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: Pensions dashboards: latest developments; Proposed changes in Finance Bill 2023: draft legislation and HMRC newsletter; New regulations: fiduciary management and investment consultancy; Social risks and opportunities: consultation response; DC master trusts: employer-related investments.
- Pensions dashboards: latest developments
- Proposed changes in Finance Bill 2023: draft legislation and HMRC newsletter
- New regulations: fiduciary management and investment consultancy
- Social risks and opportunities: consultation response
- DC master trusts: employer-related investments
Pensions dashboards: latest developments
PDP standards for schemes and dashboard providers
The Pensions Dashboards Programme (PDP) has published a consultation on proposed standards which schemes and dashboard providers will be required to meet as part of their pensions dashboards obligations. The standards set out the technical and operational detail that will be necessary to comply with the requirements of the Pension Schemes Act 2021 and the dashboards regulations (once finalised), including:
- a code of connection covering operational, security and service standards relating to how schemes will connect and stay connected to the dashboards ecosystem;
- data standards, setting out how data needs to be provided;
- reporting standards, detailing audit requirements and data that will need to be produced for compliance purposes;
- technical standards, which schemes and dashboard providers will need to comply with to interface with the dashboards digital architecture;
- guidance on the connection process, data usage and early connection, some of which is statutory (schemes will be required to comply with these elements or provide a good reason for not doing so); and
- information on the approach to governance of the standards.
Also published is a call for input on design standards, which will set out the requirements for the presentation of data and for dashboard design (including e.g. messaging and signposting). The deadline for responses is 30 August 2022. The PDP is aiming to issue the final standards, apart from the design standards, close to the date that the dashboards regulations come into law (the standards cannot come into force beforehand).
Read the PDP consultation.
DWP policies summary
Following last week’s publication of its response to the dashboards regulations consultation, the Department for Work and Pensions (DWP) has released a summary of the key policies in the consultation and response. It notes that the regulations will be laid ‘at a later date, subject to Parliamentary timetabling’.
Read DWP’s dashboards policies summary.
Ban on paying dashboards penalties from scheme assets
A private members’ Bill is progressing through Parliament that will prohibit schemes from reimbursing trustees from scheme assets in respect of civil penalties relating to breaches of the pensions dashboards legislation. The Bill adds penalties under section 238G of the Pensions Act 2004 to the list of fines and penalties that are already specified in the same way under section 256 of that Act.
Read the Bill.
Proposed changes in Finance Bill 2023: draft legislation and HMRC newsletter
The government has published draft legislation on issues it intends to include in the Finance Bill 2023, subject to confirmation at the next government Budget. In relation to pensions, the draft legislation includes:
- top-up for low earners on net pay arrangements: provisions to introduce a system to make 20% direct top-up payments to low-earning individuals saving in a pension scheme using a net pay arrangement. This would apply in respect of contributions made in the 2024/25 tax year onwards, and is being implemented in response to the disparity of treatment between low earners contributing via net pay (as opposed to relief at source) arrangements;
- collective money purchase schemes (CMPS) – authorised payments when winding up: amendments to ensure that payments made by a CMPS (also known as a collective defined contribution or CDC scheme) in the process of winding up are authorised for tax purposes; and
- dormant assets scheme – taxation where assets are returned: following on from recent changes clarifying the tax treatment of assets put into the dormant assets scheme (DAS, which allows assets which have not been claimed to be transferred and used for good causes), provisions setting out that if assets are returned from the DAS (e.g. because someone lays claim to them), income tax and inheritance tax will be payable as if the assets had been paid under the original pension arrangement.
Read the draft legislation and supporting materials on the net pay arrangement top-up, authorised payments for CMPS in winding-up and the dormant assets scheme.
HMRC’s latest Pension Schemes Newsletter comments on the proposed changes, and also includes a reminder about migrating schemes to the Managing Pension Schemes Service and about submitting annual returns.
Read the HMRC newsletter.
New regulations: fiduciary management and investment consultancy
Regulations have now been made in relation to requirements for pension schemes using fiduciary management (FM) services and investment consultancy (IC) providers, and will come into force on 1 October 2022. As a reminder, these regulations largely replicate requirements already in existence under Competition and Markets Authority (CMA) rules, requiring trustees to set strategic objectives for IC providers and run competitive tenders for FM services. There are, however, some changes to be aware of, particularly for schemes with in-house or connected providers: read more.
Read the regulations.
Social risks and opportunities: consultation response
The DWP has published a response to its March 2021 consultation on how trustees of occupational pension schemes understand social factors and seek to integrate consideration of financially material social factors into their investment and stewardship activities. The response notes that there is ‘clearly more to do’ in this area.
The DWP accepts that an integrated approach to ESG (environmental, social and governance considerations) investment, voting and engagement is acceptable but trustees should still actively consider which social risks and opportunities might be financially material to the performance of the scheme and communicate this to members. It acknowledges that there are issues with lack of data, metrics and agreed methodologies and proposes a minister-led taskforce to develop methodologies and data in this area. In relation to DB schemes, the response states that it is ‘essential that trustees act to understand the possible impact of social risks and opportunities on their employer covenant’, and suggests that where information on this is not available publicly, trustees should request this as they would other covenant information.
The response sets out some preliminary questions to help schemes identify which specific social issues might be financially material and therefore relevant to their scheme. It also includes possible actions schemes can take if they identify modern slavery (a key theme in consultation feedback) as a financially material risk to which they are exposed. It also includes a list of resources to help trustees identify, assess and manage risks and opportunities in this area and encourages schemes to join the Occupational Pensions Stewardship Council, a forum for collective engagement and the dissemination of best practice.
Read the consultation response.
DC master trusts: employer-related investments
Regulations have been laid before Parliament limiting the application of certain employer-related investment (ERI) restrictions in relation to large authorised master trusts (those with 500 or more active employers). As currently written, the restrictions may present a barrier to master trusts expanding their investment strategies, so for these schemes, the ERI restrictions will only apply to investments relating to a scheme funder, a scheme strategist and persons connected or associated with those parties. These schemes will also be exempt from the 20% overall cap on ERI that applies to other multi-employer schemes.
The changes formed part of the DWP’s April 2022 consultation on facilitating investment in illiquid assets by defined contribution (DC) pension schemes; a response to that part of the consultation is also available. The finalised regulations will come into force on 1 October 2022.
Read the regulations.
Read the consultation response.