Pensions Insight: 26 June to 3 July 2023

In this Insight we provide an update on the Retained EU Law Act and the Economic Activity of Public Bodies (Overseas Matters) Bill, HMRC guidance concerning the McCloud remedy and a policy statement from the Financial Conduct Authority (FCA) on Long Term Asset Funds. 

Retained EU Law (Revocation and Reform) Act receives Royal Assent

The Retained EU Law (Revocation and Reform) Act 2023 received Royal Assent on 29 June 2023. Whilst a lot of the Act is already in force, many of the changes that it introduces will not come into effect until the end of this year. In summary, the Act provides the Government with wide powers to change how EU law is treated in the UK following the UK’s exit from the EU.

During the Act’s progression through Parliament, significant changes were made to how the Government will approach the amendment of retained EU law – instead of automatically removing a large proportion of UK legislation originating from EU law, the Government will specifically say which of this retained EU law will be revoked. The Act will also make several other changes including: 

• the automatic repeal of certain retained EU rights and obligations originating from EU treaties and EU directives;
• repealing the principle of the supremacy of EU law;
• amending how the UK courts interpret retained EU law; and
• providing the Government with significant powers to change secondary retained EU law.

You can read our previous coverage of the Retained EU Law (Revocation and Reform) Act 2023 from May 2023 here and here.

At present, the list of planned EU law revocations do not include EU-related pensions law but this may well change and we will keep you updated on developments in this area.

Economic Activity of Public Bodies (Overseas Matters) Bill introduced to House of Commons

On 19 June 2023, the Economic Activity of Public Bodies (Overseas Matters) Bill that introduces new limitations on investments made by public authorities (which will include the Local Government Pension Scheme the (LGPS)) had its First Reading in the House of Commons. 

The Bill, that was sponsored by the Department for Levelling Up, Housing and Communities (DLUHC), will prohibit public authorities including those that administer the LGPS, from allowing their investment or procurement decisions to be influenced by political or moral disapproval of foreign state conduct. The legislation seeks to implement a commitment made at the 2019 General Election to “ban public bodies from imposing their own direct or indirect boycotts, disinvestment or sanctions campaigns against foreign countries”. The Government does not believe that it is appropriate for public bodies to do so unless it would be ‘positively consistent’ with the Government’s foreign policy – hence, the legislation will not stop public bodies from adhering to UK Government legal sanctions, embargoes and restrictions.

In 2017, the lawfulness of guidance issued by DLUHC’s predecessor, the Ministry for Housing, Communities and Local Government, prohibiting the pursuit of policies contrary to UK foreign or defence policy in 2016 was challenged by Palestine Solidarity Campaign Ltd and found to be unlawful by the Supreme Court in 2020. In 2022, a clause was added to the Public Service Pensions and Judicial Offices Act 2022 (then Bill) that enabled the Government to issue such guidance. 

The Bill, which had its second reading on 3 July 2023, will also enable the Pensions Regulator to enforce the prohibition by amending its current enforcement powers in the Pensions Act 2004.

HMRC guidance on McCloud remedy tax regulations

HM Revenue and Customs (HMRC) published guidance on 26 June 2023 relating to the draft Public Service Pension (Schemes Rectification of Unlawful Discrimination) (Tax) (No. 2) Regulations 2023 that were published for consultation on 22 May 2023. These regulations make further amendments to tax legislation to address the tax treatment of individuals impacted by the remedy in the McCloud case. You can read more about the draft regulations and consultation in our Insight. 

The guidance provides further detail on the No. 2 regulations and includes sections on the impact of voluntary contributions made by members during the remedy period, pension sharing orders, the tax treatment of certain additional public service scheme payments that relate to the McCloud remedy, and the scheme sanction charge and unauthorised payments. 

FCA policy statement on Long Term Asset Fund Access

On 29 June 2023, the FCA published a policy statement on widening access to the Long Term Asset Fund (the LTAF) including final rules which came into effect on 3 July 2023. In summary, the LTAF is a new category of authorised open-ended fund that aims to invest effectively in long-term, illiquid assets. The FCA explains that being able to invest in long-term illiquid assets via suitable investment vehicles such as the LTAF, is needed for “supporting economic growth and the transition to a low carbon economy”. Previously, pension access to the LTAF was limited to defined benefit pension schemes and the default arrangement within defined contribution schemes that qualified and were permitted to access the LTAF. 

Amendments have been made to the final rules of the LTAF to allow a wider pool of retail investors and defined contribution (DC) pension schemes to invest (to include self-select DC pension arrangements and self-invested personal pensions). These changes follow a consultation on LTAF in August 2022. The final rules also have additional restrictions relating to the heightened risk of the investments. In conjunction with the FCA’s high risk investment framework, the LTAF is categorised as a restricted mass market investment which requires risk warnings and customer assessments in order to access the LTAF and making sure that investors are aware of potential risks.