Vision | May 2022
Welcome to the May 2022 edition of Vision, our quarterly round up of the latest developments affecting workplace pensions and savings.
Vision
Your regular insight into<br> workplace pensions and savings
**May 2022**
Introduction and contents
Welcome
Welcome to the May 2022 edition of Vision, our quarterly round up of the latest developments affecting workplace pensions and savings and summary of key dates in the coming months.
We hope you find the content of Vision informative. If you have any questions on any of the items covered, please get in touch with your usual Punter Southall Aspire (PS Aspire) contact.
You can also keep in touch with us on LinkedIn and Twitter.
Key dates in the next 12 months
Key dates in the next 12 months
Stronger nudge to pensions guidance requirements take effect
Subject to certain exceptions, trustees/managers of occupational pension schemes and FCA authorised pension providers will be required to deliver a ‘stronger nudge’ to the free guidance available from Pension Wise in relation to applications to transfer or start receiving flexible benefits which are received on or after 1 June 2022.
Regulations for simpler annual benefit statements to come into force
Automatic enrolment schemes that provide defined contribution (DC) benefits only will be required to issue new simpler annual benefit statements to their members, not exceeding one double sided sheet of A4 paper.
Climate Change Governance and Reporting Regulations
The climate-related governance and disclosure requirements which have applied to trust-based schemes with assets of £5 billion or more, master trusts and authorised collective money purchase schemes from October 2021, will be extended to schemes with £1 billion or more of assets from October 2022.
National Pension Tracing Day
National Pension Tracing Day (NPTD) was launched by PS Aspire in 2021 to help people find old pensions they may have forgotten about. Taking place every year on the weekend the clocks go back, we’ll be encouraging everyone to use the extra hour to start tracing their lost pensions. This year NPTD will be on Sunday 30th October.
TPR reports that suspect employers will be targeted with spot checks
TPR reports that suspect employers will be targeted with spot checks
The Pensions Regulator (TPR) has announced that employers who are suspected of failing to meet their workplace pension duties are being targeted with spot checks. Over the coming months, the on-site inspections will be undertaken across several regions and cities throughout the UK including Greater Manchester, Nottingham, Greater London and Belfast.
The spot checks will be mainly on employers who have failed to make the correct pensions contributions for their staff, although TPR has said it is also likely to visit organisations it believes are at risk of becoming non-compliant in the future.
As well as carrying out spot check inspections, TPR also detects non-compliance using RTI data shared by HMRC, alerts from pension schemes, whistleblowing reports from individuals, and other information and intelligence.
Having helped hundreds of employers to successfully complete their auto-enrolment projects, we are well aware of the difficulties employers face when trying to comply with this complex legislation. We offer a review service to assist employers in ensuring that their processes are compliant and do not present a risk to their business. If you want to find out more about our auto-enrolment health check service, please speak to your PS Aspire consultant.
During the COVID-19 pandemic, only urgent ad-hoc inspections on employers suspected of serious breaches were maintained due to social distancing restrictions. TPR states that this latest ‘compliance drive’ will mark a return to larger scale in-person inspections following the lifting of COVID restrictions earlier this year.
TPR explains that, as well as detecting and confirming non-compliance, the spot checks will also allow its inspectors to gather valuable insight into employer behaviour including, for example, identifying common administrative errors in relation to ongoing duties. In most cases, inspectors would work on site with employers found to be non-complaint to help get them back on track.
TPR issues guidance on the conflict in Ukraine
TPR issues guidance on the conflict in Ukraine
Since the commencement of the conflict in Ukraine, managers and trustees of pension schemes as well as pension savers have been faced with further investment market turbulence. TPR has produced guidance on what it expects trustees of pension schemes to do in these circumstances, although some of this is also relevant to employers who wish to communicate with employees on this issue.
So, what are the key points to consider?
Likely impact on investments
Members’ DC pension investments will likely have been impacted by events and the impact on the wider global market. Trustees and managers should focus on their fiduciary duty to members when considering any actions, although they should also consider wider issues such as member views on ethical and social governance. Many pension funds have already taken the action to sell off their Russian exposure or value it as zero. Care should be taken when taking action to protect members.
Heightened financial crime risk
Similar to what we saw during the COVID-19 pandemic, the increased pressure on an individual’s finances presents an opportunity to fraudsters and so trustees and managers should be vigilant.
