Pensions Bulletin 2020/41
Our viewpoint
8 October 2020
- Regulator calls on trustees to “build capacity” on climate change issues
- State pension uprating Bill completes House of Commons stages but how triple lock policy will operate remains unclear
- Pensions Regulator gains additional powers to obtain “communications data”
- Pensions tax relief evaluation rejected
- State pension age reaches 66
- More success for Pension Wise as it continues to grow
Regulator calls on trustees to “build capacity” on climate change issues
David Fairs, Executive Director of Regulatory Policy, Analysis and Advice at the Pensions Regulator has called on trustees to step up to the challenge presented by climate change, referencing legislation already on the statute book and that to come.
Acknowledging that climate change throws up “tough and complex” questions for trustees, he says that through building capacity, if not already done, trustees will be better placed to understand what climate-related issues mean for their schemes, and as a result be better able to take decisions that contribute towards good saver outcomes.
Comment
This is a timely message. For some trustee boards there will be a steep learning curve, not only to become equipped to be compliant with the law to come, but also to adjust their investment approach in particular to mitigate the impact of climate change on their ability to deliver pensions for their membership.
State pension uprating Bill completes House of Commons stages but how triple lock policy will operate remains unclear
The Social Security (Up-rating of Benefits) Bill, which enables a review of the State pension to take place for next April should average earnings fall (see Pensions Bulletin 2020/40), completed its House of Commons stages on 1 October and is now awaiting consideration by the House of Lords. However, despite a number of challenges by MPs whilst the Bill was being debated, it remains unclear how the triple lock policy will operate in years to come.
The Government’s press release about the Bill seems clear that the policy will continue at least for 2021, as does Thérèse Coffey’s opening statement to the House at Second Reading. However, in summing up the debate, Guy Opperman did not address requests for clarity as to how the Government intended to operate the triple lock policy during what is likely to be a period of earnings volatility. And at Committee stage, a probing amendment by the Scottish National Party, that would likely have hard-coded a 2.5% increase next year, was successfully parried. Maybe their Lordships will have better luck?
Comment
It could well be the case that the Government will use this Bill to deliver a 2.5% increase next April and so maintain its manifesto pledge for at least one more year, whilst setting expectations in the accompanying review that future increases cannot be distorted by a recovery in earnings.
LCP’s recent policy paper discusses the dilemma facing the Government, suggesting a possible way forward – and was referenced in Parliament during the MPs’ debate.
Pensions Regulator gains additional powers to obtain “communications data”
The regulations laid in draft before Parliament in May giving the Pensions Regulator new powers to obtain data from telecommunications operators (see Pensions Bulletin 2020/21) have now been finalised.
The Investigatory Powers (Communications Data) (Relevant Public Authorities and Designated Senior Officers) Regulations 2020 (SI 2020/1037) came into force on 25 September.
Comment
There has yet to be any comment from the Regulator on how it intends to use these new powers, but scam activity must be high up on the list.
Pensions tax relief evaluation rejected
The formal evaluation of the impact of pension tax relief within the next 12 months, requested by MPs on the Public Accounts Committee in July (see Pensions Bulletin 2020/30), has been rejected by the Government on the grounds of it not being the right time to undertake such an exercise. However, the Government has agreed to improve and publicly report more information on the groups and sectors benefiting from the most significant reliefs (such as through pension savings) by December 2021, but in respect of pensions tax relief only “to the extent data is available”. This means that it is unlikely that the breakdown requested by MPs can be made available.
Comment
This response should not be taken as a sign that the Government does not intend to carry out any reform to the current pension tax relief system with the objective of raising or accelerating the receipt of tax from pensions. Whilst any such reform may be on pause due to Covid-19, once the Chancellor is in a revenue raising mood, pension tax relief is surely likely to feature as a possibility.
State pension age reaches 66
On 6 October, those born precisely 66 years ago were able to claim their state pension, being the first individuals to have to wait until this point in their lives before taking their state pension. Thus ends the first unisex State Pension Age transition from 65 to 66 which started in March 2019 and which was legislated for some 13 years ago by the then Labour Government. The next transition, from 66 to 67, is not due to start until April 2026, with the third, from 67 to 68, currently legislated to start in April 2044, but with the possibility that it may start in 2037.
For women, 6 October marks the first time in over a decade in which the increase in their State Pension Age (from 60) is starting a meaningful pause.
To mark this date the Institute of Fiscal Studies has published its latest findings on employment rates showing how increases in State Pension Age over the last decade have boosted employment rates of those affected by these increases.
Comment
Given the influence that the State Pension has over when people choose to retire, 66 may become the new normal for retirement, but only for the next five or so years before the transition starts to 67.
More success for Pension Wise as it continues to grow
More people are accessing guidance offered by Pension Wise according to its latest evaluation report published by the Money & Pensions Service. The 2019/20 report reveals that 160,000 face-to-face or telephone appointments were arranged, compared with 130,000 in 2018/19 – a 23% increase. Those accessing guidance digitally increased to 45,000.
A raft of other statistics demonstrates the high levels of satisfaction those who engage with Pension Wise have, along with greater confidence in taking decisions on how to access their pension savings.
Comment
This positive news follows on from similar news contained within the 2018/19 evaluation report published in January (see Pensions Bulletin 2020/04). However, despite the signposting by providers, many choose not to access guidance before making retirement decisions. Greater encouragement to do so is likely to be contained within the DWP consultation to shortly come on the nature of the “appropriate pensions guidance” in relation to DC benefits, required as a result of the Financial Guidance and Claims Act 2018.