Pensions Insight: 5 to 19 August 2024

In this insight we provide an update on the LTA abolition regulations, the Chancellor’s call for increased UK pension fund investment, phase one of the Government’s pension review, the FCA’s consultation on the new DC VfM framework, a PASA guide on the 2028 increase to NMPA and a SPP guide on the new DB funding regime.

LTA abolition – update on second set of amending regulations

HMRC’s Newsletter 161 confirms that the lifetime allowance (LTA) regulations which are needed to deal with a number of ‘technical inaccuracies’ with the LTA removal regime will be introduced as soon as the “parliamentary timetable permits after the summer recess”. Before this there will be a technical consultation on the draft regulations which have been made available to industry representatives.

Chancellor’s call for more UK pension fund investment

On 7 August 2024, the Chancellor, Rachel Reeves, asked UK pension funds to look to the Canadian pension model as an example of how fewer, larger pension funds could help increase investment in UK productive assets and in turn improve returns for savers – she said that Canadian pension schemes can “invest far more in productive assets like vital infrastructure than ours do” because of their size. Reference was made in this regard to the recent launch of a Future Growth Capital co-investment fund which will invest up to £20bn in the UK in the next decade.

The Chancellor has also confirmed that her first Mansion House address will outline how the Government will work with the financial services industry and regulators to ‘deliver growth’.

The statement formed part of the talks which the Chancellor had with the ‘Maple 8’ group of Canadian pension funds in Toronto on 7 August to encourage continued investment in the UK and to learn how consolidation can help increase UK pension fund investment in the UK.

The Pensions and Lifetime Savings Association (PLSA) has also produced a Pensions and Growth paper providing recommendations for the Government and schemes “to create the necessary investment conditions…to allocate a greater portion…to promising UK growth areas.” The report includes examples of required action by reference to six sectors including energy and AI.

Government’s pension review – terms of reference published

The terms of reference providing more detail of phase one of the Government’s pension review were published on 16 August 2024.

• Aim of review: The focus is on defined contribution (DC) schemes as well as the Local Government Pension Scheme and aims to improve investment, saver returns and ‘tackle waste’. Investment will be the focus for phase one. Defined benefit (DB) scheme policy development is to be dealt with separately to the review.
• Policy remit: It will look at four policy areas: (1) increased scale and consolidation of DC schemes; (2) using consolidation and improved governance to address ‘fragmentation and inefficiency’ in the Local Government Pension Scheme (LGPS); (3) the pensions ‘ecosystem’ and more emphasis on value instead of cost; and (4) increasing pension investment in UK assets.
• Further guidance: The review will take account of: (1) increasing saver returns; (2) improving the affordability and sustainability of the LGPS; (3) the part pension funds play in capital and financial markets to increase returns and UK growth; (4) inferences for wider government financial stability policy objectives (e.g. the gilt market); (5) fiscal impact and public finances; (6) current progress on present initiatives such as the value for money framework (see below); and (7) external input.
• Timings: The first report will be provided before the Pension Schemes Bill is introduced. The review’s second phase will begin later in 2024 and will look at investment as well as improving pension outcomes (including retirement adequacy).

FCA consultation on VfM framework for workplace DC schemes

On 8 August 2024, the Financial Conduct Authority (FCA) published a value for money (VfM) framework for default arrangements of workplace DC pension schemes together with a template which it is intended firms will use to record the assessment.

Under the framework, schemes will need to assess VfM using a traffic light system (RAG) in relation to investment performance, costs and charges and quality of service to members. Following the annual assessment the results will be rated as ‘green’ (scheme represents VfM), ‘amber’ (needs improvement to provide VfM within a ‘reasonable period of time’) and ‘red’ (not possible to improve as needed with a requirement to close to new business and transfer members to a suitable arrangement). This is similar to the RAG system currently used for occupational trust-based DC specified schemes.

Although the consultation relates to FCA-regulated firms and contract-based pensions, the framework is based on joint collaboration with the Department for Work and Pensions and the Pensions Regulator and “designed to be suitable for application across the DC workplace pensions market”. The intention is that equivalent frameworks will apply across the DC sector.

The consultation closes on 17 October 2024.

PASA guide on NMPA increase

On 12 August 2024, the Pensions Administration Standards Association (PASA) published guidance for trustees and administrators on the increase to normal minimum pension age (NMPA) from 55 to 57 on and from 6 April 2028. The guidance includes sections on identifying members with a protected pension age (PPA), transferred-in PPAs, how the 2028 changes differ to the NMPA increase from 50 to 55 in April 2010 and a list of actions that schemes should take regarding the 2028 change. PASA note that further ‘transitional regulations’ are expected to deal with ‘minor inconsistencies’.

SPP guide on the new funding regime

On 15 August 2024, the Society of Pension Professionals published an eight page practical guide to the new DB funding regime in response to member feedback that further ‘clarity’ would be beneficial. The guide covers relevant background, what has changed, the position as regards valuations with a pre and post 22 September 2024 effective date, and issues to consider. It should provide useful assistance to those involved in the valuation process.