By Tyron Potts, FIA, Associate and Head of Pensions Research at Barnett Waddingham
During the six-day ‘wash-up’ period, several pieces of legislation were hurriedly finalised and passed into law. However, many did not make it and were dropped altogether. Strict rules limit the bills that can be carried over from one parliament to the next, usually restricted to a few ‘hybrid’ pieces of legislation. Anything not passed by the end of wash-up must be reintroduced in the new parliament formed after the General Election.
So, of all the important pieces of pensions-related parliamentary business in the pipeline, how many made it through during wash-up? Well, none. Or rather, one technical piece – the Finance (No. 2) Act 2024 – squeezed through just before prorogation. This Act clarifies the tax treatment of assets transferred on wind-up of a Collective Defined Contribution (CDC) scheme. Given the UK’s first CDC scheme isn’t yet operational, this wasn’t really a last-minute game-changer.
DB funding falters
Legislation applying new funding requirements to defined benefit (DB) schemes – particularly the requirement to formalise a long-term funding strategy – has already been passed and will come into force on 22 September 2024. The Pensions Regulator (TPR) consulted on a revised DB Scheme Funding Code of Practice in early 2020.
With Parliament dissolved, the legal requirement that all TPR’s Codes of Practice be ‘laid’ in Parliament for 40 days before coming into force presents a dilemma. TPR was not able to lay the Funding Code before prorogation, so it must wait until after the General Election. Given the parliamentary calendar, it is now impossible for the code to be legally in effect before the associated legislation comes into force.
This leaves DB trustees and sponsors in a period of limbo where they are required to target low dependency funding by the time they reach ‘significant maturity’ without a formal definition of what ‘significant maturity’ means (as the law requires TPR to set this out in a Code of Practice). However, provided the code is laid and comes into force soon after the regulations take effect, there will likely be few practical issues with the delay, particularly given that very few DB schemes will be signing off on funding documentation within the first few weeks of the new regime.
Lifetime Allowance lag
HMRC is asking some pension savers to consider delaying their retirement because issues with Finance Act 2024 changes relating to the abolition of the Lifetime Allowance (LTA) were not resolved in time. This affects retiring members with ‘protected cash’ or those who registered for historic transitional protections and are considering transferring their benefits.
Although the LTA was effectively abolished from 6 April 2024, it may be several months before we see the required tidying-up regulations. There are rumours that the Treasury was working on a draft before the election was called, which could be recycled by the new government.
Mansion House moratorium
Many Mansion House reforms had cross-party support, but conclusions to several consultations launched at the time had not been finalised by the time the election was called:
We await the outcome of the DWP’s March 2023 call for evidence on a lifetime provider model which it is hoped would reduce the problems associated with a proliferation of small DC pots.
Facilitating the return of DB scheme funding surpluses to employers and to members from an ongoing scheme was the subject of a February 2024 consultation.
The same consultation proposed a public sector consolidator operated by the Pension Protection Fund (PPF). Although already scoped out by the PPF, this is now unlikely to see the light of day this year.
Supporting individuals on how to use their private pension savings at the point of access – a DWP response on the second part of the consultation (relating to proposals for ‘information guidance and communications’) has been outstanding since mid-2023.
In the DWP’s response to the Mansion House consultation (July 2023), the Government committed to bringing forward legislation to put commercial DB consolidators (superfunds) on a permanent legislative footing “as soon as parliamentary time allows”.
Parliamentary time however did run out.
As part of a DWP review, legislation to introduce a Value for Money (VfM) framework for DC pension arrangements was promised – and the FCA had indicated it would consult on new rules this spring.
Auto-enrolment abeyance
An Act of Parliament has already been passed to remove the Earnings Threshold and lower the age at which auto-enrolment applies. However, secondary regulations are required to bring these changes into force, and these had not yet been drafted by the time the election was called. The new government will need to decide whether to pick this up and run with it, or indeed whether to review the adequacy of auto-enrolment minimum contributions.
Dashboards delay
This is one area where the General Election is unlikely to cause delays, as the pensions dashboards project is on track for most schemes to connect by October 2016. There was cross-party support for the project before the election was called, making it a different story from the last general election in December 2019.
State pensions show-stopper
The outgoing government commissioned an independent review of State Pension Age (SPA) and publicised its follow-up response in March 2023. Meaningful reform has been deferred, with plans to conduct a further review “within two years of the next Parliament”.
Most major political parties have committed to maintaining the triple lock, protecting the state pension against inflation. There will also be much debate on whether and how to compensate ‘WASPI’ women born in the 1950s who, according to an independent review, were not given adequate notice of changes to their SPA.
Statutory Transfers set back
Since rules around the transfer of ‘safeguarded benefits’ were introduced in 2021, issues with the ‘red flag’ for incentivised transfers and the ‘amber flag’ for overseas investments have been identified. The DWP intended to update legislation this winter, but this will now be delayed.
Other obstructions
The PPF has called for amending legislation to reduce its annual levy to zero without limiting future collections. The law currently restricts year-on-year increases in the levy collection to 25%. The DWP was ready to legislate “as soon as parliamentary time allows” – which will now be later this year at the earliest.
In September 2021, the Government consulted on amending ‘Notifiable Events’ regulations, requiring sponsors of DB schemes to give TPR early warning of significant corporate activity. A response remains outstanding, and the new government will need to evaluate the different options open to it.
A voluntary trustee register is expected to start within the next year, but despite Work and Pensions Committee recommendations, there is little political appetite for mandatory accreditation of professional trustees.
The incoming government will face a multitude of pensions regulatory reforms left in limbo by the General Election announcement. The next Pensions Minister will need to quickly establish priorities for the next parliament. Once the champagne corks have popped and the new government gets to work, we’ll be closely monitoring developments on all these outstanding matters.
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