Heightened cyber security risk
There is a heightened risk of cyber attacks. Trustees and managers should ensure their cyber security procedures remain adequate.
Impact on the sponsor
It is also important to consider the impact on the sponsoring employer if it has links to Russia. This is arguably more important in defined benefit schemes where this can have an impact on scheme funding, however the employer’s ability to continue to pay contributions will be important in DC pension schemes.
In addition to TPR’s guidance, we believe it is important to ensure that DC pension members are provided with clear, relevant information so that they can take informed decisions with regard to their pension arrangement. We have prepared a briefing note on investment uncertainty that we can provide for clients to share with employees. The key message is not to panic!
Trustees, managers and employers should consider the impact of the conflict in Ukraine on their pension arrangement. Please speak to your PS Aspire consultant if you’d like to discuss this or how best to communicate with members on this difficult subject.
As expected, the Queen’s Speech, delivered on 10 May 2022, did not contain any announcements directly related to pensions. However, it did propose a number of Bills that could have an important impact on the pensions industry:
Data Reform Bill
The Data Reform Bill will aim to simplify the UK’s data protection regime and clarify how personal data can be used.
It also intends to modernise the Information Commissioner’s Office (ICO), ensuring it has the capabilities and powers to take stronger action against organisations that breach data protection laws, while requiring it to be more accountable to Parliament and the public.
Online Safety Bill
Introduced in the last parliamentary session, this will include measures to require large social media platforms and search engines to prevent the hosting or publication of fraudulent paid-for advertising in an attempt to reduce online fraud and scams such as pension and investment scams.
The Bill will introduce a duty of care on online companies, making them responsible for protecting users and tackling illegal content.
Financial Services and Markets Bill
This will further reform the regulation of the UK’s financial services sector and will include additional protections for those investing or using financial products. The intention is to make investing safer for the public and support the victims of scams.
The Government hopes to achieve this through revoking retained EU law on financial services and replacing it with an approach to regulation that is designed for the UK, and by cutting red tape in the financial sector while making sure that high standards are maintained.
TPR updates DC guidance for ‘stronger nudge’ requirements
News for trust-based schemes
TPR updates DC guidance for ‘stronger nudge’ requirements
The ‘stronger nudge’ regulations, which come into force from 1 June 2022, require DC scheme trustees to offer to book their members an appointment with Pension Wise when they apply to access their flexible pension benefits (covered in more detail in our February edition of Vision).
TPR has now updated its communicating and reporting guidance for DC schemes to include a link to the Pension Wise booking tool. This update follows various changes made to the guidance in March 2022 to reflect the stronger nudge requirements.
Except in limited circumstances, trustees must not proceed with a member’s application to access flexible benefits until they have confirmation from the member that they have received guidance or have opted out of receiving guidance. Records should be kept of whether a member has either received Pension Wise guidance or has opted out. This will help trustees decide whether they need to refer the member to Pension Wise guidance again at a later date.
TPR considers it good practice to offer to book a Pension Wise appointment as early as possible in the process and suggests that trustees consider encouraging members to take some time to fully consider their decision before confirming that they wish to opt-out.
The updated guidance provides suggestions on what TPR expects the relevant communications to contain, however how the requirements are built into the member retirement journey can be decided upon by the scheme’s trustees to allow them to retain some flexibility in member engagement.
TPR points out that the requirements do not apply to applications already being processed prior to 1 June 2022.
Trustees are required to comply with the new regulations imminently. Those who have not already done so should seek input from their advisers as soon as possible to ensure that their processes are updated correctly. If you require assistance in this regard, please speak to your PS Aspire consultant.
Pensions dashboards on track to launch in 2023
The requirements will be phased in, starting with the largest pension schemes. Trustees will need to be ready to comply with the regulations by their ‘staging date’. Each scheme will need to check carefully to see when their staging date is, as the exact date will depend on several factors, but the table below provides a high-level summary:
| Type* |
Number of members**
|
Staging deadline
|
|
Master Trusts
|
20,000 or more
|
30 June 2023
|
|
DC schemes used for AE
|
20,000 or more
|
31 July 2023
|
|
Remaining Master Trusts /
DC used for AE
|
1,000 to 19,999
|
30 September 2023 to 29 February 2024
|
|
Other large schemes
|
1,000 or more
|
30 November 2023 to 30 September 2024
|
|
Medium schemes
|
100 to 999
|
31 October 2024 to 31 October 2025
|
* Excluding public service and Collective Money Purchase schemes
** Members for this purpose excludes pensioners
Small and micro schemes are not specifically covered by the draft regulations, but the DWP expects their staging dates to be from 2026.
