Vision | September 2022 v2
Welcome to the September 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
**September 2022**
Introduction and contents
Welcome
Welcome to the September 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
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.
New regulations for investment consultancy services come into force
From this date, The Pensions Regulator (TPR) will take over from the Competition and Markets Authority (CMA) the role of monitoring and enforcing compliance with the requirements for trustees to run a competitive tender process when appointing fiduciary managers in relation to 20% or more of scheme assets, and to set their investment consultant's strategic objectives. See our article for more information.
National Pension Tracing Day
National Pension Tracing Day 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.
Increase in National Insurance rates will be reversed
The Government has confirmed that the 1.25% increase in National Insurance (NI) from April 2022 will be reversed from November 2022.
Key dates in the next 12 months
TPR’s new single code of practice to be published
TPR is expected to publish its new single code of practice in autumn 2022. The code will combine 10 of TPR’s existing 15 codes of practice into an updated and online format, in order to provide a common set of expectations for those involved in the running of all types of schemes.
Pensions tax relief will be reduced
Cuts to the basic and additional rate of income tax for taxpayers in England, Wales and Northern Ireland will reduce the amount of pension tax relief they are entitled to (this is covered further in our mini Budget summary).
Pensions dashboards compulsory onboarding expected to commence
Following consultation earlier this year (as covered in our February edition of Vision), the Department for Work and Pensions (DWP) has delayed the staging deadline for the first two cohorts of pension schemes to connect to the dashboards programme. This will now be 31 August 2023 for master trusts with 20,000 or more members and 30 September 2023 for certain DC trust-based schemes with 20,000 or more members.
Mini Budget - what it means for pensions
Mini Budget - what it means for pensions
In delivering his mini Budget on 23 September 2022 (referred to by the Government as ‘The Growth Plan’), the Chancellor announced a wide-ranging series of tax cuts and reforms aimed at addressing the cost-of-living crisis and delivering future growth. The key pensions related announcements were as follows:
Pension tax relief
The additional rate of tax of 45% on income in excess of £150,000 is to be abolished from 6 April 2023 for taxpayers in England, Wales and Northern Ireland. This will mean that the maximum level of tax relief they can receive on pension contributions from that point will be at the higher rate of 40%. Those affected may wish to consider if they can increase their contributions in the current tax year to take advantage of the higher tax relief available, although scope to do so could be restricted by the tapered annual allowance.
There will be a one-year transitional period for Relief at Source pension schemes, permitting them to continue claiming tax relief at the 20% rate for the 2023/24 tax year. This will create a further anomaly between schemes that utilise Relief at Source and those that operate the Net Pay Arrangement.
The tax cuts do not automatically apply to Scotland, where income tax rates and bands are decided by the Scottish Government. It will set out its decisions on tax when it publishes its own Budget later in the year.
National insurance
As was announced the day before the mini Budget, the Government will reverse the 1.25% increase in employee and employer NI, introduced for the 2022/23 tax year, from 6 November 2022. However, the threshold at which individuals start to pay NI will remain at £12,570, the level it was increased to from 6 July 2022.
In addition, the planned Health and Social Care Levy which was due to replace the NI increase as a new standalone tax from April 2023, has been cancelled. The funding for health and social care will now come from general taxation.
DC charge cap
The Chancellor confirmed that the Government will bring forward draft regulations to reform the charge cap on the default investment strategy of DC schemes.
This announcement and the review promised in the Autumn Budget last year come after a string of Government reviews into the charge cap over recent years and form part of an ongoing bid to encourage more DC schemes to invest in illiquid assets such as infrastructure and renewable energy.
The Government previously confirmed that it would proceed with proposals to exclude ‘well-designed’ performance fees from the 0.75% charge cap, despite industry concerns that this could risk undermining member protections.
The reversal of the increase in NI rates will now nullify the higher NI savings that can be made through pension salary sacrifice, with these reverting to the previous levels. Where scheme literature specifies the amount of saving, employers should ensure this is updated to reflect the changes.
TPR publishes new pension scams strategy amid cost-of-living concerns
TPR publishes new pension scams strategy amid cost-of-living concerns
TPR has launched a new scam-fighting strategy in light of concerns that the cost-of-living crisis may leave savers more vulnerable to scammers. TPR is concerned that individuals could be lured by offers to access their pension savings early to cover essential household bills or be attracted by fake investments offering high returns that never materialise.
Under the plan, TPR aims to educate the industry and savers on the threat of scams, prevent practices that can harm savers’ retirement outcomes, and fight fraud through the prevention, disruption and punishment of criminals.
