• Dashboards staged timetable published at last
• Work and Pensions Committee publishes long-awaited report on DB schemes
• Ombudsman demands a financial remedy and apology for 1950s born women affected by State Pension Age changes
• FCA sends “Dear CEO” letter about poor retirement income advice practices
• National Insurance Contributions (Reduction in Rates) Act 2024
• General Code comes into force
• TPR to challenge trustee decision-making to ensure savers’ interests are met

Dashboards staged timetable published at last

The Government has published the long-awaited guidance for the staged timetable for occupational pension schemes and personal and stakeholder pension providers to be connected to the pensions dashboards ecosystem.  Publication of the guidance was accompanied by a written ministerial statement.  This follows from the “reset” of the dashboards project that was announced in March 2023 (see Pensions Bulletin 2023/09) and about which the National Audit Office is investigating (see Pensions Bulletin 2024/04).

The guidance starts by reiterating that all schemes and providers in scope are legally required to connect to the dashboards ecosystem by 31 October 2026 at the latest.  However, although that is the legal requirement, the purpose of the guidance is to enable a staged approach, which prioritises schemes and providers with the greatest number of memberships so that, if this approach is followed by the pensions industry, it will ensure a high level of pension memberships will be available on dashboards as soon as possible meaning, in turn, that dashboards can be made available to the public at the earliest possible point.

The DWP makes clear that the timetable in the guidance is not mandatory but encourages trustees and providers to follow the dates in the guidance “unless there are exceptional circumstances which prevent them from doing so”.  The guidance goes on to say that it is a legal requirement for trustees and providers to “have regard to the guidance” and not doing so would be a breach of that requirement.  Trustees and providers also need to be able to demonstrate, upon request, how they have had regard to this guidance.  If trustees and providers cannot do so, then “this may result in enforcement action by the relevant regulator”.

The timetable is split into two parts: large schemes/providers and medium schemes/providers.  We are not going to repeat the whole timetable here but some important dates to note are:

• Large schemes should connect first, with the first date being 30 April 2025 for DC master trusts with 20,000 or more members and the same date for schemes with 5,000 or more members looked after by FCA-regulated providers
• Money purchase schemes with 5,000 or more members used for automatic enrolment are expected to connect by 31 May 2025
• Hybrid schemes and schemes without money purchase members (other than public service or parliamentary schemes) with 20,000 or more members are also expected to connect by 31 May 2025
• The first connection date for “medium” schemes is 31 January 2026

This revised connection timetable therefore runs from 30 April 2025 until 31 October 2026 which is a period of 18 months compared to 31 months under the original timetable.

The Pensions Regulator has also updated its When your scheme needs to connect with dashboards section of its initial dashboards guidance.  This includes a handy routine to check a scheme’s “connect by” date (although we would recommend double-checking with your advisers that they agree).

Comment

The Government has been working closely with industry for several months when preparing this timetable.  We expect that the major providers will have their connection projects well in hand, even though the first connection date is now just over a year away.  The Government is making it clear that – although the guidance is not mandatory – it, and the regulators, will not look kindly on schemes that do not follow the timetable.  If any trustees have taken dashboards off their “to-do” list then we strongly recommend that they now put it back on.

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Work and Pensions Committee publishes long-awaited report on DB schemes

The Work and Pensions Select Committee has published its long-awaited report on defined benefit pension schemes, which concludes that despite a steady decline in number in recent years, DB pension schemes are still of critical importance to both savers and the UK economy.

The Committee held six evidence sessions between June 2023 and January 2024 and also considered nearly 100 pieces of written evidence and has recorded its findings and recommendations in five broad sections as follows:

