In another year dominated by the global pandemic, there was, as with 2020, no shortage of developments in pensions law and practice. Not even a three-month lockdown, from January to March, could stop the latest Pension Schemes Act from receiving Royal Assent on 11 February and becoming the first Act of Parliament of 2021.
Since its enactment, various provisions of the Pension Schemes Act (PSA) 2021 have now been brought into force, in particular:
- Climate-related risk, governance and disclosure requirements for pension trustees in line with the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) (initially, only the largest pension funds are in scope, since October, but the requirements will be extended in 2022 and there then will be a subsequent review on even wider application).
- New civil and criminal powers for the Pensions Regulator (TPR) - criminal offences for avoidance of an employer debt and conduct risking accrued scheme benefits, financial penalties that allow TPR to impose fines of up to £1 million in certain circumstances, changes to TPR’s powers regarding contribution notices and new information-gathering and interview powers for TPR.
- Cash equivalent transfer value restrictions, applying to transfer requests after 30 November 2021, to help combat pension scams.
- A legislative framework for collective money purchase schemes.
A consultation on proposed regulations concerning pensions dashboards, also legislated for in PSA 2021, was expected this year too, but it now seems likely that this will not happen until early 2022.
Moving from regulatory to tax provisions, the Finance Bill 2021 was also published during lockdown, on 11 March 2021. The Bill includes a number of tax changes set out in the Spring 2021 Budget, including the freezing of the Lifetime Allowance on pension savings. Also, Part 4 of the Finance Act 2004 is amended so that the pensions tax framework includes reference to collective money purchase schemes. Subsequently, following the Autumn Statement, the Government confirmed the increase in Normal Minimum Pension Age (NMPA) from 55 to 57 in 2028. It also ended a proposed opportunity for people to transfer to a pension scheme that would offer pension age protection ahead of the planned increase to the NMPA. Only transfers initiated before 4 November 2021 can potentially qualify for a lower minimum pension access age.
TPR published its annual funding statement confirming the continued importance of trustees monitoring the employer covenant, particularly in light of Brexit and COVID-19, and the statement also confirmed that TPR does not expect its new defined benefit (DB) funding code to come into force until 2022 at the earliest (more on that later).
Turning to case law, the Court of Appeal confirmed that the Pension Protection Fund (PPF) cap is unlawful based on age discrimination and must be disapplied. Since then the PPF has provided various updates on the impact of the decision and updated its valuation guidance.
Defined contribution (DC) schemes have also been impacted by developments over the past twelve months. New requirements for sub-£100 million DC/hybrid schemes to conduct Value for Members (VfM) assessments in accordance with prescribed regulations took effect and will impact processes for Chair Statements from next year. TPR has warned that, where trustees fail to demonstrate that their scheme offers value, they will be expected to wind up and transfer their members into an alternative scheme.
Other notable developments in 2021
- Royal Assent given to an Act that will allow loans to the PPF for payment of Fraud Compensation Fund (FCF) compensation following the High Court case of Board of the PPF v Dalriada Trustees where it was held that, in principle, victims of pension scams are entitled to FCF compensation. On a related note, a consultation was published seeking views on a proposed change to the Fraud Compensation Levy (FCL) ceiling for the levy year 2022 to 2023 onwards to allow the FCL rates to be reset at levels that will enable the loan to be repaid by 2030 to 2031. Under the proposals, the FCL levy ceiling would allow for levy rates to be set by the PPF — not exceeding £0.65 per member for master trusts and £1.80 per member for other eligible occupational schemes.
- The Department for Work & Pensions (DWP) response to its consultation on simpler annual benefit statements alongside new statutory guidance to assist pension scheme trustees and managers in complying with the new requirements from 1 October 2022.
- The DWP consultation relating to the policy proposals on Paris alignment reporting (building on the TCFD requirements mentioned above). The consultation also seeks views on draft non-statutory guidance explaining best practice in relation to Statements of Investment Principles and draft statutory guidance explaining the DWP’s expectations for Implementation Statements.
- TPR named Clara Pensions as the first DB consolidation vehicle (superfund) to have reached TPR’s governance and administration standards, meaning that Clara Pensions has been added to a new TPR list of superfunds which meet its criteria, including good governance, fit and proper handlers, and adequate capital backing.
So Covid (the C-Word) was no obstacle to some important developments this year. It did, however, have some impact on expected changes; notably, delays in publication of TPR’s new single code of practice (replacing 15 existing Codes) and TPR’s second consultation on changes to the DB scheme funding regime. Both are now expected in summer 2022 which is already looking as though it will be another busy year for pension scheme trustees, employers and practitioners. Look out for our next blog with predictions for 2022.