The strategy sets out, step by step, what TPR plans to do over the next three years to address the harms it has identified. Some are continuations of existing policy, but there are new ideas to be aware of.
TPR's strategy distinguishes between pension fraud (such as investment fraud), where there are potential criminal sanctions, and practices which lead to saver harm (such as high fees), which TPR and others can mitigate through use of a 'regulatory toolkit'. In practice, TPR is primarily concerned with seven kinds of pension scams which are often seen in combination with one another:
- Investment fraud - those who misrepresent high-risk or false investments to savers.
- Pension liberation - where scammers mislead savers into accessing their pension pots under the age of 55, unaware that they will incur a tax charge or potentially engage in tax evasion.
- Scam pension schemes and providers - schemes and providers set up to deceive victims, which either don't exist or exist but are committing fraud.
- Clone firms - scam schemes and providers that are disguised as legitimate entities.
- Claims management companies - such as cold-callers who claim savers have been mis-sold a pension and then ask for an advance fee to begin a claims process.
- Employer-related investment (ERI) - breach of ERI restrictions when employers divert employees' pension payments to invest inappropriately in their business leading to losses for savers.
- High fees - excessive fees often layered through unnecessarily complex business structures.
Related to these seven are recovery room scams: fraudsters approach pension savers who have been scammed, offering to help them get their money back for an upfront fee.
To address these issues, some of the steps TPR will take are to:
- continue to support and amplify the messages of the ScamSmart campaign run by the Financial Conduct Authority (FCA), adapting messaging to deal with new and emerging threats;
- set expectations that schemes include a pension scam warning in every annual benefit statement with a link to ScamSmart;
- encourage consolidation of poorly run schemes and, as schemes become larger, explore whether Chairs of trustee boards should be professional or accredited;
- explore how employers can be used to promote anti-scams messaging;
- continue to encourage industry to go beyond minimum compliance and engage savers with their pensions, and work to improve the pensions consumer journey including a review of guidance on member communications for scam-prevention messaging;
- support and encourage schemes and employers to engage with the UK Strategy for Financial Wellbeing which seeks to improve financial literacy across the country.
The strategy will build on TPR’s pledge to combat pension scams campaign, which has received support from more than 500 organisations. TPR estimates that 16 million pension pots are now better protected thanks to this campaign.
TPR wants schemes to improve saver engagement and be proactive in their pension scams warnings. Employers, trustees and pension scheme managers should therefore review their communication, engagement and education strategy.
Trustees will need to consider the anti-scams wording used on their documentation and whether this is sufficient in light of TPR’s warnings. Although for contract-based schemes, annual benefit statements are issued by the pension provider, employers can also be proactive by continuing to include scams warnings in member newsletters and other communications.
National Pension Tracing Day becomes part of the new Pension Attention campaign
National Pension Tracing Day becomes part of the new Pension Attention campaign
In April 2022 it was announced that two industry bodies, the Pensions and Lifetime Savings Association (PLSA) and the Association of British Insurers (ABI) had joined forces to launch a campaign to boost people’s understanding and engagement with their pensions.
The pension engagement season campaign, titled 'Pension Attention', will start in September and run through to November, with the slogan ‘it’s time to pay your pension some attention’. A striking logo has also been created to help promote the campaign.
The ABI and PLSA noted that, despite previous efforts by the industry, Government and money guidance bodies, engagement with pensions remains low and stated that the campaign’s aim is ‘to break through the public’s lack of interest and make pensions a talking point for people going about their everyday lives’.
Research by the ABI and PLSA found that only 20 per cent of people are confident they are saving enough for retirement and, without any action to save more, millions of people risk not having enough money to meet their needs.
Seventeen pension providers and schemes, representing approximately 41.5million savers, have committed to support the campaign, with a collective investment of at least £1 million over the next three years. Supporters include some of the UK’s largest providers such as Aviva, Standard Life, Scottish Widows, and Legal & General plus pension schemes such as Railpen and the Universities Superannuation Scheme.
This is the first time so many pension providers and schemes across the UK, including the very largest, have united behind the same call to action over the same period. This concerted action will reach tens of millions of savers who are in automatic enrolment schemes, defined benefit pensions, self-invested personal pensions, and those who have started withdrawing money from their pension.