• The current scheme funding position: the Committee found that there is sufficient evidence of improvement in the funding position of DB pension schemes to justify a new policy approach both to funding regulation and the treatment of surpluses and recommends that “The Government should set out how it plans to promote retirement income adequacy in the future and the role it sees DB schemes, particularly open schemes, playing in this”
• The DB scheme funding regime: while recognising that the new DB funding regime was conceived in a different era amidst concerns over funding deficits and payment of pensions, the Committee feels that the fundamental principles underpinning the new regime are unchanged.  However, it notes the uncertainties still remaining regarding the regime given the Pensions Regulator’s final funding code has not yet been published and takes the DWP to task for asking Parliament to vote through new legislation when stakeholders do not yet have the full picture.  It asks that “In future, DWP should commit to ensuring that Parliament has the material details it needs to make an informed judgement on the legislation it is being asked to vote on”.  Addressing concerns around the potential impact of the new funding regime on open DB schemes and while recognising the additional flexibility in the revised funding regulations (See Pensions Bulletin 2024/09) the Committee insists that “it is essential that DWP and TPR work with open schemes to address the remaining concerns—particularly around the employer covenant horizon—and report back to us on how they have done so before the new Funding Code is laid before Parliament”.  Furthermore, recognising that the Regulator’s approach to scheme funding has been driven by its objective to protect the PPF, the Committee recommends that this objective is replaced with “a new objective to protect future, as well as past, benefits”
• Scheme surplus: noting the DWP consultation launched in February on options to support DB schemes including the extraction of DB scheme surplus (see Pensions Bulletin 2024/08) the Committee asks that the DWP conducts an “assessment of the regulatory and governance framework that would be needed to ensure member benefits are safe and take steps to mitigate the risks before proceeding”.  The Committee also notes that improvements in scheme funding have given new prominence to the question of how to treat any surplus in the best interests of scheme beneficiaries and asks that the DWP and Regulator “explore ways to ensure that scheme members’ reasonable expectations for benefit enhancement are met, particularly where there has been a history of discretionary increases”
• Governance: looking at the role of trustees and their fiduciary duty to act in the best interests of scheme beneficiaries the Committee makes a couple of recommendations.  Firstly, recognising that the increasing use of sole trustees brings with it the potential for conflicts of interest, the Committee asks that “DWP should introduce measures to improve the accountability of sole trustees and to enable scheme members to be involved in their appointment”.  Furthermore, recognising strong support from the Regulator and trustee bodies for accreditation as a way to improve governance standards, it asks that the DWP should “set a date by which it intends to make accreditation mandatory for professional trustees” and also “set out plans for ensuring every trustee board has at least one accredited member, lay or professional and a timetable for achieving that”.  In addition, welcoming the introduction of a trustee register, the Committee recommends that the Regulator “uses the register to report annually on the number of trustees who have completed the toolkit”.  Separately, the Committee also recommends that the Government consult on the detailed proposals of the Superfunds legislative framework to protect member benefits and then introduce primary legislation for pension Superfunds as soon as possible
• PPF and FAS: the Committee recommends that the DWP should legislate to give the PPF more flexibility to reduce its levy to zero and also “bring forward its promised consultation on levy changes and PPF compensation levels without delay”.  Similarly, it asks for a review of compensation provided by the Financial Assistance Scheme

The Government now has two months to respond.

Comment

The range and diversity of evidence presented in this report makes for interesting reading and we are pleased to see that the Committee recognises that pension rules and regulations need to reflect the world of today, not that of yesterday.  We look forward to hearing what the Government has to say in response.

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Ombudsman demands a financial remedy and apology for 1950s born women affected by State Pension Age changes

The Parliamentary and Health Service Ombudsman has concluded that women affected by the increase in State Pension Age (from 60 to 65) did suffer injustice as a result of maladministration by the DWP when it came to communicating this increase and, as a consequence should receive a financial remedy as well as an apology.

However, in the face of the Ombudsman having strong doubts as to whether the DWP will provide a remedy and “given the scale of the impact of DWP’s maladministration, and the urgent need for a remedy”, the Ombudsman is “taking the rare but necessary step” of asking Parliament to intervene and identify a mechanism for providing an appropriate remedy for those who have suffered injustice.

The Ombudsman suggests that the remedy should be at “Level 4” of the Principles for Remedy scale, so will amount to between £1,000 and £2,950, which will be far less than the state pension payments that those affected did not receive.  Nevertheless, should such a remedy be implemented, it is estimated to cost the Government between £3.5bn and £10.5bn.

This final report combines stages two and three of the Ombudsman’s investigation and follows on from the publication of the first report in July 2021, that in relation to stage one, established that maladministration had occurred.  This final report had been completed in December 2022, but in the face of judicial review proceedings instigated by the campaign group WASPI, the Ombudsman announced that he was looking afresh at stage two (see Pensions Bulletin 2023/14).

On Monday 25 March the Secretary of State, Mel Stride, made a statement to the House noting the Ombudsman’s report and promising to provide a further update once the report’s findings have been considered.