TPR is aiming to contact trustees at least 12 months ahead of their expected staging date, starting in May 2022.
Given the timeframes, trustees should check when their expected staging date is, liaise with their scheme administrators to understand the steps they are taking to get ready for dashboard compliance and explore possible industry solutions for connecting to the dashboard ecosystem, such as the use of a third party service provider.
Pensions dashboards on track to launch in 2023
As we have covered in previous editions of Vision, the Government has been working with the pensions industry to develop a pensions dashboard service, a digital interface that will enable individuals to access all their pensions information (including their State Pension) in one place.
To make this work, multiple parties and technical services need to be connected in what is referred to as the dashboard ecosystem.
In January 2022, the Department for Work and Pensions (DWP) published a consultation on draft regulations on pensions dashboards, which closed in March. The regulations set out requirements that a pensions dashboards service must meet in order to be a ‘qualifying pensions dashboard service’, the timetable for compulsory scheme participation and the obligations on trustees or managers of relevant occupational pension schemes to co-operate with and connect to the dashboard ecosystem. There has seemingly been a great deal of feedback from the industry, particularly on the tight timescale for implementation.
In addition to the final regulations, we are also expecting draft guidance from TPR which should help trustees and managers prepare.
TPR updates its quick guide to the chair’s statement
News for trust-based schemes
TPR updates its quick guide to the chair’s statement
In March 2022, TPR revised its guidance on production of the chair’s statement.
This states that, for chair’s statements for scheme years that fall after 1 October 2021, it is acceptable to attach to the statement any information or documents that are required to be ‘stated’ or ‘included’ as part of it. These should be contained in a clearly labelled appendix and referred to in the statement itself. Before this latest update, the quick guide suggested that, in TPR’s opinion, the default Statement of Investment Principles and the illustrative examples were the only documents that could be attached to the statement.
In addition, the quick guide confirms that, for schemes with assets of less than £100m which have been operating for at least 3 years, meaning that they are required to carry out a more detailed value for members assessment for scheme years ending post 31st December 2021, this should show either:
- the trustees have concluded that the scheme is offering value for members on all three overall areas (costs and charges, investment returns and governance/administration) and have explained how they reached this conclusion; or
- the trustees have concluded that the scheme is not offering value for members and have either decided to transfer members’ DC rights to an alternative arrangement or have set out the improvements they will be making to ensure the scheme does offer value.
Finally, the technical appendix has also been updated to reflect current requirements (in particular, in relation to ESG disclosures).
If you would like more information or need assistance with the requirements, please contact your usual PS Aspire consultant.
TPR publishes further guidance to help trustees with their new duties on climate-related governance and reporting
News for trust-based schemes
TPR publishes further guidance to help trustees with their new duties on climate-related governance and reporting
Last year saw the introduction of new climate-related governance and reporting requirements for certain schemes, including larger occupational pension schemes. The rules initially apply to authorised schemes and those with relevant assets of £5 billion or more, but will also start to apply to schemes with relevant assets of £1 billion or more from 1 October 2022. The DWP has said it will consider whether to roll the rules out to smaller schemes in 2023.
The DWP published statutory guidance for trustees in complying with the new requirements, with TPR publishing complementary guidance which sets out what trustees need to do and report on in their annual climate change report (known as a TCFD report).
In February 2022, TPR published an illustrative example showing how trustees of a fictitious scheme might approach meeting the new requirements. Although the case study is detailed, TPR emphasises that it is not intended to be used as a checklist by trustees. It is intended to help develop understanding of how trustees and advisers might approach implementing the requirements of the new regulations at a practical level. The example provides information relevant to trustees and advisers of any scheme seeking to comply with the new regulations.
TPR has also suggested that the new example and final guidance will be helpful to those running schemes who are not in scope of the rules, but who want to do more to manage climate-related risks and opportunities.
