement to compromise a section 75 debt in return for a cash contribution enabling some member benefits to be secured by insurance at a level greater than PPF compensation).
TPR sets out steps it expects trustees and employers to take when considering an RAA. It also reminds applicants/employers that an RAA takes time to consider following the application (so excessive or irrelevant information is discouraged), and that an approval notice cannot be issued until 28 days after the Determination Notice to approve the RAA.
HMRC Managing pension schemes service newsletter
HMRC has published a new Managing pension schemes service (MPSS) newsletter giving details of how event reports for the tax year 2023/24 onwards can be created, compiled and viewed through MPSS and how charges and payments will be shown and processed. Payment of charges is due within 30 days from the charge being raised, with interest accruing from 1 February following the end of the tax year.
The newsletter also includes reminders that Accounting for Tax returns for the quarter 1 July 2023 to 30 September 2023 need to be filed by 14 November 2023 to avoid interest and penalties; schemes with a tax reference beginning with ‘0’ will need to migrate to MPSS to be able to file their return. From April 2024, pension scheme returns will be submitted through MPSS, so schemes should make sure they are migrated in good time; later migration will mean shorter deadlines for submitting returns.
Act on extension of auto-enrolment
The Pensions (Extension of Automatic Enrolment) Act 2023 received Royal Assent on 18 September. The Act gives powers for regulations to:
- lower the minimum age at which an individual is an ‘eligible jobholder’ for auto-enrolment and re‑enrolment (currently, this is set at 22 years old); and/or
- reduce or remove the lower earnings limit in the qualifying earnings band (the band of earnings in respect of which pension contributions are paid).
Regulations will need to be consulted on before these changes can take effect – there is currently no indication of expected timing.
Regulations on PPF compensation
Draft regulations have been laid before Parliament amending PPF compensation provisions to take account of the rulings in the Hampshire and Hughes cases. They will come into force immediately before the end of 2023.
In 2018, the Court of Justice of the European Union ruled in Hampshire that EU law required PPF compensation for each eligible member to be equivalent to at least 50% of the value of their accrued entitlement. In 2021, the Court of Appeal upheld a decision in Hughes that the PPF statutory compensation cap, which reduced benefits for members under normal pension age, amounted to discrimination on the grounds of age.
The regulations are intended to incorporate the effects of those judgments (which were based on EU law) into UK law, so that it remains in place when retained EU law ceases to apply in the UK.
Regulations on same-sex partners’ death benefits and opposite sex comparators for GMP discrimination
Draft regulations have been laid in Parliament amending the Equality Act to take account of the cases of Walker v Innospec and Allonby v Accrington and Rossendale College. They will come into force immediately before the end of 2023.
In 2017, the Supreme Court ruled in Walker v Innospec that the restriction in UK legislation allowing a surviving civil partner’s or same-sex spouse’s pension rights to be based only on a member’s pension earned after 5 December 2005 was unlawful and should be disapplied (read more).
In 2004, Allonby v Accrington and Rossendale College established that a notional (rather than actual) opposite sex comparator could be used in certain circumstances to establish the existence of discrimination in relation to equal pay caused by legislation.
As with the PPF cases above, Walker v Innospec and Allonby v Accrington were based on EU law which will cease to apply in the UK, so these regulations amend UK law to reflect the position established in those cases. The changes reflecting the Allonby case apply to cases where guaranteed minimum pension provisions create discrimination.
DWP review of TPR
The DWP has released findings from an independent review of TPR. Its key conclusions include that TPR is broadly well-run and well-regarded, with ‘a coherent strategy focussed on clear outcomes with the interests of savers at its heart’. The report makes 17 recommendations for improvement, grouped into three themes: risk and growth, including issues around LDI and investment in productive finance; compliance and enforcement, suggesting TPR needs to be known to be willing to take tougher action where necessary; and digital transformation and value for money, focused on increasing efficiency.
The report does not set out an explicit timeframe for implementation of the recommendations but states that the majority could be implemented within the coming year.
Pensions Academy Online: 26 and 28 September 2023
Pensions Academy – our regular update on topical issues for pension schemes and the people that run them – is back this week. This Academy will be tackling the following topics:
Tuesday 26 September, 9.30am-10.30am: Responding to a cyber breach – getting it right when things go wrong
Cyber breaches are increasingly a fact of life, and one for which all schemes should be prepared: your immediate next steps can make all the difference to the quality and speed of your response and the mitigation of risk. Join Andy Cork and Benjamin Scrace for a session focusing on lessons learned from recent breaches and how to respond well to an unexpected challenge.
Thursday 28 September, 9.30am-10.30am: Legal update – what’s changing, now and next
Will they/won’t they… so many pensions developments have had a stop/start feel to them over the last few years, but with the General Code now due to go live this Autumn and a swathe of new ideas in the Chancellor’s Mansion House speech, there’s plenty to discuss. Helen Powell and Angela Stafford will help you prepare for the incoming tide of pensions developments.
If you would like to attend either or both of the sessions, please sign up here.