The campaign will complement the work of the Department for Work and Pensions. In June 2022, the then Pensions Minister Guy Opperman said: ‘Engagement season will complement the crucial work already under way on pensions dashboards and simpler statements, helping savers get to grips with their pensions and bringing retirement saving into everyday conversation. I warmly welcome this campaign from the ABI and PLSA and look forward to working together — and with other industry partners — to help bring about a step change in how the record number of Brits now saving for retirement engage with their pension.’
The campaign will be built around three existing industry events which take place on the following dates this year:
National Pension Tracing Day – 30 October
Pensions Awareness Week – 31 October to 4 November
Talk Money Week – 7 to 11 November
PS Aspire is the founder of National Pension Tracing Day, which launched last year, and we’re delighted that the impact we made has resulted in our initiative becoming a key cornerstone for the Pension Attention campaign.
National Pension Tracing Day was born out of our recognition that there is estimated to be 1.6 million lost or forgotten pension pots with a total aggregate value of £19.4 billion. This equates to an average pot size of £13,000 and could mean that as many as 1 in 30 adults in the UK have a pension pot waiting to be found.
We have designated the last Sunday in October as National Pension Tracing Day. It’s the day the clocks go back and we’re calling on people to use the extra hour to start finding lost pension treasure.
To support people in this search, we have created a website www.nationalpensiontracingday.co.uk and have also developed a toolkit to help employers support their employees.
We founded National Pension Tracing Day as a Corporate Social Responsibility initiative, so we don’t charge for anything connected to it.
Employers can use our free communications toolkit to encourage employees to get involved in National Pension Tracing Day. It’s worth doing; we’ve heard some great stories from employers who participated last year. One of the best was a member who found lost pensions worth more than £80,000.
Our toolkit is designed to help employers communicate National Pension Tracing Day to employees quickly and easily. If you would like to receive it, sign up here.
Draft legislation published on pension tax relief anomaly for low earners
Draft legislation published on pension tax relief anomaly for low earners
In July 2022, the Government published draft legislation to correct the so called ‘Net Pay anomaly’ which has resulted in lower earners missing out on pensions tax relief.
As we covered in our February edition of Vision, this longstanding issue arises because of the difference in how pension tax relief works between the Relief at Source (RAS) method and the Net Pay Arrangement (NPA). Under RAS, contributions are deducted net of basic rate tax relief from net pay and members automatically receive a 20% top-up from the Government, even if they pay no income tax. RAS is the method typically used for contract-based pension schemes as well as for NEST and some master trusts.
Through the NPA, pension contributions are taken from gross salary before tax is calculated, meaning employees receive immediate tax relief at their highest marginal rate. For those earning below the income tax threshold however, their marginal rate is 0%. The effect is that low earners in NPA schemes have less take-home pay than they would if they were saving into a scheme that uses RAS. NPA tax relief is typically used for trust-based pension schemes including many master trusts.
Under the proposed changes, which would be effective from 6 April 2024, HMRC will make top-up payments directly to individuals who save into NPA schemes, but whose total taxable income is below their personal allowance. As a result, lower earning pension savers should receive similar outcomes regardless of how their pension scheme is being administered for tax purposes.
HMRC will notify those who are eligible and invite them to provide the necessary details for the top-up to be paid directly into their bank account. HMRC will make the payments as soon as is reasonably practicable following the tax year in which the contribution was paid. This should have minimal impact on pension schemes as HMRC will contact individuals directly.
According to government figures, this will benefit approximately 1.2 million individuals, 75% of whom are women, who could benefit by an average of £53 a year.
TPR and FCA respond to call for input on the pensions consumer journey
TPR and FCA respond to call for input on the pensions consumer journey
TPR and FCA have published a feedback statement in response to their call for input on what can be done to help engage consumers to make informed decisions about their pensions at key points throughout their working lives for better pension outcomes.
The statement said that most respondents agreed that the stages of the consumer journey that were set out in the call for input provided a broad basis for engaging the consumer, although respondents noted that the journey was highly personalised and non-linear, with consumer decisions and touchpoints influenced by life events.
Due to this personalised journey, respondents generally believed that savers need tailored support throughout their lifetime. However, many in the industry noted that low levels of financial literacy meant it was difficult to communicate with consumers about pensions.
Several respondents, particularly master trusts and large providers, said they would like to do more to support consumers, but were concerned about straying into regulated advice or unsolicited market activity. These respondents emphasised the importance of consumers receiving the right support at the right time to achieve good outcomes, including clear and easily understandable communications.
Respondents, almost en masse, noted that current mandatory communications are too long and complex, with concerns that consumers might become disengaged. There were calls for a review to remove jargon, improve the language, and rationalise the requirements.