Comment

The Ombudsman has quite rightly now thrown this issue into the political arena, which in a General Election year is very unlikely to go away.  Although there will be calls by politicians for a compensation scheme, compensation even at the level suggested by the Ombudsman will be expensive, given the millions of women affected.

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FCA sends “Dear CEO” letter about poor retirement income advice practices

The Financial Conduct Authority has completed its review of how the retirement income advice market is working in the post DC freedoms landscape, publishing both the results of its review and calling on financial advice firms, by means of a letter to their chief executives, to review their processes when providing retirement income advice.

Although the results of the review were largely positive, the FCA found some examples where it had concerns that firms were operating in a way unlikely to lead to good customer outcomes.  There were also a small number of instances on advice files where recommendations were being made resulting in consumers losing guarantees or incurring unnecessary charges.

The FCA notes that unsuitable retirement income advice has the potential to result in significant harm, as it can result in consumers:

• Suffering a reduction in their level of income and/or their funds running out too soon
• Potentially paying higher charges than necessary
• Investing in complex solutions that they do not understand or that are not aligned with their risk profile

And, of course, many of these consumers may be unable to take the necessary steps to mitigate any losses, for example, by returning to work to supplement their income.

The FCA has also published the following:

• A Retirement Income Advice Assessment Tool (RIAAT) and accompanying instructions.  The tool shows how the FCA assessed advice files and how firms can assess if their advice is compliant with the FCA’s rules, including the Consumer Duty
• A Cashflow modelling article which will help firms when undertaking modelling

The FCA announced in January 2023 that it was to undertake this work (see Pensions Bulletin 2023/03) and the results of this thematic review had been expected for some time.

Comment

This review and letter comes shortly after the FCA’s consultation on the advice guidance boundary closed (see Pensions Bulletin 2023/50) in which the FCA proposed that all pension decumulation decisions be excluded from the potential simplified advice regime.  We hope that the combined results of both this review and that consultation will lead to better outcomes for savers in this area.

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National Insurance Contributions (Reduction in Rates) Act 2024

The reductions in national insurance contribution rates that the Chancellor announced in the Spring Budget have now been enacted.

The National Insurance Contributions (Reduction in Rates) Act 2024 provides that from 6 April 2024 the main rate of primary (employee) Class 1 NICs reduces from 10% to 8% and the reduced rate for married women from 3.85% to 1.85%.

The Act also sets the main rate of self-employed Class 4 NICs at 6%.  This is down from the 9% rate that has operated throughout 2023/24.  The Government had already legislated for a reduction to 8% following the Autumn Statement, but as this was only due to come into operation from 6 April 2024 it has now been effectively overtaken by the new 6% rate.

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General Code comes into force

The Pensions Act 2004 (General Code of Practice) (Appointed Day, Amendment and Revocations) Order 2024 (SI 2024/431) has been made bringing the Pensions Regulator’s General Code of Practice into force on 28 March 2024 (rather than 27 March as previously indicated).

The Code was published by the Pensions Regulator in January in a finalised draft form, awaiting Parliamentary approval (see Pensions Bulletin 2024/01).  Regulations have already been laid rescinding the Codes that this General Code replaces (see Pensions Bulletin 2024/09).

Comment

The coming into force of the General Code sets the clock running for the first own risk assessments required of trustees to evaluate the effectiveness of their systems of governance.

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TPR to challenge trustee decision-making to ensure savers’ interests are met

Nausicaa Delfas, Pensions Regulator CEO, has published a blog making clear that the Regulator intends to use the disclosures that will be required by the forthcoming value for money (VFM) framework (see Pensions Bulletin 2024/09) to “constructively challenge trustee decision-making so that savers’ interests are really being met”.  The Regulator also says that disclosure should be seen as an opportunity rather than a burden and that where the data shows that schemes do not offer good value, trustees should ask whether savers’ interests are better served through consolidation.

The Regulator also urges master trusts and large DC schemes to engage with the FCA’s forthcoming VFM consultation.

Comment

The FCA’s consultation has been a long time coming but it is expected in the “spring”.  Whilst the consultation is under the FCA’s banner, it is clear that it will be of great interest to trust-based DC schemes as well as an indicator of what they can also expect.  The Regulator’s blog could well be a harbinger of the actual consultation.

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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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