10 September 2020
- Minimum age to access retirement benefits will increase by two years
- Local Government Pension Scheme – more flexibility for exiting employers
- More support needed for DB transfer advice – new research from Royal London and LCP
- MaPs acknowledges the dashboard challenge
- Further delay likely for Regulator Code rewrite project
In a short answer to a straightforward question from Stephen Timms MP, the Government appears to have confirmed that it will increase the minimum age at which individuals can access retirement benefits from 55 to 57 from 2028 and that this “will be legislated for in due course”. We understand that Mr Timms will be following up with a question on when the legislation will change.
This “normal minimum pension age”, which most people need to reach before they can start to access their benefits from registered pension schemes, was first set at 50 when the new tax regime came into force in April 2006, although an increase to 55 in April 2010 was baked into the then Finance Act 2004.
Unfortunately, this rise from 50 to 55 created a number of difficulties for those in their early fifties if they wanted to draw benefits before 55. Now those potentially impacted by the 55 to 57 increase are currently in their late forties.
The Coalition Government announced this 55 to 57 intention back in 2014 so arguably nothing has changed, but, with several new governments since then and plenty of missed opportunities to legislate for this increase, few scheme members or schemes may have expected that this increase would in fact happen.
Whilst it is possible that the next Finance Act simply legislates for the change, well before we get near 2028 consideration will need to be given to the new “window group” to ensure that the lessons of the 50 to 55 increase are learned. Cliff edges are never easy and clarity is needed on how they operate (including in particular that those affected can continue to validly draw benefits from 55 so long as they start to do this before 2028). There also must surely need to be some grandfathering where members have unfettered rights in scheme documentation to draw benefits at 55 (an indication of how complex this can be is given by the A-day “protected pension age” law, arising from 2003 scheme rights to draw benefits before age 55).
Now there has been a Government “announcement” what we might get is a consultation at the Autumn Budget on how they intend to go about these issues – or we might have to wait, but hopefully not until 2028. And once the Government makes clear when and how the changes will be implemented in law, employers/trustees might need to consider the appropriate legal and communication work to ensure scheme compliance.
Following the initial partial response in February, the Ministry of Housing, Communities & Local Government has published a further response to last year’s consultation on the management of employer risk in the wake of the move from triennial to quadrennial valuations of the LGPS.
The proposed changes are that the Government will:
- Give administering authorities and employers more flexibility to review the contributions paid by employers outside the regular valuation cycle, where circumstances change
- Amend the LGPS regulations to provide administering authorities with a power to spread exit payments over a period where the employer no longer has any active members
- Introduce a new deferred employer status and deferred debt agreements (DDAs). The exiting employers’ responsibilities under a DDA will be the same as for employers of active members but excluding the requirement to pay contributions for future service. This is intended to be more in line with how employer cessation works in private sector multi-employer schemes
In each case administering authorities who wish to use these new powers will be required to set out their policies in their Funding Strategy Statement and also take advice from their actuary.
It is not clear from the response when these changes will come into force.
This is welcome progress, but it’s still a long and winding road we’re on. At present, some funds are willing to enter into DDA style agreements, but others are not. The codifying of the approach into regulations should therefore bring some welcome clarity to employers and remove the current “postcode lottery”. However, we still wait to see what the regulations and guidance will actually say, and then the precise terms of spreading or DDAs will be set by administering authorities; so there may yet be considerable devil in the detail.
A new joint research paper published by Royal London and LCP has identified major problems in the supply of advice for members of DB schemes who are considering transferring out.
The issue of DB transfers has become increasingly controversial as regulators have warned that too many people have in the past received ‘unsuitable’ advice. But the paper finds that the supply of high-quality, impartial advice could be increasingly under threat from a mixture of regulatory and market developments. The paper calls for more to be done both by pension schemes and by regulators to ensure that members can access the advice that they need.
The paper also calls for greater support for the advice market, including action to reform the system of professional indemnity insurance, and encourages more schemes to offer partial DB transfers as an alternative to the ‘all-or-nothing’ transfer option which many members currently face.
There is little doubt that the transfer advice market is at a critical juncture with a clear risk that those who wish to consider transferring out are denied the ability to do so. However, there are actions that both schemes and regulators can take to address this as this paper sets out.
In an industry update following the closure of consultation on data standards (see Pensions Bulletin 2020/28), Richard Smith, Head of Industry Liaison on the Pensions Dashboards Programme, acknowledges that delivering the dashboard will be a challenge. Whilst welcoming the many responses received, he makes clear that the great complexity of pension provision in the UK will make it difficult to get data standards right.
Obtaining estimated retirement incomes (ERIs) from pension providers will be key, but very problematic, not only for DB schemes, but potentially also from DC providers given the scope in the SMPI projections for providers to adopt different assumptions for similar underlying investments.
Nevertheless, MaPs hopes to be in a position to publish a summary of the responses to the consultation in the autumn and an initial version of the data standards for pensions dashboards by the end of the year.
The pensions industry is well aware of this challenge, but it will only come into sharp relief, particularly for DB schemes (see, for example, Steve Webb’s blog) once we see the proposed data standards document.
The promised consultation on the Regulator’s plans to reduce its 15 Codes of Practice to potentially one (see Pensions Bulletin 2019/28) appears to have suffered a further delay.
The consultation was originally intended to be launched in late 2019, but this was put back to late 2020 almost certainly due to Covid-19 necessitating a reprioritisation of Regulator resources. On 1 September the Regulator’s statement on its code rewrite project signalled that the formal consultation is now intended for late 2020 or early 2021. As before, there will be engagement with stakeholders on the proposed design and content before the consultation is launched.
The continuing delays on this project are hopefully coming to an end. It is important that we hear some solid news soon as part of the driver for the rewrite is to give effect to IORP II governance requirements that should have been implemented by 13 January 2019 in order to meet our treaty obligations with the EU.
So far all we have is a set of regulations laid by the Department for Work and Pensions in October 2018 (see Pensions Bulletin 2018/42) requiring a governance Code to be delivered.
This Pensions Bulletin does not constitute advice, nor should it be taken as an authoritative statement of the law. For further help, please contact David Everett at our London office or the partner who normally advises you.