TPR will review its DC code-related guidance on 'communicating to members' to provide more information on inclusivity, use of behavioural insights, and timing of communication.
TPR has also committed to conducting an equality report to understand how well the market works for different groups of people to inform regulatory responses, publicise Midlife MOT toolkits available for employers and encourage larger schemes/providers to provide support, and work with the Money and Pensions Service to produce guidance to help employers support staff returning to work.
The FCA committed to exploring firms' concerns around providing more support to customers about accessing their pensions and discussing options for giving consumers greater support within the current regulatory framework, while also considering further FCA interventions beyond the 'Stronger Nudge' to support consumer decision-making.
Employers, trustees and pension scheme managers should review their communication, engagement and education strategy on a regular basis to maximise its effectiveness with staff at various life stages.
Automatic enrolment reforms by mid-2020s
It is generally recognised that many pension savers are not saving enough for retirement, with the ABI echoing the PLSA and recommending increasing the minimum contribution rates from 8% to 12% over the next 10 years, with the new minimum contribution split evenly between employers and employees. They suggest these changes should start to be introduced after 2025 to allow for the above reforms to take place first.
With the cost of living in mind, the ABI recommends that savers should have flexibility, including allowing them to ‘opt-down’ to 10%. Alternatively, a minimum contribution could be set at 10% with the option to ‘opt-up’ to 12%. Further research is needed to determine which is more affordable for both employers and savers, and these studies should inform the Government’s plan. The Government’s intentions in this regard however are yet to be fully laid out.
It is to be hoped that the recent changes at the DWP - with Chloe Smith appointed as the new Secretary of State for Work and Pensions and Alex Burghart as Pensions Minister - will not derail the projects and policies that have to be completed such as these AE reforms.
Automatic enrolment reforms by mid-2020s
Subsequent to our automatic enrolment reforms article in the October 2021 edition of Vision, in July 2022 Guy Opperman reaffirmed the Government’s commitment to broadening out the coverage of eligibility and earnings which are pensioned by:
- lowering the age for being automatically enrolled from 22 to 18; and
- abolishing the lower limit of qualifying earnings, so that contributions are payable from the first pound of earnings.
He is on record as saying he remained ‘of the view’ that legislation on the above reforms, will be passed before the end of this Parliament, bringing the changes into force by ‘the mid 2020s’.
At the end of July, a Private Member’s Bill was introduced in the House of Commons in order to provide the legal basis for the reforms to be introduced through legislation. In turn, the Government said its ‘ambition for the future of automatic enrolment will enable people to save more and to start saving earlier by abolishing the lower earnings limit for contributions and reducing the age for being automatically enrolled to 18 in the mid-2020s’ but whilst doing so would ‘take account of the impact of the pandemic and our overall support for economic recovery, balancing the needs of savers, employers and taxpayers’.
The changes will at this stage not include any uplift to the minimum levels of contribution required to be paid into qualifying schemes. It had been proposed previously that, to enhance incomes in retirement, the minimum level needed to rise from the current 8% to 12%.
TPR publishes annual survey of DC schemes and issues reminder of value for member requirements
News for trust-based schemes
TPR publishes annual survey of DC schemes and issues reminder of value for member requirements
In June 2022, TPR published its latest annual survey of DC trust-based pension schemes.
The survey focuses on a range of important and relevant topics such as value for members, pensions dashboards and climate change. TPR has used the results of the survey to emphasise a few key findings and expectations for the future, including:
Value for members
With the new legislation (effective from the first scheme year end falling after 31 December 2021) which requires schemes with assets under management of less than £100 million to carry out a more detailed value for members assessment, TPR noted that:
- Two thirds of schemes impacted by these new regulations were unaware of the requirements
- It expects schemes that cannot demonstrate that they provide equivalent value to a larger DC scheme, such as a master trust, to take action such as winding up the scheme.
Climate change
TPR expects pension schemes to be dedicating time to assessing the risks and opportunities presented by climate change. However, it found that all but the largest schemes are not dedicating enough time to this. Whilst every master trust and nine in ten large schemes had allocated time or resources here, this fell to just over half of medium schemes (55%), fewer than one in 10 small schemes (9%) and just 5% of micro schemes.
TPR suggests schemes should not wait for legislation to force them to consider this, but should start taking action now.
Pensions dashboards
The survey suggested DC trustees were at risk of not being sufficiently prepared for their pensions dashboard deadline. Overall, 94% of schemes with 100+ members had heard of pensions dashboards and 83% were aware of the legal requirement for schemes to provide data to savers through a dashboard. However, at the time of the survey, most schemes had yet to take action to prepare for the dashboards, but many were planning to do so within the next six months.
