Wider updates
Trustee updates
Government & regulation updates
OUR SERVICES
Return to top
Copyright © Barnett Waddingham 2024
Manage preferences
SIGN UP NOW
Stay ahead with our latest comment, expert insight and event notifications
SIGN UP FOR EMAIL UPDATES
FOLLOW US
Accessibility Consumer duty Data management Legal notices Privacy Sitemap Slavery and human trafficking Sustainability
FURTHER READING
CATALYST
DC pensions technical update | Q3 2024
Providing the latest updates to spark new ideas and accelerate your progress within DC pensions.
King's Speech & Pension Schemes Bill
The UK elected a Labour government with a large majority appointing Sir Keir Starmer as the new Prime Minister. Following this appointment, we now have a new Secretary of State for Work and Pensions, Liz Kendall, and a new Pensions Minister, Emma Reynolds. The King's Speech, delivered on 17 July 2024, outlined the legislative agenda the Government intends to follow over the course of the current Parliamentary session. This includes a Pension Schemes Bill, with measures to: Implement automatic consolidation of small deferred DC pots. Establish the new VFM framework for trust-based DC schemes, expected to align with new rules from the Financial Conduct Authority (FCA) for contract-based schemes. Place duties on trustees of trust-based schemes to offer a retirement income solution, including default investment options, to their members. The Government intends that the measures in this Bill "will enable consolidation and more productive investment of funds", leading to improved outcomes and greater security in retirement for savers. Given general fiscal constraints, there will be interest in whether Labour will seek to change the pensions tax regime more widely. We may hear more on this in the Autumn Budget set for 30 October, with the Prime Minister already setting expectations that this Budget will be "painful".
The King's Speech introduced a Pension Schemes Bill aimed at consolidating small deferred DC pots, establishing a VFM framework, and mandating trustees to offer retirement income solutions.
Learn More
The Government launched a review focused on boosting productive investment and improving retirement outcomes, with consolidation of schemes and broader investment strategies.
The Pensions Regulator (TPR) is evolving its supervision of master trusts, focusing on investment quality, data standards, and innovation at retirement, with an emphasis on delivery long-term value for savers.
Regulations to address technical deficiencies with the abolition of the Lifetime Allowance will come into force on 18 November 2024, and will have effect from 6 April 2024.
Pension Schemes Bill
A pensions review
Master trust supervision
Lifetime Allowance
In short
Government launches pensions review
In line with Labour's election manifesto commitment, the Government has launched a review of the pensions landscape aimed at boosting productive investment, increasing pension pots, and addressing inefficiencies in the pensions system. The first phase of the review focuses on enhancing productive investment and improving retirement outcomes. This will be achieved through consolidation and encouraging large-scale schemes to adopt broader investment strategies to increase returns. The Government ran a Call for Evidence in September 2024 to invite input, data and information which would inform the first phase of the review. This invited respondents to consider issues of scale and consolidation, costs vs value and investing in the UK. The findings from this phase are expected to be reported in the coming months and may include additional measures for the Pension Schemes Bill. The second phase of the review, anticipated late in 2024, will explore further steps to enhance pension outcomes and boost investment in UK markets. This phase will also assess retirement adequacy, so may include the extension of automatic enrolment.
TRUSTEE updates
GOVERNMENT & REGULATION UPDATES
This edition of Catalyst explores significant shifts in the UK pensions landscape following the recent election of a new Government, which has set the tone for transformative changes. Key legislative updates aim to improve retirement outcomes through consolidation, a Value for Money (VFM) framework, and mandatory retirement income solutions. Trustees' roles continue to evolve, with increased focus on environmental, social, and governance (ESG) compliance and the upcoming change to the normal minimum pension age. Our wider updates section also highlights the Government's push for pension funds to invest in productive assets, which should drive economic growth, as well as updates on the removal of the Lifetime Allowance. These developments underpin a period of change, yet also opportunity in DC pensions.
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.
Overview updates
Value for Money (VFM) consultation
Building on joint work with the Department for Work and Pensions (DWP) and TPR towards a new common VFM framework across DC schemes, on 8 August 2024 the FCA launched a consultation with feedback invited until 17 October 2024. This consultation sets out proposed rules and guidance for default arrangements of workplace contract-based schemes. The framework aims to shift focus from costs to long-term value, for example enabling providers to invest in assets that could deliver greater long-term returns despite higher management costs. Key features of the proposed framework: Schemes must publicly publish information and metrics, including investment performance, costs and charges and service quality. Schemes must assess their VFM using the published information and metrics and those of comparator schemes. Schemes will use a traffic-light Red-Amber-Green (RAG) rating system for VFM. Schemes with amber and red VFM ratings will be required to improve or consider transferring savers to green-rated schemes. Action A key aspect of the consultation is the development of metrics that clearly define value for money. To ensure that the VFM framework can be effectively rolled out across DC schemes, both employers and trustees are invited to respond to the consultation.
