• “S” in ESG – Final taskforce guide published
• Lifetime Savings Initiative launched
• HMRC provides more guidance on the post April 2024 pensions tax regime
• CDC regulations laid in final form
• Government legislates for National Insurance contribution cuts
• Government delivers on reduction in surplus refund tax

“S” in ESG – Final taskforce guide published

The Taskforce on Social Factors has produced the final version of its guide to support trustees in considering social risks and opportunities when investing (see Pensions Bulletin 2023/42 for a summary).

The guide provides practical approaches for trustees on how they should take account of social factors when investing and is split into six separate documents.  As well as the core guide, it includes a quick start guide, a directory of data sources, a guide on effective stewardship, and recommendations to trustees and others (including policymakers) to improve the integration of social factors and case studies.

The two-page quick start guide sets out “baseline” practice for trustees.  The main section of the guide sets out further “good practice” and “leading practice” actions for trustees, as well as exploring why social factors are important from an investment perspective, and how taking account of them aligns with pension trustees’ fiduciary duties.  It is substantively the same as that published in draft last October, with some minor restructuring and an update for last month’s Financial Markets Law Committee paper (see Pensions Bulletin 2024/05).  It now also has a ministerial foreword by pensions minister Paul Maynard, indicating the Government’s support.

Comment

We are supportive of this initiative and the guide is an excellent tool for trustees who want to keep abreast of the latest thinking.  While the guide does not have any particular legal force it is becoming increasingly clear that social factors can be financially material to investment decisions and so trustees should consider their approach to them.  The suggested frameworks – “baseline”, “good” and “leading” practice – provide examples of how trustees could go about this.

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Lifetime Savings Initiative launched

The Pensions Management Institute and Schroders have launched the Lifetime Savings Initiative (LSI), described as “a landmark project which has been set up to shine a light on the real challenges facing UK savers”.

The press release explains that the LSI has brought together influential stakeholders (including LCP) from across consumer, savings and pensions markets, and aims to identify, understand and propose solutions to the fundamental challenges everyday people face when managing their money.

The first part of the project’s research has mapped out three key areas in which UK savers need support – financial resilience, rising costs of housing and long-term retirement needs.  This aims to define and quantify the extent of the problem.

Some of the report’s headline findings in this first part are that:

• People’s financial situations are worsening
• Homeownership is becoming more unattainable
• Under-saving for retirement is a generational issue with only 3% of millennial households expected to reach the PLSA moderate retirement standard, compared to 71% for baby boomer households
• People lack a financial buffer to weather shocks
• Pension contribution rates need to double if renting during retirement
• Opportunities for greater investment returns are being missed with 34% of savers keeping most of their cash in a current account

The intention is for the LSI to go on to identify solutions (in Q1 2024) and deliver change by making recommendations to policymakers, via a White Paper in autumn 2024.

Comment

This report is an impressive document at 131 pages long.  There is an enormous amount of data to digest in it and we look forward to seeing it contribute to, and drive forward, solutions for improving financial wellbeing in the UK.

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HMRC provides more guidance on the post April 2024 pensions tax regime

HMRC’s latest newsletter on the post April 2024 pensions tax regime, published on 7 March 2024, is packed full of technical information that will be of assistance to those grappling with the complexities caused by the abolition of the Lifetime Allowance, and to pensions administrators in particular needing to know what adjustments to make to their processes and to understand some of the finer detail of the new requirements.

Largely arranged in Q&A format, a number of the answers address aspects of a topic where the legislation is reasonably clear.  However, there are quite a few answers where HMRC is promising to adjust the now settled Finance Act 2024 through regulations.

Topics covered include the following:

• Lump Sums and Lump Sum Death Benefits
• Protections and Enhancement Factors
• Reporting Requirements
• Transitional Tax-Free Amount Certificates
• Standard Transitional Calculation (that applies where a transitional tax-free amount certificate has not been obtained)
• Member Statements

Unsurprisingly, there is a focus on the most urgent administrative aspects, with for example 14 questions out of the 38 answered relevant to those who have started to take benefits before 6 April 2024, for whom their new tax-free lump sum starting points need to be determined.

There are also sections dealing with old A-day protections, the new pension commencement excess lump sum, and the new overseas transfer allowance that operates for transfers to QROPS.

Comment

The list of things to fix on the pensions schedule of the Finance Act 2024 continues to grow, but at least HMRC is setting out what it intends to tackle (and sometimes how) so there should be little surprise when we see the first set of amending regulations.  And the nature of the intended fixes don’t call into question whether the reformed pensions tax regime can operate successfully.  They are just an inevitability of removing the LTA– which was a key building block of the pension tax regime – at speed.  We should be thankful that HMRC gave itself wide powers to fix by regulations the errors and omissions that would only start to emerge as numerous pensions eyes pored through this complex reform.

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CDC regulations laid in final form

The Occupational Pension Schemes (Collective Money Purchase Schemes) (Amendment) Regulations 2024 (SI 2024/334) have been laid before Parliament.  As we reported in December 2023 when these regulations were laid in draft form (see Pensions Bulletin 2023/51), they make some technical changes to the 2022 regulations that govern the operation of single and connected employer collective money purchase schemes.

Comment

The changes made by these regulations should bring single and connected employer schemes one step closer to operation – in particular, the Royal Mail scheme can now hopefully be launched soon.

The DWP now intends to move on to facilitating wider CDC provision “as quickly as possible”, but the timing of the proposed consultation on draft regulations to enable whole-life multi-employer CDC schemes to be set up is now not due until “later this year”, with the final version of these unseen regulations intended to come into force in 2025.

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Government legislates for National Insurance contribution cuts

Following last week’s Budget (see Pensions Bulletin 2024/09) the Government has introduced a Bill to implement the reductions in national insurance contributions that the Chancellor announced.

The National Insurance Contributions (Reduction in Rates) (No.2) Bill provides for a cut in the main rate of primary (employee) Class 1 NICs from 10% to 8%, and a cut in the main rate of self-employed Class 4 NICs from the previously announced rate of 8% to 6%.  The thresholds remain frozen until April 2028.

These cuts follow on from those announced in the Autumn Statement (see Pensions Bulletin 2023/47), with the 10% employee rate having been cut from 12% from 6 January 2024 and the 8% self-employed rate due to take effect from 6 April 2024.  The latest cuts will take effect from 6 April 2024 and so the provision for an 8% self-employed rate in an earlier Bill is being repealed.

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Government delivers on reduction in surplus refund tax

Following the announcement in November’s Autumn Statement (see Pensions Bulletin 2023/47) an Order has been laid before Parliament that reduces the rate of tax on refunds of surplus to employers from registered pension schemes.

The Authorised Surplus Payments Charge (Variation of Rate) Order 2024 (SI 2024/335) provides that from 6 April 2024 the authorised surplus repayment charge reduces from 35% to 25%.

The Order has been accompanied by an HMRC policy paper.  Although this explains that this measure “was part of a package of pension reforms announced at Autumn Statement 2023 to provide better outcomes for savers, drive a more consolidated pensions market and enable pension funds to invest in a diverse portfolio”, it goes on to state that the Exchequer impact of the tax reduction will be negligible for the next two tax years, and then only rise to some £5m pa in lost tax receipts.

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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.

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