Pensions Bulletin 2022/12

Our viewpoint

Spring Statement threat to pensions taxation

The Chancellor’s Spring Statement was, as expected, silent on pensions tax, but sets out the prospect of the Government taking some action in this area in this Parliament in order that the promised 1p cut in the basic rate of tax relief can be delivered before the next General Election.

In the Spring Statement Tax Plan the announcement that the basic rate of income tax will be cut from 20% to 19% in 2024 is accompanied by a statement that the Government “will look to go further ahead of 2024” when it comes to reforming the role of the many tax reliefs and allowances in the tax system which are said to be “costly and complex”.  We understand that the Treasury is looking at pensions tax relief in this regard.

Turning to other matters:

  • The unexpected significant increase in the threshold above which employees start to pay national insurance contributions (with no increase for the employer threshold) reduces the tax effectiveness of salary sacrifice, including in relation to pension contributions. The threshold for 2022/23 rises from the £9,880 pa set in the Autumn Budget to £12,570 pa (with effect from 6 July 2022) and will remain aligned with the (frozen until 2026/27) income tax personal allowance.  The National Insurance Contributions (Increase of Thresholds) Bill has been introduced to assist with this change
  • The very high rates of price inflation now being experienced and which are forecast by the Office for Budget Responsibility to peak in the fourth quarter of 2022, will mean a substantial increase in state pensions in April 2023, especially as on 21 March 2022 Thérèse Coffey re-committed the Government to retain the triple lock for the remainder of this Parliament. Meanwhile, this April’s much more modest 3.1% increase has now been legislated for by virtue of the Social Security Benefits Up-rating Order 2022 (SI 2022/292)
  • By contrast, many of those receiving private sector occupational pensions are likely to experience a significant cut in their pensions relative to price inflation when their next increase is determined, thanks to the operation of caps well below underlying price inflation
  • The charge cap will be reformed in order to unlock institutional capital into illiquid assets. However, it seems this won’t be for some while (see our article below)


The current system of pensions tax relief has been at risk for many years, but as each Budget is presented it survives with sometimes a little tinkering here and there.  However, now that the Chancellor has nailed his colours to an income tax cutting mast, albeit deferred, there is now the real possibility that something may happen.

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DWP comes up with two more things for DC schemes whilst taking stock on two others

On 30 March 2022 the DWP launched a further consultation on matters relevant to DC occupational pension schemes.  Each are outlined in turn below.

Removing performance-based fees from the DC charge cap

In November 2021 the DWP sought views on proposals to remove performance-based fees from the 0.75% limit on charges in the default arrangements of occupational DC schemes used for auto-enrolment (see Pensions Bulletin 2021/50).  The removal was intended to assist DC schemes widen the range of asset classes in which they traditionally invest.

The DWP now sets out in some detail the “mixed reaction” that it has received, as a result of which it plans to engage further with industry and other stakeholders and explore how the feedback received could be addressed in a future design of its policy.  In recognition of performance fees coming in all shapes and sizes, next time round the DWP promises to consult on “principle-based draft guidance alongside any proposed consultation on draft regulations”.

Introducing disclose and explain requirements

The DWP has resurrected a 2019 proposal that was put on pause in 2020 (see Pensions Bulletin 2020/38), and now proposes to amend the Statement of Investment Principles requirements to ensure that DC schemes disclose and explain their policies on illiquid investment.  Regulations are also proposed that require DC schemes with over £100 million in total assets to publicly disclose and explain their default asset class allocation in their annual Chair’s Statement.

The consultation is at the policy level with the promise of further stakeholder engagement throughout the policy development process.  There is no timescale mooted for the coming into force of these new requirements.

Adjusting employer-related investment restrictions

A number of changes are proposed to the employer-related investment requirements to remove potentially unnecessary restrictions as they apply to DC authorised master trusts.

Currently, master trusts are required, in the same way as other multi-employer schemes, to ensure that:

  • None of the participating employers or their associates or connected persons have any involvement in any direct loans from the scheme
  • They don’t hold more than 5% of their investments in any single employer (or 20% of their investments across all employers)

The DWP proposes that for large master trusts (those with at least 500 participating employers), as the risks of undue employer influence are negligible compared to the compliance costs involved, the above restrictions will apply only to the scheme funder, scheme strategist, or person connected with or an associate of either.

