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CATALYST
DC pensions technical update | Q2 2024
Designed to stimulate thinking and accelerate your decision-making process, Catalyst provides the latest DC pensions updates.
General Election 2024
In the General Election held on 4 July 2024, the UK elected a Labour Government with a large majority and Sir Keir Starmer is the new Prime Minister. Whilst pensions did feature in the manifestos of both major political parties, there was very little that substantially deviated from the existing policy direction of the previous Conservative Government. The headline policy of the Labour Party was to undertake a review of the UK pension system ‘to consider what further steps are needed to improve pension outcomes’, as first announced in January. It has previously indicated support for the current industry trends of pension scheme consolidation and investment in UK productive finance assets and stated in its manifesto that it would adopt reforms to help pension schemes with these issues. Labour has also stated that it wants the UK to become the ‘green finance capital of the world’ and would mandate all UK financial institutions (including pension schemes) to develop and implement ‘credible transition plans’ which are aligned with the Paris Agreement. It has committed to retaining the State Pension triple lock and while it had previously suggested reinstating the Lifetime Allowance if elected, there was no mention of this in the manifesto and instead it is expected to complete the legislation dealing with its removal. The Conservative Party had pledged to enhance its commitment to the State Pension via the “triple lock plus”, where pensioners’ tax-free personal allowances would rise each year in line with increases in the State Pension, and guaranteed that it would not introduce any new taxes on pensions, maintaining both the tax-free lump sum and the current system of ‘marginal rate’ tax relief on pension contributions. These policies will now not be enforced and we wait to see if the pensions tax regime comes into consideration as part of the Labour Government’s review.
The UK has elected a Labour Government with a large majority and Sir Keir Starmer is the new Prime Minister. Labour’s headline pension policy is to undertake a wholesale review of the UK pension system, however they have previously indicated support for many of the existing industry trends such as pension scheme consolidation and investment in UK productive finance assets.
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The Pension Regulator has issued its Corporate Plan for 2024-27 and has been busy publicising its regulatory direction and priorities. It has a vision for the industry of ‘fewer, well-run schemes, delivering good outcomes’, and is keen to raise the standards of trusteeship, support consolidation where it offers value for members and encourage innovation of decumulation products and pathways.
03 Title
Work has continued to progress the legislation needed to implement transitional arrangements for individuals affected by the abolition of the Lifetime Allowance, however this had not been completed by the time Parliament was dissolved for the General Election.
04 Title
The Department of Work and Pensions have published connection guidance, setting out a phased timetable for schemes to connect to the dashboard ecosystem and be ready to respond to ‘find’ and ‘view’ requests.
UK General Election
TPR Corporate plan
Lifetime Allowance
Pensions Dashboards
In short
01 Title
Corporate Advisor Awards 2024
Celebrating a third successive year of accolades at the Corporate Adviser Awards, Barnett Waddingham has been named 'Best Pension Adviser' for 2024. Recognising "excellence and innovation in the delivery of workplace benefits advice, consultancy, products and services", the Corporate Adviser (CA) Awards are the leading awards for the workplace benefits community in the UK, making the accolade of being named 'Best Pension Adviser' a big honour for our Employer Consulting team. This is the second time in two years we have been given the honour of 'Best Pension Adviser', having previously won the award in 2022, before picking up the 'Best Sustainable Benefits Adviser' in 2023.
"We are delighted with this win. It’s testament to the hard work the team has undertaken during the year, always striving to deliver top quality service to our clients. When it comes to DC consultancy, there’s nothing we can’t do."
Paul Leandro
Employer Consulting Partner
TRUSTEE updates
Overview updates
This edition of Catalyst comes at a time of transition for the pensions industry in the UK, with not only the appointment of a new Secretary of State for Work and Pensions in Liz Kendall, but a new government as well. While their manifesto didn’t outline a wholly different trajectory from that of the incumbent Conservative government, Labour did promise to “consider what further steps are needed to improve pension outcomes”. This has the potential to impact a lot of the topics we’re covering in this edition, including Pension Dashboards, the Lifetime Allowance, and climate change reporting. Needless to say, we’ll be paying very close attention to the first steps Labour chooses to take in the coming months.
