Pensions Essentials - May 2024

There are a number of areas in relation to existing policy where the general election is likely to have implications for occupational pension schemes. The key ones are set out below.

Scheme funding: Although the regulations for the new DB funding regime are  already in place, we are still awaiting the final code of practice which will set out the Regulator’s expectations and how schemes will determine when they will reach significant maturity. The requirement to have a funding and investment strategy in place will apply 15 months from the effective date of the first valuation on or after 22 September 2024 which would mean that ideally the code should be in place before then. However, the code must lie before parliament for 40 days and periods when it has been dissolved or is in recess don’t count. That means there is not enough time for the code to be in place by September so it remains to be seen whether the timing in the regulations will be revised or if we will just have to wait a little bit longer for the final version of the funding code (which we understand is ready to publish).

Refund of surplus in ongoing schemes: In March this year, the government consulted on proposals to facilitate the repayment of surplus in ongoing schemes with the idea that this would encourage schemes to invest in productive capital as any resulting surplus would not be trapped in the scheme. Any repayment would be subject to appropriate safeguards on benefits. The Labour Party indicated in its Financing Growth plan that it will continue to pursue the current government’s agenda of encouraging pension schemes to invest in UK equities and growth assets so it is possible that whatever the outcome of the election, the surplus proposals may see the light of day, but the timing is likely to be pushed back.

Collective defined contribution schemes: Following a consultation in January, developments were expected later this year which would have allowed the introduction of commercial CDC schemes as an alternative decumulation offering. It is not clear what a new government’s policy would be in this area so we will just have to wait and see.   The Labour Party said in its Financing Growth plan that it would conduct a general review of the pensions landscape to evaluate whether the current framework “will deliver sustainable retirement incomes for individuals” so it may be that CDC would still fit within this agenda.

Consolidation:  In its corporate plan published earlier this month (see below), the Pensions Regulator said that it continued “to observe consolidation in the pensions industry” and welcomed “the shift towards fewer, larger, well-run schemes in the market that offer the ability to invest across a range of assets in their members' interest and have the scale to offer administrative efficiency and good governance.” Both the Labour and Conservative Parties appear committed to supporting this agenda but it is not clear whether a Labour government would take forward the current proposals for the PPF to act as a public consolidator.

Automatic enrolment: In 2017, a review of auto-enrolment recommended that the qualifying age threshold should be lowered from 22 to 18. It also recommended that the lower limit on the qualifying earnings band (the earnings on which contributions are paid and currently between £6,240 and £50,270) should be removed so that contributions are paid from the first pound earned. In 2023, legislation was brought into force which will allow regulations to make these changes and the government said last year that it intended to consult on their implementation “at the earliest opportunity”. No regulations have so far been issued but the Act received cross party support during its passage through Parliament so it seems likely that any new government would consider issuing the necessary regulations fairly quickly, assuming that their legislative agenda has sufficient parliamentary time to do so. It is also possible that any new government might carry out a more fundamental review of whether the current regime is likely to provide most employees with an adequate income in retirement.

Lifetime allowance: HMRC has indicated that further regulations are needed to clarify some of the details around the abolition of the lifetime allowance and the operation of the new lump sum allowances that have replaced it (see our briefing for more details). These regulations are now on hold and it is not known what approach a Labour government would take to the lifetime allowance as it was not in favour of its abolition. In addition, it is possible that they might contemplate wider pensions tax reform and fundamental changes to the existing regime.

The CEO of the Pensions Regulator recently said that schemes must ensure that they get the basics right on data quality to ensure they can deliver on their obligations in relation to the pensions dashboards. In addition, the Regulator intends to go “out into the market, at scale, to ensure schemes have high quality data” and engage with “hundreds of schemes [to ask] them to account for how they are measuring and improving their data and… taking action where trustees are failing to meet... expectations." 

Having good quality data will help trustees ensure that they are able to meet their dashboard obligations, match members with “find requests” they receive from the dashboards and supply the required information about benefits. Work to ensure that this data is available and searchable should already be well underway. 

The Pensions Dashboards Programme (PDP) has published updated data standards which cover the data requirements for finding and viewing pensions information. The PDP says that the standards are intended to help schemes and third party organisations connecting to the dashboards on their behalf “to build a common set of message handling tools to receive and reply with data”. Compliance with these data standards is mandatory and trustees should ensure that whoever is dealing with dashboard compliance on their behalf has regard to them. 

In due course, the PDP will also publish final versions of other dashboard standards which will cover technical, reporting and design issues, as well as a code of connection, made up of security, service and operational standards.

For trustees looking for additional help with complying with their dashboard obligations, the Pensions Administration Standards Association (PASA) has said that it intends to issue further guidance on the dashboards which will cover additional voluntary contributions; testing dashboard readiness once systems are set up; the matching criteria used to match find requests to members; and ensuring scheme administration can cope with the volumes of member requests for additional information that might follow on from the dashboards.

Note that it is not yet known what date the dashboards will go live to members (the “dashboard available point”). However, the government is required to give the industry six months advance notice of when this will be – which seems likely to be late 2026 or sometime in 2027.