Phil Duly
Principal and Head of DC Research & Technical
Overview
CATALYST | DC pensions
On 30 October, Chancellor Rachel Reeves presented the Autumn Budget 2024. The most significant change for DC pensions was the announcement that unused pension savings will be included in estates for Inheritance Tax from April 2027. The Government has launched a consultation on the implementation, with further consultation of draft regulations expected in 2025.
The Autumn Budget 2024
Absent from the Budget were speculated changes to the National Insurance (NI) exemption status for employer pension contributions, pension tax relief reform, and restrictions on tax-free cash lump sums. It was also announced that employer NI will increase from 13.8% to 15% in April 2025 and the earning threshold for employer NI will drop from £9,100 pa to £5,000 pa, adding to employment costs alongside a minimum wage hike. However, higher employer NI will increase saving from pension salary sacrifice.
Copyright © Barnett Waddingham 2025
TPR announced on 8 July 2024 it will be evolving its supervision of master trusts to focus on investments, data quality and standards, and innovation at retirement. TPR stated that "value had to be the guiding light for all that we do" and that master trusts would become the "gold standard for pension provision".
TPR updates its master trust supervision approach
probe and challenge more on how a master trust's approach to investments delivers for savers; investigate how a master trust is seeking the best possible long-term risk-adjusted returns; look more broadly at master trust investment governance practice and investment decision making; and request deep dives into the systems and processes of master trusts.
TPR's evolving approach will:
On 12 August 2024, the Pensions Administration Standards Association (PASA) issued guidance for trustees and administrators on preparing for the increase to normal minimum pension age (NMPA). NMPA is the earliest age members can access their benefits without incurring tax charges. NMPA is currently age 55 and will increase to age 57 from 6 April 2028, when State Pension Age has completed its phased increase to age 67. At some point in this tax year, the Government plans to publish further 'transitional regulations' to address minor inconsistencies created by the increased NMPA. Action Trustees should refer to the guidance and check with their administrators on actions that can be taken now in preparing for the change, including ensuring members with a protected pension age are identified and treated fairly.
Change to normal minimum pension age
On 30 July 2024, TPR published its findings from its review of trustee compliance with ESG duties. These highlight that while progress is being made, there remains significant variation in the depth and consistency of ESG practices across DC schemes. While most trustees are meeting disclosure requirements, many are only delivering minimum compliance.
TPR review of Environmental, Social and Governance (ESG) compliance
Dedicate sufficient time and resources to preparing Statements of Investment Principles and Implementation Statements. Take proportionate and appropriate action to mitigate ESG risks, such as climate change. Take ownership of stewardship activities, even when delegated to asset managers. Review fund manager policies on ESG-related issues, especially for pooled funds.
TPR's recommendations for trustees:
On 19 June 2024, the Society of Pension Professionals (SPP) published a practical guide for trustees on engaging with asset managers, aiming to help trustees navigate the complex landscape of ESG integration in pension scheme management. The guide sets out how trustees should integrate ESG risks into their investment decision-making processes, reinforcing the message that ESG factors are not optional but a core part of managing investment risks. Trustees' fiduciary duty to act in the best interests of members includes considering long-term risks, such as climate change, that could materially impact returns. Key points from the guidance: Emphasises the importance of ESG factors in investment decision-making; provides practical advice on integrating ESG considerations into scheme governance; offers insights on engaging with asset managers and monitoring ESG performance; and discusses the evolving regulatory landscape and reporting requirements. This guide offers practical steps that trustees can implement to ensure their scheme's investment approach aligns with both regulatory expectations and members' interests. Action Trustees should review the guidance and consider their approach to ESG integration. This may require an update of investment policies, further training on ESG issues, and more enaggement with asset managers.
ESG guidance
People
Through a multi-disciplinary team approach, TPR will engage with a master trust's investment and strategic experts as well as its trustees. TPR wants master trusts to view their partnership as one that mitigates harms, identifies opportunities for savers and delivers value. TPR calls on master trusts to openly share their thoughts so concerns can be considered and evidence bases built to understand the bigger picture.
Action With TPR increasing its focus on market oversight in this area, trustees should review their ESG policies and practices against TPR's recommendations, ensuring they go beyond minimum compliance to effectively manage ESG risks and opportunities. Failure to do so may result in increased scrutiny from TPR.
