Pensions: what's new this week
28 March 2022
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: Spring statement: investment in illiquid assets; Future focus on nature; CDC schemes: additional regulations; Annual increase orders.
- Spring statement: investment in illiquid assets
- Future focus on nature
- CDC schemes: additional regulations
- Annual increase orders
Pensions were not a focus of the Chancellor’s spring statement. The most noteworthy point was a mention that efforts to reform the pensions charge cap (which applies to default arrangements in DC schemes), to unlock investment in illiquid assets, are ongoing. This highlights the government’s view of pension schemes as a key source of future finance for illiquid investments, which the government hopes will drive innovation and technological change. It echoes other statements made recently, such as in the government’s white paper on ‘levelling up the United Kingdom’, published in February.
The Chancellor also announced a cut to the basic income tax rate, from 20% to 19% from April 2024, which will have the effect of reducing tax relief on pension contributions by the same amount.
Guy Opperman (Minister for Pensions) and Lord Goldsmith (Minister for the Pacific and the International Environment) have published a joint article on how pensions can help to tackle climate change. The article focuses on deforestation, noting that the government will be reaching out to UK pension funds in the coming weeks ‘to help them further understand deforestation issues and how to manage this risk as effectively as possible’.
In other environmentally focused news, the Taskforce on Nature-related Financial Disclosures (TNFD) has published an initial draft Nature-Related Risk & Opportunity Management and Disclosure Framework for consultation. The aim of the Framework is to encourage organisations to report and act on nature-related risks. It builds on recommendations by the Taskforce on Climate-related Financial Disclosures (TCFD) and many of the principles will be familiar from the TCFD requirements now imposed on pension schemes. The Framework is in the early stages: further versions will be released to take into account feedback and testing through 2022 and 2023, before the Taskforce launches its final recommendations in late 2023.
Following on from the recent regulations setting out the framework for collective DC schemes (CDC schemes, also labelled CMP or collective money purchase schemes), further regulations will come into force on 1 August 2022 making various changes to fit CDC schemes into the existing legislative framework. The changes cover a number of areas, including disclosure, transfer requirements, the employer debt regime and scheme funding legislation.
The Guaranteed Minimum Pensions Increase Order 2022 will come into force on 6 April 2022 and specifies 3% as the rate by which GMPs in payment attributable to earnings factors for tax years 1988/89 to 1996/97 must be increased.
Separately, the annual Pensions Increase (Review) Order 2022 comes into effect on 11 April 2022. The Order specifies the rate of annual increase for official pensions (such as ministerial and civil service pensions), and is also used as a reference point for indexation rules in some private sector schemes with a public sector history. The latest order sets the increase at 3.1%.