Individuals breaching the pension allowances reaches a record high
Individuals breaching the pension allowances reaches a record high
HMRC’s personal pension and stakeholder statistics, published in March 2022, reveal that the number of individuals breaching the annual and lifetime allowances reached a new high in the 2019/20 tax year.
Annual allowance
As the table below shows, the number of individuals breaching the annual allowance rose by more than 675% in five years. The total value of pension contributions exceeding the annual allowance (reported through self-assessment) increased by 564% over the same period.
|
Tax year
|
Number of individuals reporting pension contributions in excess of their annual allowance through self-assessment
|
Total value of pension contributions exceeding the annual allowance reported through self-assessment
|
|
2015-2016
|
5,460
|
£143M
|
|
2016-2017
|
18,710
|
£584M
|
|
2017-2018
|
29,920
|
£912M
|
|
2018-2019
|
34,260
|
£819M
|
|
2019-2020
|
42,350
|
£949M
|
The system for limiting tax relief on pension savings has become more complicated in recent years with the introduction of the money purchase annual allowance for those who have flexibly accessed their DC benefits, and a tapered annual allowance for high income individuals. This complexity means many individuals may be unintentionally caught by the annual allowance.
Lifetime allowance
The lifetime allowance charges reported also reached new records, with 8,510 reports through accounting for tax returns in 2019/20. This represents an increase of 138% on the figure for 2015/16.
| Tax year |
Number of all Lifetime Allowance charges reported by the scheme through Accounting for Tax returns
|
Total value of all Lifetime Allowance charges reported by the scheme through Accounting for Tax returns
|
|
2015-2016
|
3,570
|
£159M
|
|
2016-2017
|
5,000
|
£202M
|
|
2017-2018
|
7,040
|
£269M
|
|
2018-2019
|
7,130
|
£283M
|
|
2019-2020
|
8,510
|
£342M
|
The amount of lifetime allowance charges is likely to increase further in future reports due to the allowance being frozen until April 2026.
The above figures highlight the importance of making sure pension scheme members are aware of the different allowances that apply to pension savings. PS Aspire produces a series of briefing notes to provide members with information on the allowances, which can be requested from your PS Aspire consultant.
HMRC report finds lack of awareness of pension tax relief system
HMRC report finds lack of awareness of pension tax relief system
In April 2022, HMRC released a report from research institute, Ipsos MORI, exploring individuals’ awareness and understanding of pensions tax relief, as well as their attitudes towards it.
The report was due to be released in July 2016, but this did not happen due to the extended pre-election period following the EU referendum. It has now been released following a Freedom of Information request and made available publicly.
The report found that only 41% of adults held the correct belief that the Government tops up pension contributions via tax relief and that, of those 41%, both basic rate taxpayers and higher or additional rate taxpayers believed that the Government provides a lower top-up than it does in reality.
Due to this lack of awareness, the report says, people were willing to consider an alternative system, even when it would not change the amount they saved.
The report also found that more people wanted to be provided with more information regarding their pension, with 62% wanting their statement to say how much they would need to live comfortably and 53% wanting to know how much their retirement income would rise from paying an extra £20 per month. These points will be addressed when the new simpler annual benefit statements come into force.
The report states that 26% of people believed that the Government did not top up pension contributions at all, while the remaining 33% did not know whether it did or not. Basic rate taxpayers assumed that the Government topped up pension contributions by around 6%, while higher or additional rate taxpayers believed that the Government topped up their contributions by 15%.
The pensions landscape has changed significantly since 2016, and with changes such as the pensions dashboard on the horizon, the Government has shown its intention to further educate the public.
At PS Aspire we pay close attention to communicating the tax advantages of saving into an employer’s pension scheme, with all of our member facing communications explaining this in plain English wording.
Investment market snapshot
Investment market snapshot
The below graphic shows how different asset classes available to investors have moved over the year to 31 March 2022. The market movement can give you an idea of how the investments in your pension arrangement may have moved over the same period, and the potential impact on employee savings.
If you would like more information on how to monitor the investments used by your pension arrangement, please contact your PS Aspire Consultant.
Source: Thompson Reuters, based on information available as at 25 May 2022.
Please note that the value of investments may fall as well as rise, and individuals may get back less than they invested. Past performance is not a guide to future performance.
The market snapshot is provided for information purposes only. PS Aspire accepts no liability for any costs, liabilities or losses arising as a result of the use of, or reliance upon this information by any party.