On 30 July 2024, TPR published its findings from its review of trustee compliance with environmental, social and governance (ESG) duties. These highlight that while progress is being made, there remains significant variation in the depth and consistency of ESG practices across DC schemes. While most trustees are meeting disclosure requirements, many are only delivering minimum compliance.
In Pensions Schemes Newsletter 161, HMRC confirmed that the Government had issued a short technical consultation on draft regulations to address technical deficiencies in the legislation through which the Lifetime Allowance was abolished. Regulations will come into force on 18 November 2024 and will have effect from 6 April 2024. Meanwhile, HMRC continues to update the Pensions Tax Manual to reflect the removal of the Lifetime Allowance.
Lifetime Allowance removal update
Update on the Pensions Dashboard
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.
Consumer duty comes into force for closed products and services
On 31 July 2024, the Consumer Duty applying to FCA-regulated firms was extended to closed products and services, i.e. where the contract was entered into before 31 July 2023, and the product or service has not been marketed or distributed to customers on or after that date. The Consumer Duty has applied to new or existing open products and services since 31 July 2023 and sets higher and clearer standards of consumer protection.
On 7 August, Chancellor Rachel Reeves published a press release outlining the Government's vision of how UK pension funds can play a pivotal role in boosting the UK economy. Drawing inspiration from the Canadian model, the Chancellor is advocating for the consolidation of pension schemes into larger funds, to drive investment in productive assets such as infrastructure, green energy, and innovation. This aligns with the Government's broader agenda to stimulate economic growth while benefiting pension savers through potentially higher long-term returns. Key points: The Chancellor is engaging with Canadian retirement funds to learn from their investment strategies. New investment vehicles have been announced to channel pension fund money into infrastructure and fast-growing UK companies. The Government is working on measures to unlock investment supply, including planning system reforms and the establishment of a National Wealth Fund. Action: For trustees, this presents an opportunity to explore investment strategies that contribute to economic growth while also aligning with members' long-term interests. However, it also raises challenges in terms of balancing risk, ensuring diversification, and complying with fiduciary duties.
Chancellor calls for increased UK pension fund investment
CTA BUTTON
Insights
Expertise
About us
On 30 July 2024, the Association of British Insurers (ABI) published a one year progress update on the Mansion House Compact, a significant initiative aimed at increasing investment in productive finance assets, particularly in UK infrastructure and green technologies. This voluntary agreement now has 11 signatories and is designed to boost long-term investment in the UK economy, whilst also offering pension savers potentially higher returns from these sectors.
Progress update on Mansion House Compact
Key progress over the year includes: Signatories have made significant strides towards the ambition of the Compact: to allocate 5% of DC default funds to unlisted equities by 2030. Signatories currently hold £793 million of unlisted equity assets in their DC default funds (excluding investments in infrastructure and real estate), which equates to 0.36% of the total value of their DC default funds. Capital committed to investment in unlisted equities has increased, despite key operational and technical barriers to investment in private assets, which have been identified by individual signatories. Shifting away from cost minimisation and towards value appears to be central to enabling signatories to achieve the ambitions of the Compact.
Action Trustees should consider the potential implications of this initiative for their investment strategies and explore opportunities to increase allocation to productive finance assets, where appropriate for their members.
On 22 July 2024, the Financial Reporting Council (FRC) announced significant updates to the UK Stewardship Code application process and committed to five priority areas of review as it continues its revision of the Code. The updated Code places greater emphasis on the integration of ESG factors into stewardship, requiring more robust engagement with investee companies on sustainability, governance, and social impact. Key updates include: Five focus themes for the new phase of the Code's revision have been identified: Purpose, Principles, Proxy Advisors, Process, and Positioning. Five immediate changes are being implemented to reduce the reporting burden on existing signatories. The reporting changes to the Code will apply for the next application window (31 October 2024) and the FRC will be writing to signatories individually to inform them of how these changes impact them. The FRC plans to launch a formal public consultation on the Code later this year. Action: Trustees should review their investment governance frameworks to ensure that their asset managers are compliant with the new standards and that stewardship practices are aligned with the scheme's objectives. This may involve revisiting stewardship policies and requiring more detailed reporting on how ESG factors influence investment decisions.
Significant update to UK Stewardship Code 2024
TPR's recommendations for trustees: Dedicate sufficient time and resources to preparing Statements of Investment Principles and Implementation Statements. Take proportionate and appropriate action to mitigate ESG risks, such as climate change. Take ownership of stewardship activities, even when delegated to asset managers. Review fund manager policies on ESG-related issues, especially for pooled funds.