The consultation sets out the proposals at the policy level and also in draft regulations.  The DWP intends to finalise and lay the regulations later this year.

Facilitating greater consolidation of DC schemes

In June 2021 the DWP issued a call for evidence on further consolidation in the DC market (see Pensions Bulletin 2021/26).  The DWP now sets out in some detail the response that it received to that call.  Once again, the response was “mixed” and as a result the DWP will “not be introducing any new regulatory requirements with the sole purpose of consolidating the market in 2022”.  However, it will continue to work closely with the Pensions Regulator to monitor the impact of the value for member’s assessment for small DC schemes and remains focussed, with the Regulator and Financial Conduct Authority, on creating a value for money framework for all occupational and workplace schemes.

Consultation on the disclose and explain requirements and on the proposed changes to the employer-related investment restrictions closes on 11 May 2022.


This latest consultation, containing responses to previous ones, proves once again how difficult it is for the DWP, having decided on the outcomes it wishes to achieve in the DC market, to reach a landing on interventions that are appropriate and proportionate.  It is most welcome that this is recognised at ministerial level and that further engagement is being sought.

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GMP conversion – progress soon on pensions tax aspects?

As the DWP-backed Parliamentary Bill on GMP conversion continues to make good progress through Parliament there is news that there may be movement shortly from HMRC on the tax implications of conversion.

In summing up the debate on Second Reading of the Pension Schemes (Conversion of Guaranteed Minimum Pensions) Bill in the House of Lords on 25 March 2022, Baroness Stedman-Scott, speaking for the Government, said that “HMRC will publish supplementary guidance in the coming weeks on the tax implications of conversion as well as highlighting to industry where tax issues could arise for certain types of member.  HMRC is working with industry, DWP and Her Majesty’s Treasury to determine the appropriate outcome and treatment for those affected by conversion as well as the scope and timing for any legislative changes”.

This undertaking was in response to concerns expressed by two peers to give some reassurance that there would be an outcome to work in this area which had only recently been flagged by the pensions minister when the Bill was in the Commons (see Pensions Bulletin 2022/08).

Baroness Stedman-Scott also said that the DWP’s 2019 conversion guidance will be revisited following the passage of the Bill and updated to reflect recent developments including those in the Bill.


There has for some time been concern that whilst the Conversion Bill (and the necessary regulations to come) should resolve the key legal uncertainties relating to the DWP’s conversion process, this would be only of partial comfort to schemes wishing to undertake conversion as progress needed to be made on the operation of pensions tax law in this area.  The promise of supplementary guidance is a great step forward, along with the possibility of legislative change.  We look forward to seeing HMRC’s guidance.

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GMP equalisation – administrator guidance issued

Further guidance has been issued by the cross-industry GMP equalisation working group brought together by the Pensions Administration Standards Association – this time to help scheme administrators implement GMP equalisation solutions.

The guidance is in the form of FAQs, providing “pragmatic guidance on good practice” to issues frequently faced by administrators, including areas such as the ’look-back’ approach in assessing crossover points, PAYE tax on payment of arrears, death benefits and commutation.  The working group expects to add to this list of FAQs as GMP equalisation projects progress and different approaches and solutions emerge.


Each of the sub-committees of the working group has now issued initial guidance.  As conversion legislation continues to be developed and the pensions industry gains more experience on the process, we are likely to see different issues arising and practical solutions being improved.  We welcome PASA and the working group’s lead in bringing industry practices together to solve this long-standing problem.

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Mandatory Scheme Pays regulations finalised

Regulations that complete the reform to the access and tax payment deadlines for using “mandatory Scheme Pays” to pay annual allowance charges, where there has been a “retrospective change of facts” that impacts past annual allowance usage, have been laid before Parliament.

The Registered Pension Schemes (Miscellaneous Amendments) Regulations 2022 (SI 2022/392) come into force, as expected, on 6 April 2022.


These regulations are essentially the same as those on which HMRC consulted (see Pensions Bulletin 2022/07) with minor amendments made to ensure the policy intent and extended deadlines are clear.

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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.