Pensions Bulletin 2023/20
Our viewpoint
18 May 2023
- Retained EU law Bill – Government U-turns
- Government to preserve most EU-influenced employment law
- Pensions Regulator promotes unchanged employer distress trustee guidance
- Pensions Dashboard Programme provides an update
- Pensions Regulator issues a statement on the Capita cyber security incident
- DWP launches triennial review of auto-enrolment alternative quality tests
- More details provided on reforms to public sector pension schemes cost control mechanism
Retained EU law Bill – Government U-turns
Last week was an eventful one for followers of the Retained EU Law (Revocation and Reform) Bill. As had been widely anticipated (see Pensions Bulletin 2023/18), the Secretary of State for Business and Trade, Kemi Badenoch, announced that the Government will remove the current “sunset” in the Bill under which certain EU-derived legislation would have been automatically revoked at the end of 2023 unless explicitly saved. Instead, the Bill will contain a list of around 600 laws which will be revoked at the end of the year (down from the 800 trailed a little while ago).
The list was duly published as an amendment to the Bill (see page 23 for the Schedule listing the laws to be revoked). The Government has also published the list in spreadsheet form, with a column explaining the logic for each item’s revocation.
On looking at this list it seems that no pensions legislation is to be revoked in this first wave (the Government intends to continue to review the remaining EU-derived law to identify further opportunities for reform).
What is not changing is the Bill’s removal of the current compulsion for Government departments to implement EU case law that has been decided before 30 December 2020. So, in relation to PPF matters, the DWP will be able to not implement the complex Bauer judgement if it so chooses. The same could hold for the more straightforward Hampshire judgement, but in a recent debate on PPF matters in the House of Lords, the Government said that it intended to retain the Hampshire judgement (and so, presumably implement it into UK law at an appropriate point).
Comment
The lifting of the sunset is good news for the stability of pensions law – and more widely. It also means that Civil Service time that was being diverted at the DWP and generally across Whitehall, can now return to business as usual. So, work can resume on DWP pensions regulations that were likely being held up, or could have been held up following the Bill’s Royal Assent.
This might include the funding and investment regulations and necessary changes to the pensions dashboards regulations because of the March-announced delay to the connection timetable. The new approach also removes a potentially important block to the DWP laying the long-delayed General Code in Parliament (as this Code contains new trustee governance material that stems from EU law).
Government to preserve most EU-influenced employment law
In a consultation launched by the Department for Business and Trade on 12 May 2023, it is clear that the Government intends to preserve most of the employment law that we have on the UK statute book, much of which is thanks to our former membership of the European Union.
The main purpose of the consultation is to seek views on minor changes to retained EU employment law, namely to the record-keeping requirements and the annual leave and holiday pay calculations set out in the Working Time Regulations 1988 and the consultation requirements within the Transfer of Undertakings (Protection of Employment) Regulations 2006.
The consultation also confirms that a number of EU-influenced regulations relating to employment protection, which also have pensions implications, will be preserved in their entirety. These comprise regulations dealing with maternity and parental leave, paternity and adoption leave, part-time workers, fixed-term employees and agency workers. Two sets of regulations relating to employee rights to request information and consultation arrangements are also preserved.
Just three sets of regulations are proposed for removal and these are largely because the concepts they are addressing have fallen away as a direct consequence of the UK leaving the EU. They appear on the long list in the Bill covered in the article above.
Consultation closes on 7 July 2023.
Comment
Post Brexit there had been some doubt as to whether the TUPE regulations, which emanate entirely from the EU, would be preserved. These regulations contain some important occupational pension protections when businesses transfer to a new employer, or a service transfers to a new provider.
Indeed, under the Bill’s soon to be removed sunset clause, the TUPE regulations would likely have been for the chop unless explicitly saved. This consultation now confirms that other than some relatively minor adjustments (which HR departments will need to be aware of), this and other EU-influenced employment law is to be retained.
Pensions Regulator promotes unchanged employer distress trustee guidance
In a blog issued on 10 May 2023, the Pensions Regulator announced that it had refreshed its guidance, first issued in November 2020 to support trustees dealing with employer distress during the impact on the UK economy caused by Covid-19. The blog says that the refresh is because of the ongoing but different challenges the UK economy is currently facing.
However, a cursory reading of the updated guidance reveals that little has changed to that issued in November 2020 (see Pensions Bulletin 2020/47), other than some introductory remarks to reflect the passage of time. Importantly, the Regulator’s expectations of trustees are pretty much identical to those in 2020.
In the blog, the Regulator expects all trustees to have appropriate covenant monitoring in place as part of their integrated risk management framework and urges them to revisit this guidance and take appropriate action.