Mark Futcher
Partner and Head of DC
Sonia Kataora
Partner and Head of DC Investment
Note from our editors
Prime Minister Rishi Sunak has called a General Election which will take place on 4 July 2024. While the general policy direction for the sector announced by the major parties in their manifestos is one of continuity, additional policies have been announced relating to the State Pension and climate commitments for pension schemes. The Pension Regulator has issued its Corporate Plan for 2024-27 and has been busy publicising its regulatory direction and priorities. It has a vision for the industry of ‘fewer, well-run schemes, delivering good outcomes’, and is keen to raise the standards of trusteeship, support consolidation where it offers value for members and encourage innovation of decumulation products and pathways. Work has continued to progress the legislation needed to implement transitional arrangements for individuals affected by the abolition of the Lifetime Allowance, however this had not been completed by the time Parliament was dissolved for the General Election. The phased connection timetable for the Pensions Dashboard has been published.
CATALYST | DC pensions
On 3 May 2024, the Pension Regulator (TPR) published a new Corporate Plan which sets out its direction for the forthcoming three years. TPR is working towards its vision of an industry with fewer and larger schemes that deliver good outcomes for savers. Its key priorities across the industry over this period will be to raise standards of trusteeship, data quality (including dashboard readiness) and administration.
New TPR Corporate Plan
drive value by evolving its supervisory approach for master trusts with a greater investment focus; develop guidance on decumulation and encourage innovation of new models that combine flexible and predictable retirement income streams and supported pathways for savers; ensure compliance with existing regulations around value, in particular for ‘specified schemes’ of under £100m in assets, while working on a new framework to assess value across all DC schemes; and continue work to enable the consolidation of small, deferred DC pots.
Looking particularly at issues relevant for DC schemes, TPR intends to:
TPR has published a number of blogs and press releases in and around the release of its new Corporate Plan which further strengthen insights into its regulatory approach and priorities. In a speech on 12 March 2024, new TPR CEO, Nausicaa Delfas, confirmed TPR believes there is a strong correlation between scheme size and governance standards. TPR will therefore continue to help to drive consolidation in order to deliver better outcomes for savers. The speech also emphasised the changing role of trustees, for example in ensuring they are suitably skilled to consider new investment opportunities such as in productive assets. TPR will look to adapt and grow its role to enable the industry to deliver better outcomes for members. In a press release on 14 March 2024, TPR confirmed that it will be scrutinising compliance with the Value for Members assessment regime for ‘specified schemes’ which has been in place since 2021. 16% of schemes from a pilot exercise concluded they do not offer good value and have opted to wind up. TPR will be scrutinising Value For Money (VFM) information from scheme returns and could issue fines for non-compliance. In a blog on 21 March 2024, TPR emphasised the role of challenge and disclosure in driving value for money for pension savers. TPR believes the new VFM framework it is developing with the Department for Work and Pensions (DWP) and Financial Conduct Authority (FCA) will better focus on value for money. TPR intends to increasingly use publicly available VFM disclosures to ‘constructively challenge trustee decision-making so that savers’ interests are really being met’, and urges trustees to ask tough questions of themselves and robustly challenge advice they are given.
TPR’s regulatory approach
On 16 May 2024, TPR published its annual overview of the occupational defined contribution (DC) trust-based landscape, providing valuable insights into the state of the UK's DC pension market. The report offers a comprehensive analysis of the sector, covering key metrics, trends, and developments. The insights from TPR's report highlight critical trends and shifts within the DC pensions landscape that trustees should consider for strategic planning and effective scheme management. Given their dominance, trustees should evaluate the benefits of master trusts, especially in terms of cost efficiency, governance, and member outcomes.