Small and micro scheme trends
TPR noted that small schemes (under £100m assets under management) and micro schemes (less than 12 members) often were unaware of the requirements on the trustees and the codes of practice TPR has in place to support them.
The outcome of the survey underlines that TPR’s goal to improve value for members through consolidation into larger, well-run schemes would be beneficial to members. However there are, of course, some well-run small and micro schemes that are providing value for members. What is key is for trustees to ensure this is the case and, importantly, document it to be able to demonstrate it to TPR.
Whether employers provide employees with a contract-based, trust-based or master trust pension scheme, it is important to ensure they are providing staff with the best value for members and meeting their regulatory requirements.
Contact your PS Aspire consultant if you’d like to ensure your pension scheme is meeting your own and your employees’ needs.
TPR publishes revised guidance for fiduciary management and investment consultancy services
News for trust-based schemes
TPR publishes revised guidance for fiduciary management and investment consultancy services
Since December 2019, trustees have been required to:
- run a competitive tender process when appointing fiduciary managers in relation to 20% or more of scheme assets, and
- set strategic objectives for their investment consultancy provider.
Currently, investment consultancy services must comply with the Investment Consultancy and Fiduciary Management Market Investigation Order 2019 (the CMA order) and compliance is monitored by the Competition and Markets Authority (CMA). However, from 1 October 2022, regulations come into force which are designed to integrate into pensions law relevant aspects of the CMA order and which will enable TPR to take over the role of monitoring and enforcing compliance with these requirements.
The new regulations will largely replicate the CMA order, with the main change being that trustees will instead be subject to TPR compliance and monitoring processes. They include provisions to ensure that where trustees have taken action to comply with the Order, they will not be expected to duplicate that action when the regulations take effect.
Ahead of the new regulations coming into force, TPR published updated guidance in August 2022 reflecting this change and summarising the minor policy differences between the existing requirements and the new regulations.
Trustees are required to review the performance of each investment consultancy provider against its objectives at least every 12 months. Where appropriate, the objectives must be reviewed at least every three years and without delay after any significant change in investment policy.
David Fairs, TPR’s Executive Director of Regulatory Policy, said: “Robust monitoring of a scheme’s financial advisers can influence the effectiveness of its investment outcomes and ensure it is following long-term plans. It also helps trustees ensure they are delivering value for money for savers. Since trustees have been required to comply with these obligations and to self-certify their compliance to the CMA for two years, the introduction of these regulations should not place an additional burden on schemes.”
If you have any questions on the updated guidance, please speak to your usual PS Aspire contact.
Concerns over savers accessing their pension pots early
Concerns over savers accessing their pension pots early
Around 13% of savers have accessed, or plan to access, their pension savings earlier than planned, according to research by Canada Life.
A survey of 616 UK adults conducted by Opinium on behalf of Canada Life has revealed:
- more than two in five of adults aged 55 – 66 have chosen early retirement since the start of the pandemic
- almost a third have retired completely, while one in ten have semi-retired
- around one in six have not retired but have reduced their working hours
- despite increasing financial pressures, four in five have no regrets in making the decision to retire early
Of those who have taken a form of early retirement or reduced working hours, 35% are using savings and investments to supplement their income, 20% have taken a lump sum from their pension, 9% are using funds from an inheritance, while less than 8% have a second income stream.
Canada Life has warned of the impact of accessing pension savings before State Pension age. The analysis shows that, for example, someone taking their benefits at age 55 could have pension savings 59% lower than if they had continued to save until age 67.
It is vital that individuals are aware of the tax and cost implications of accessing their pension savings early, as more look to do so amid the cost-of-living crisis. Not only will their pot size be significantly smaller, their savings will also need to last for longer. And, bearing in mind that retirement can now last for several decades, they need to consider if they will continue to have enough income to meet their needs.
In the current climate, financial education and impartial guidance are more important than ever to assist pension savers in making informed choices. We believe that good retirement planning should start several years before an individual’s planned retirement date. Through our Aspire to Retire service, we provide support for pension scheme members from age 50 through financial education, planning tools, guidance and optional regulated financial planning advice.
If you are interested in offering Aspire to Retire to your employees, please contact your usual PS Aspire contact.
Investment market snapshot
Investment market snapshot
The below graphic shows how different asset classes available to investors have moved over the year to 30 June 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 5 September 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.
