Pensions: what's new this week - 11 March 2024

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 the following topics: Spring Budget 2024; TPR consults on statement of strategy requirements; HMRC Lifetime allowance guidance newsletter; New guidance for trustees on social factors; Codes of practice to be revoked from 28 March 2024; Annual GMP increase Order; Government responds to general levy review.

Spring Budget 2024

The Spring Budget was relatively uneventful from a pensions point of view. The key announcement was that, building on its Mansion House reforms last year, the government intends to bring forward requirements for DC pension funds to publicly disclose the breakdown of their asset allocations, including UK equities. The Financial Conduct Authority will consult on proposals in the spring. 

In a press release prior to Budget Day, it was announced that by 2027 schemes will be required to disclose their levels of investment in British businesses, together with information on costs and net investment returns. The press release also included commentary on the proposed value for money framework that is to be consulted on by the FCA, stating that this will include requirements to compare performance data against competitor schemes and that schemes that are judged to be performing poorly will not be allowed to take on new business from employers. The Budget Report states: ‘In coordination with the FCA the government will legislate at the earliest opportunity to apply the VFM framework across the market and provide the Pensions Regulator with new powers, using secondary legislation if necessary to ensure key disclosures are in place by 2027’.

Read the Budget Report.

Read the press release.

TPR consults on statement of strategy requirements

TPR has published a consultation on the DB funding statement of strategy (SofS), covering the proposed form of the document and the type and extent of information that will need to be submitted.

The consultation proposes that the SofS should be in a standard form and follow a template provided by TPR (there will be separate templates depending on whether or not a scheme has reached significant maturity, and whether it is using the fast track or bespoke approach in relation to valuations). The fast track templates, for example, will require less information than the bespoke approach templates, and the templates for schemes that have passed their relevant date will be adjusted to reflect that they do not have a journey plan and are required to be fully funded on a low dependency funding basis.

The consultation covers the information required for both Part 1 of the SofS – the funding and investment strategy (FIS), and Part 2 – supplementary matters. The latter will include the trustees’ assessment of the employer covenant, and the evidence on which it is based. Trustees have not previously been asked to provide this when submitting their valuations. Instead of a numerical grading as provided in the scheme return, TPR will require ‘more detailed information on the elements of covenant support, depending on how much reliance is placed on the covenant to support the level of risk implied by the funding and investment strategy over the reliability period’. Again, some information – for example on employer cashflows and liquidity, and reasonable alternative uses of cash – will only be required from schemes using the bespoke approach. Those schemes will also be required to provide greater detail regarding contingent assets than schemes on the fast track approach.

The consultation includes an example statement of strategy and an example of a trustee assessment of maximum affordable contributions, based on a scheme that has not yet reached significant maturity and is using the bespoke valuation route. There is also a data list showing the information required for the template.

The consultation closes on 16 April 2024.

Read the consultation and associated documents.

HMRC Lifetime allowance guidance newsletter

HMRC’s latest lifetime allowance guidance newsletter offers answers to a series of FAQs on lump sums and lump sum death benefits; protections and enhancement factors; reporting requirements; transitional tax-free amount certificates; member statements; the standard transitional calculation that translates pre-6 April 2024 crystallised percentages into amounts deducted from the new allowances, and other matters. It also identifies some of the technical changes that remain to be made to the legislation.

Read the newsletter.

New guidance for trustees on social factors 

The Taskforce on Social Factors (established last year by the Department for Work and Pensions) has published a guide on considering social factors in pension scheme investments. This aims to support trustees in understanding and assessing social factors in their investment decisions and stewardship. The resources published include a quick start guide, a directory of data sources, case studies and stewardship guidance as well as the main guidance. A separate document lists recommendations to trustees, employers, regulators, government, asset managers and other advisers and consultants.

Read the guidance and other documents.

Codes of practice to be revoked from 28 March 2024

The Pensions Regulator’s new General Code consolidates ten existing codes of practice, which therefore cease to have any effect. An order has now been published revoking those codes, together with historic versions of three ongoing codes (numbers 5, 6, and 7) which were not previously revoked when new versions were issued.

Read the Order.

Annual GMP increase Order

The Guaranteed Minimum Pensions Increase Order 2024 will come into force on 6 April 2024 and specifies 3% as the rate by which GMPs in payment attributable to earnings factors for the tax years 1988/89 to 1996/97 must be increased.

Read the Order.

Government responds to general levy review

The Government consulted last year on proposals for changes to the rates of the general levy, which is payable by trustees of registrable occupational and personal pension schemes and recovers costs relating to the activities of the Pensions Regulator and the Pensions Ombudsman, and the pension-related activities of the Money and Pensions Service. In response to consultation, the current levy structure will be retained and rates will be increased by 6.5% per year for all schemes, for the next three financial years. 

Regulations effecting the change will come into force on 1 April 2024.

Read the consultation response.

Read the regulations.

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