Pensions Bulletin 2023/18
Our viewpoint
4 May 2023
- Government to remove the Brexit Bill sunset clause
- Pensions Dashboards – new criminal offence passes into law
- Pension Schemes Newsletter 149
- Accepting transfer referrals from overseas – FCA reminds UK advisers of their responsibilities
- Clearing exemption extension regulations made
Government to remove the Brexit Bill sunset clause
The Government Bill whose purpose is to bring to an end the special status of retained EU law in the UK statute book is to be amended by the Government. Apparently, it is to remove the controversial 31 December 2023 automatic sunset for any regulation falling within the Bill’s scope that it only recently was defending.
The sunset, above all else, attracted widespread opposition in the House of Lords at Second Reading in February (see Pensions Bulletin 2023/06) and at the subsequent Committee stage which was completed on 2 March. Since then, we have been waiting for Report stage to be scheduled at which a significant opposition amendment to the Retained EU Law (Revocation and Reform) Bill has been tabled. This is likely to attract widespread support, as it lifts the sunset and requires that any legislation to be revoked is identified and set out on a revocation list for approval by both Houses of Parliament.
It seems that the Government will now head this off by laying its own amendment to remove the 31 December 2023 automatic sunset. It will also publish a list of 800 pieces of retained EU law that will be removed from the UK statute book. And since this came to light Report stage has been set for 15 May 2023.
Comment
The Government has sensibly bowed to the reality of facing a substantial defeat in the House of Lords. It may have also recognised that the Bill in its present form threatened to completely gum up the policy process across Whitehall as civil servants scrambled to get a final list of laws likely to be in scope and complete the much harder task of deciding which could be safely removed from the statute book.
From a pensions perspective we must now wait to see what, if any, pensions law is on the Government’s new hit list. And hopefully this news means that ‘business as usual' pensions policy delivery can get back on track. We are aware of a number of pensions regulations and other documents that could have been pushed into the far distance if DWP officials had to contend with the sunset.
Pensions Dashboards – new criminal offence passes into law
The Bill that resolves an oversight in the Pension Schemes Act 2021 in relation to compliance with the pensions dashboards requirements received Royal Assent on 2 May 2023 having cleared the House of Lords on 21 April 2023.
The Pensions Dashboards (Prohibition of Indemnification) Act 2023 makes it a criminal offence for pension scheme trustees or managers to reimburse themselves, using the assets of the pension scheme, in respect of penalties imposed under pensions dashboards regulations. The Act does this by simply adding to the list of statutory provisions under which penalties can arise, in relation to which section 256 of the Pensions Act 2004 provides that any such reimbursement is a criminal offence.
A person guilty of such an offence is liable, on summary conviction, to a fine not exceeding the statutory maximum and, on conviction on indictment, for a term not exceeding two years, or a fine, or both. In addition, civil penalties, under section 10 of the Pensions Act 1995 apply to any trustee or manager who has failed to take all reasonable steps to secure compliance with the above rule on no indemnification for fines or civil penalties.
Comment
This oversight tidying up is as expected, but it is likely to be quite some time before the Pensions Regulator will have cases before it where there have been compliance failures in relation to the now delayed pensions dashboards project (see Pensions Bulletin 2023/09).
Pension Schemes Newsletter 149
HMRC’s latest pension schemes newsletter, in announcing that just over £48.5m in tax repayments relating to pension flexibility payments were repaid in the three months ending 31 March 2023, brings the total of such repayments to over £1bn since the introduction of pension freedoms in 2015 – as highlighted by LCP Partner Steve Webb.
Other topics include a reprise of HMRC’s change of heart on the process for dealing with the taxation of defined benefits and uncrystallised funds lump sum death benefits (see Pensions Bulletin 2023/15), that HMRC’s annual allowance calculator should be updated for the 2023/24 tax year in the summer, and a reminder about the 5 July 2023 deadline for the 2022/23 annual return of information for providers operating the relief at source method on member contributions.
There is also some further information about the managing pension schemes service in relation to the pension scheme return from April 2024, along with another reminder that this service must be used for Accounting for Tax returns and that the filing deadline is 15 May 2023 for the return relating to the quarter ending 31 March 2023.
Comment
HMRC needs to improve the operation of the PAYE system so that the correct tax code is used by pension administrators when an individual first accesses DC benefits under the pension flexibility route. Applying an emergency tax rate to what may be a substantial withdrawal and relying on the individual to claim back excess tax is simply not fair.
Accepting transfer referrals from overseas – FCA reminds UK advisers of their responsibilities
In a message aimed at UK advisory firms, the Financial Conduct Authority has highlighted the increased risks to DB scheme members based abroad when overseas financial advisers target such individuals and, as part of this, refer them to UK firms for the necessary UK-regulated pension transfer advice before transfer to an overseas arrangement can take place.
The message explains how such an ‘overseas advice model” operates, lists the relevant FCA rules applicable to the UK firm, including the forthcoming Consumer Duty, particularly to act to deliver good outcomes and to avoid causing foreseeable harm to retail customers (see Pensions Bulletin 2023/03). The FCA then sets out six situations in which it believes that the use of this overseas advice model can increase the likelihood of poor outcomes for the DB scheme member, as well as regulatory risk for the UK firm.
The message concludes with a call to UK advisory firms to consider the risk of harm and how good consumer outcomes can be supported and to ensure that sufficient due diligence is carried out once an arrangement has been entered into with an overseas firm. An outline explanation is also given as to how UK advisory firms can meet the Consumer Duty in relation to such individuals. Finally, the FCA warns that it will take appropriate action where it becomes aware that a UK firm is engaging in practices that are likely to result in significant consumer harm.
Comment
This is an important piece of guidance from the FCA which clearly has concerns about the UK advisory firms it regulates picking up transfer advice requests from overseas firms. It also demonstrates how the new Consumer Duty adds to what could be narrowly interpreted existing regulatory requirements, and in so doing potentially challenging the operation of some of these overseas advice models.
Clearing exemption extension regulations made
The regulations that extend the exemption for pension funds from an EU-originated clearing obligation (now brought within UK law), that were announced by HM Treasury in April 2023 (see Pensions Bulletin 2023/14), have now been laid before Parliament.
The Pension Fund Clearing Obligation Exemption and Intragroup Transaction Transitional Clearing and Risk-Management Obligation Exemptions (Extension and Amendment) Regulations 2023 (SI 2023/472) come into force on 12 June 2023 and extend the current exemption from 18 June 2023 to 18 June 2025. As a result, pension funds based in the UK and the European Economic Area will continue to be exempt from the UK clearing obligation.
The regulations also extend a temporary intragroup exemption regime by a further three years to 31 December 2026.