Overview of the occupational DC trust-based landscape
There has been an 11% decrease in the number of DC and hybrid schemes, driven solely by schemes with fewer than 5,000 members, indicating a continued shift towards consolidation. Total reported DC assets have risen to £158.3 billion, reflecting an 11% increase from the previous year. Master trusts dominate the landscape with over £122.9 billion in assets and covering 84% of DC or hybrid scheme memberships, underscoring their significance in the DC pensions sector. Despite the overall growth in assets, the average assets per member has shown little change due to market volatility in 2022. (Barnett Waddingham's own research suggests that most default solutions had a positive second half of the year, with a median return to 31 December 2023 for growth portfolios of c.13%.).
Key findings include:
On 19 March 2024, TPR published the results of its first trustee D&I survey and, as completed by some 2,200 trustees, its largest ever survey of its kind. TPR encourages those wanting to improve their board’s diversity and inclusion to take advantage of its EDI guidance.
Trustee diversity and Inclusion (D&I)
Broad consensus that diverse and inclusive trustee boards are important for good decision-making (84%), good governance (83%) and good member outcomes (85%). While the survey highlights the lack of trustee diversity in terms of protected or visible characteristics such as ethnicity, most trustee boards were seen as diverse in terms of skills (82%), life experience (74%), professional background (73%), cognitive diversity (73%) and education (61%). 43% of schemes had taken or planned action in either area of diversity or inclusion, with 25% doing both.
On 11 April 2024, TPR published the findings of its review of trustees’ climate-related disclosures. The review aimed to assess the quality of the disclosures and identify areas for improvement. The review found that trustees are making progress in reporting on climate-related risks and opportunities, with many disclosures demonstrating a good understanding of the requirements. TPR identified room for improvement in the following areas: Many trustees could provide more detail on their governance processes and how climate-related risks and opportunities are integrated into their risk management processes. Disclosures on strategy could be enhanced by providing more information on the potential impacts of climate change on the scheme's investment strategy and time horizons. Scenario analysis and metrics and targets were the areas where disclosures were generally weakest, with many trustees not providing sufficient detail or omitting these elements altogether. TPR will continue to engage with trustees and provide guidance and support to help improve the quality of climate-related disclosures. This includes publishing a summary of good practice examples and areas for improvement identified in the review. The review highlights the importance of trustees taking a proactive approach to managing climate-related risks and opportunities and providing clear and transparent disclosures to members and stakeholders. By addressing the areas for improvement identified in the review, trustees can enhance their reporting and demonstrate their commitment to responsible investment practices.
Review of Climate Reports
Regulations effective from 6 April 2024 addressed some issues relating to the abolition of the LTA, including a statutory override to help schemes operate as intended, e.g. where benefits are limited by reference to the LTA. Trustees may wish to check how the new override and their particular scheme rules work together. The override expires on 5 April 2029, giving schemes some time to make any required changes to their rules. In April 2024, HMRC published Pension Schemes Newsletters 158 and 159 which contain updated guidance for pension scheme administrators. Content from these newsletters has been consolidated into an FAQ. HMRC stated in newsletter 158 that a further minor technical changes will be needed through a second set of regulations. These relate primarily to specific protections and transfers overseas, so will not impact the majority of pension savers. These were expected in April 2024 (to apply retrospectively from 5 April 2024) but were not laid before Parliament before it was dissolved ahead of the General Election. Until the amending legislation has been passed, HMRC has stated that affected members may wish to delay any planned transactions to avoid future revisiting of their available allowances and tax position (mostly relating to those with LTA protections). Where a member requires payment which is affected by the further regulations and cannot wait for these to be introduced due to financial hardship, the administrator can contact HMRC directly. Pensions Scheme Newsletter 160, published on 30 May 2024, provided details of a newly created tool which will allow members to check if they are able to apply for a transitional tax-free amount certificate from their scheme and the information required to create a valid certificate.