Comment
The November 2020 guidance was a useful bringing together of the Regulator’s previously communicated expectations of trustees where sponsor difficulty is a real concern. Although the challenges today are different to those during Covid, the actions for trustees are pretty much the same, as set out in the latest edition of the Regulator’s guidance. Where employer distress is an issue for the trustee board, this guidance is well worth a read.
Pensions Dashboard Programme provides an update
The Pensions Dashboards Programme has published its latest in the series of regular progress update reports, this time covering the period since October 2022. However, given the March 2023 announcement from the DWP that the mandatory connection deadlines are to be “reset” (see Pensions Bulletin 2023/09), unlike previous updates there is a dearth of new information in this “April 2023” report.
On the reset itself, the PDP seeks to paint a positive picture, but there is nothing on what the issue is that caused the delay or the likely new timescale for schemes to connect. Inevitably, the update contains a plea for the pensions industry to use the unexpected extra time due to the delay, to progress with preparations for dashboards.
On a more positive note the update provides a link to some research commissioned by the PDP that looks into users’ understanding of how their data would be used when they interact with dashboards, along with some initial reactions by users to the whole concept.
Comment
This was a difficult update for the PDP to provide. Had things gone to plan the update would have been a hive of activity with stories of how some providers had completed their preparation, the issues they’d encountered and how they were resolved, all wrapped up in a call for other schemes to get on with it.
Instead, we are none the wiser as to what the cause of the necessary reset is, or have any idea as to how long it is going to take before the dashboard infrastructure is ready to start to accept connections. Everything now seems to hinge on the promised update before Parliament goes into the summer recess, with the danger that, unless this marks the beginnings of a resolution, confidence will drain from the project.
Pensions Regulator issues a statement on the Capita cyber security incident
On 12 May 2023 the Pensions Regulator issued a brief statement aimed at trustees of occupational pension schemes who use Capita to administer their scheme and who may therefore be affected by the recent security breach at that company where it is now known that some data was exfiltrated from Capita’s servers.
The statement contains a reminder that trustees are responsible for the security of their members’ data, and of the need to check with Capita whether their scheme’s pension data has been affected by the incident and for trustees to contact scheme members to warn them about pension scams and keep members updated while obtaining confirmation as to whether a data breach has taken place. Trustees should also monitor increased or unusual transfer requests.
Various trustee actions are also set out if there has been a data breach in their scheme, along with a general reminder of the need to have robust cyber security and a business continuity plan in place, together with a link to the Regulator’s cyber-security guidance issued in April 2018.
DWP launches triennial review of auto-enrolment alternative quality tests
The DWP has published a call for evidence on the operation of certain tests that employers can use to demonstrate that their DB or hybrid scheme is of sufficient quality for auto-enrolment purposes. These tests are an alternative to having to prove that a scheme meets the potentially burdensome “test scheme standard” as was set out in the original auto-enrolment legislation.
The Pensions Act 2008 governing these alternative tests requires the tests to be reviewed every three years. As the last review concluded in February 2021 (see Pensions Bulletin 2021/10), the DWP has some time before it needs to reach a landing on this review.
The call for evidence also includes, for the first time, the equivalent alternative tests that CDC schemes can use to prove that they are of sufficient quality for auto-enrolment purposes. These tests are also subject to a triennial review cycle, and the opportunity has been taken through this call for evidence to synchronise both reviews.
Consultation closes on 19 June 2023.
Comment
This call for evidence is doing no more than asking whether the existing alternative auto-enrolment tests of DB scheme benefit quality (including that introduced recently for CDC schemes) are working well. The short answer for DB is that they are – certainly against the more complex test scheme standard set out in the original auto-enrolment legislation.
But, as with all these things, there can always be improvements. It was an opportunity missed when the previous review concluded that there was no need to make any improvements. We hope that this latest triennial review does not come to the same conclusion.
More details provided on reforms to public sector pension schemes cost control mechanism
The Government has issued a policy statement providing further details on how the “reformed scheme only design” aspect of changes to the cost control mechanism will operate from the 2020 valuations onwards of public service pension schemes. This aspect is one of three reforms to the mechanism that the Government announced in October 2021 (see Pensions Bulletin 2021/41), the other two being the 3% cost corridor and the economic check.
In particular, the statement provides details of how service during the McCloud remedy period (1 April 2015 - 31 March 2022 for most schemes) will be treated and concludes that McCloud remedy costs will not have a material impact on the cost control mechanism from the 2020 valuations onwards.
In due course, HM Treasury is to set out in Directions the technical detail of how the costs should be taken into account at the 2020 valuations, including in relation to the reformed scheme only design, as well as the economic check. The statutory instrument to implement the wider 3% cost corridor was laid in Parliament on 13 July 2022.