7 Days is a weekly round up of developments in pensions, normally published on Monday afternoons. We collate this information from key industry sources, such as the DWP, HMRC and TPR.
In this 7 Days
- Finance Act 2021 receives Royal Assent
- Briefing paper on transitional arrangements for LGPS
- Government response to consultation on climate change regulations and guidance
- HMRC guidance on tax avoidance arrangements using unfunded pension obligations
- PDP blog on identity service call for input responses
- PPI report on adequate retirement income
- TPR comments on draft criminal offences policy
- TPR updates guidance for schemes in “relationship supervision”
- Britvic plc v Britvic Pensions Limited & Another (Court of Appeal)
The Finance Act 2021 received Royal Assent on 10 June 2021. This Act, among other things, fixes the LTA at its current level of £1,073,100 until April 2026 (see our Alert) and legislates to ensure that collective money purchase pension schemes (also referred to as collective defined contribution or “CDC” schemes), which are being introduced under the PSA21, can operate as registered pension schemes for tax purposes (see 7 Days).
On 11 June 2021, the House of Commons Library published a briefing paper which looks at the reforms made by the Public Service Pensions Act 2013 and the proposed changes to the transitional arrangements in the LGPS following the Court of Appeal judgment in McCloud (see 7 Days).
On 8 June 2021, the DWP published its response to the January 2021 consultation, “Taking action on climate risk: improving governance and reporting by Occupational Pension Schemes” (see our Alert), together with revised draft regulations and draft statutory guidance. The draft regulations are largely unchanged following consultation, with the draft statutory guidance revised “to provide further clarity and support for trustees when complying with the requirements”.
Once approved, the regulations are due to come into force on 1 October 2021. Trustees will be required to meet climate change governance requirements which underpin the Taskforce on Climate-related Financial Disclosures (“TCFD”) recommendations and to produce and publish (on a publicly available website, accessible free of charge) a report on how they have done so.
Schemes likely to fall within the first wave (compliance from 1 October 2021) should have started the necessary preparations, and those likely to be in the second (compliance from 1 October 2022) should not be far behind. Bearing in mind trustees’ fiduciary duty to be actively considering climate change as a likely financially material risk, those comfortably outside of scope (for the time being) should consider whether to voluntarily adopt some or all of the requirements.
See our Alert for further detail.
Separately, on 7 June 2021, the TCFD launched a consultation on two guidance documents: its “Proposed guidance on climate-related metrics, targets and transition plans”, and the associated “Measuring portfolio alignment: Technical supplement”. These documents are intended to provide general guidance for organisations around their climate-related risks and opportunities. The consultation closes on 7 July 2021 and the TCFD will take the consultation responses into consideration when releasing the final guidance in autumn 2021.
On 14 June 2021, HMRC published guidance (Spotlight 58) with information on tax avoidance arrangements which attempt to avoid corporation tax, income tax and NICs by using unfunded pension obligations. The guidance states that “HMRC strongly believes these arrangements do not work. We’ll seek to challenge anyone promoting or using these arrangements and we’ll make sure the correct tax is paid.”
The blog summarises the actions that the PDP will be taking in response to the feedback. Senior Product Owner for Identity at the PDP, Jon Pocock, wrote: “Over the course of the next few weeks, we will provide more context for our approach to identity and the logic behind our decision making… By the end of the summer, we will publish details of our work on liability and how that is reflected across the architecture as a whole, including the identity service. We will continue to work with key partners in Government, regulators and beyond, to ensure the appropriateness of the proposals we make and how they will impact the overall solution.”
On 9 June 2021, the Pensions Policy Institute (“PPI”) published a report examining the issues underlying debates around adequacy and the fundamental questions of what adequacy is, how it should be defined and who is responsible for providing it.
The PLSA has also called for a national consensus on what is meant by an adequate income in retirement, saying “this consensus is needed so as to guide the level of automatic-enrolment contributions, the value of the State Pension, and the fiscal support for additional pension saving.”
On 8 June 2021, David Fairs, TPR Executive Director for Regulatory Policy, Analysis and Advice, spoke on “how the PSA21 will improve the savings landscape and will ultimately bring about better outcomes for savers.”
The speech primarily focused on the new powers granted to TPR under the PSA21, and discussed the responses TPR received to its consultation on its draft criminal offences policy (see our Alert, and Sackers’ response to this consultation). Mr Fairs cited two specific changes proposed by respondents:
- improving the examples given in the draft policy, for example in relation to the factors TPR would consider significant in determining whether a person has a reasonable excuse
- providing greater clarity in relation to the retrospectivity of the offences and the wording on the seriousness of behaviour caught by the offences.
In relation to requests for further information about TPR’s approach to the new civil fines of up to £1 million, Mr Fairs confirmed that details would be covered in further policies that will be published in due course.
The speech also covered TPR’s Annual Funding Statement. Mr Fairs noted that “for those companies who were initially hit hard by COVID-19, but are recovering, there could be some short-term affordability constraints… Trustees may need to be flexible, but the pension scheme should not be the only creditor feeling the pain. They should be treated fairly among other creditors. Dividends may need to be put on hold. Trustees might want to put in place contingent arrangements and should certainly look at their integrated risk management (“IRM”) strategy. Robust risk management is essential.”
Mr Fairs concluded his speech by flagging the volume of documents recently issued by TPR and said: “[T]here is a lot to read, digest and comment on. Unfortunately, I don’t see that slowing down in the near term. There is currently a lot to do for all of us at the moment.”
On 8 June 2021, TPR updated the following COVID-19 related guidance documents:
- Update about TPR activities during COVID-19
- Guidance on supervision
- DB scheme funding and investment: COVID-19 guidance for trustees
- COVID-19: an update on reporting duties and enforcement activity
Having scaled down its relationship supervision programme during the COVID-19 pandemic to focus on supporting schemes and employers experiencing financial distress, TPR has now said that “the pensions landscape has shifted since March 2020, and we are refocusing our supervisory regime accordingly. As the schemes we currently supervise are all at different points on our supervisory cycle, we will contact them individually to determine the next steps”. Those schemes with immediate concerns should contact their named supervisor to discuss.
TPR plans to restart regulatory initiatives later in 2021. TPR also said it is increasing its engagement with pension scheme administrators and superfunds. It has an “assessment framework” for superfunds which sets out the standards expected from generic consolidation vehicles and other risk-transfer business models (see our Alert). TPR says it will “continue to engage with prospective superfunds to outline these standards and to also better develop [its] understanding of the market”.
The Court of Appeal has allowed an employer (“Britvic”) appeal, favouring their interpretation of a rule regarding DB increases from the Britvic Pension Plan.
The main issue in this appeal was “beguilingly simple”: whether the words “or any other rate” meant “any higher rate” or “any other rate, whether higher or lower”. The High Court judge had decided in favour of the former interpretation.
The Court of Appeal judge however held that the approach indicated by case law was clear: the parties had used unambiguous language, and so the court must apply it.
As ever with such cases, the decision is specific to the precise wording of the rule in question and the “factual matrix” behind it. It does, however, offer further consideration and detail on how the courts will look at issues of construction.
See our case summary for further detail.