Lifetime Allowance (LTA) transitional arrangements
Update on the Pensions Dashboard
The number of relevant members (active and deferred members) at the scheme year end date between 1 April 2023 and 31 March 2024 for trustees and managers of occupational schemes. The number of pots in accumulation across all relevant pension schemes at the scheme year end date between 1 April 2023 and 31 March 2024 for pension scheme providers subject to FCA rules.
The number of members which determine the connection deadline is:
On 25 March 2024, the Department of Work and Pensions (DWP) published connection guidance, setting out a phased timetable for schemes to connect to the dashboard ecosystem and be ready to respond to ‘find’ and ‘view’ requests. The largest schemes (DC Master Trusts with 20,000+ members) must connect by 30 April 2025 and the smallest schemes (relevant occupational schemes with 100-124 members) by 30 September 2026. FCA-regulated pension providers with 5,000 or more members must connect by 30 April 2025, covering most contract-based group arrangements. The statutory connection deadline remains 31 October 2026. The guidance is non-statutory, however trustees will need to be able to demonstrate how they have considered the guidance when planning and making decisions for their connection, otherwise they could be subject to regulatory action. In April 2024, the DWP also published guidance to help pension fund trustees and managers prepare ‘annualised versions of the accrued pot value’ illustrations; these provide estimates of income from a DC pot and form part of the data that schemes will need to provide to dashboards for DC members. All relevant updates from the Pensions Dashboard Programme (PDP) to April 2024 have been summarised in the 9th Progress Update Report. On 10 May 2024, the National Audit Office (NAO) published the findings of its investigation into the PDP, which was requested by Parliament following the announcement of delays in the staging timelines in 2023. The NAO found that capacity and capability issues, including a lack of digital skills and ineffective governance, were contributing factors into the delays and that both the delays and increases in supplier costs have increased the PDP’s estimated costs by 23%.
In a blog published on 21 May 2024, TPO announced plans for a ‘root and branch’ Operating Model review to address waiting times and improve its service. The expectation is for a substantially improved position to be achieved in the next 12 to 18 months.
The Pensions Ombudsman (TPO) Operating Model Review
Resolution Team changes – The conditions for the Resolution Team being able to investigate a complaint will be tightened and will require complainants to demonstrate that they have exhausted the respondent’s formal complaints process (such as an occupational pension scheme’s Internal Dispute Resolution Procedures (IDRP)). Expedited Determinations – TPO will be extending the use of short-form decisions and determinations for appropriate cases at all stages of its processes. This will bring forward its decision-making in these cases and reduce the number of hand-offs between different teams. Thresholds for accepting complaints – TPO will also be exploring whether there are certain categories of complaints that are more appropriately dealt with by other organisations and whether a de minimis threshold should be applied in some circumstances.
TPO highlighted the following priorities:
On 25 April 2024, the FCA published finalised guidance to help firms avoid misleading claims about their environmental credentials, known as ‘greenwashing’. The guidance is part of the FCA’s wider Environmental, Social and Governance (ESG) Strategy, aimed at promoting positive change in the interests of consumers and market integrity. The guidance sets out the FCA's expectations for firms making sustainability-related claims in product design, delivery, and disclosure. It covers areas such as: how firms ensure their environmental claims are fair, clear, and not misleading; how firms substantiate and monitor their environmental claims; and how firms consider negative sustainability impacts in their products and services. The guidance applies to all FCA-regulated firms, including asset managers, advisers, and pension providers offering sustainable investment products or services. Alongside the guidance, the FCA has proposed extending its sustainability disclosure requirements (SDR) and labelling regime to a wider range of investment products. This aims to provide consumers with consistent and accessible information on products' environmental credentials. The proposals include classifying sustainable investment products into categories based on their environmental objectives and characteristics, with specific disclosure and labelling requirements for each category.
Anti-greenwashing guidance
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