Pensions Bulletin 2024/02
Our viewpoint
18 January 2024
MPs quiz ministers on DB policy issues
At a meeting of the Work and Pensions Select Committee on 10 January 2024 attended by Paul Maynard, the Pensions Minister, and Bim Afolami, Economic Secretary to the Treasury, backed up by senior civil servants, there were some useful statements about progress on some DB policy issues.
The Pensions Regulator’s analysis of the impact of the LDI problem on DB funding, that had been expected to be delivered by the end of 2023, is now “imminent”.
The funding and investment regulations (and the DB Funding Code) will remain focussed on de-risking along the path to significant maturity, and the regulations themselves should now appear “sooner rather than later”. We think they will need to be laid before Parliament very soon if they are to come into force by 6 April 2024. This is because they first need to be laid in draft, then be approved by both Houses, and only then can they be laid in final form.
The promised winter consultation that will amongst other things, tackle the issue of surplus refunds to the sponsor, will be “forthcoming soon”. And the reduction in the tax charge, from 35% to 25% which will come in from 6 April 2024 (but regulations for which have yet to be laid), is to be monitored to see what effect it may have on scheme behaviour.
There is no firm policy decision yet on whether trustees should have a mandatory accreditation.
Finally, the Government wants to have the authorisation and supervision of DB superfunds put on a statutory footing “as soon as possible” but acknowledges that primary legislation will be needed for at least part of this.
Comment
Much of 2023 was taken up with policy formation, with delivery of final decisions playing second fiddle. Could 2024 be different? Now that the General Code has been delivered, we would not be at all surprised to see the DWP along with the Pensions Regulator get the new DB funding regime over the line.
As to other matters, Paul Maynard said that he was “very keen to have a pensions Bill as soon as possible” because of all the things that need to be delivered. We would be very surprised to see one before this Government’s time is up.
DB scheme return – Pensions Regulator asks more questions
The Pensions Regulator has published “additional information and resources” to help with the 2024 scheme return process for DB and hybrid schemes, in which the main change is that more questions will need to be answered than in previous years.
First up, the Regulator highlights a number of new (to the scheme return) questions requesting information about fiduciary managers and investment consultancy providers. These relate to requirements and a reporting regime that have been in place since June 2019. Although on 1 October 2022, the Regulator took over responsibility for monitoring compliance from the Competition and Markets Authority (see Pensions Bulletin 2022/22), only now has it been able to adjust its DB and hybrid scheme return processes.
There are also extensive new questions about liquidity and leverage, including the controls that schemes have in place. These follow on from the guidance on this topic issued by the Regulator in April 2023 (see Pensions Bulletin 2023/17) and deliver one of the promised actions following a parliamentary inquiry (see Pensions Bulletin 2023/46). 24 questions need to be answered where the scheme uses leveraged LDI.
The Regulator is also asking for details of the primary contact for pension dashboard purposes and separately, details of AVC providers (other than the main scheme administrator or any provider of free-standing AVCs).
The help text to assist with the submission of asset information has been updated.
The Regulator will send scheme return notices in late January or early February, requiring completion by 31 March 2024.
Comment
Schemes should be used to making submissions to the CMA, so providing similar information about fiduciary managers and investment consultancy providers to the Pensions Regulator should be straightforward. By contrast, the questions on liquidity and leverage are genuinely new. Many are also quite demanding and could require considerable effort to complete. Those responsible for completing scheme returns should look at these questions in advance of receiving their actual scheme return notice and set in play the necessary processes to obtain this liquidity and leverage information.
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.
If you would like to receive the weekly pensions bulletin automatically by email please fill in this form.