UK: The Pensions Brief: July 2023

Issues affecting all schemes

Data protection – guidance on privacy notices

The Information Commissioner's Office (ICO) has fined a social media company £12.7 million for a number of breaches of UK data protection law, including failing to meet the requirements of the UK General Data Protection Regulation (UK GDPR) in respect of children's personal data.

Alongside its enforcement notice, the ICO published an annex which considers the specific wording of the company's privacy notices between August 2018 and July 2020 and sets out why the ICO concluded that the wording did not meet the requirements of the UK GDPR. The ICO found that many of the general statements often seen in privacy notices about lawful processing bases, recipients of personal data, international data transfers and data retention were insufficiently detailed to satisfy the requirements of the UK GDPR

For more information, please see our  legal update.

Action

Trustees should factor the ICO's comments into their next scheduled review of their privacy notices and update their notice as appropriate.

Midlife MOTs – signposting

The Pensions Regulator (TPR) has published a blog post urging trustees to signpost members to the new digital Midlife MOT that was recently launched by the government. TPR suggests that schemes:

• Particularly target those in the 45 to 65 age range.
• Fully integrate the Midlife MOT into the support they already offer their members.
• Provide  this link to the Midlife MOT in their signposting, so that the DWP can capture where visitors are being referred from.

Action

Trustees should consider the extent to which, if at all, they wish to signpost members to the Midlife MOT.

Mansion House Reforms – pensions aspects

The government has announced a package of reforms designed to improve the functioning of capital markets in the UK. They build on the Edinburgh Reforms announced last year and cover three main areas: pensions, company listings and regulation. The specific pensions-related announcements were as follows:

• Aviva, Scottish Widows, L&G, Aegon, Phoenix, Nest, Smart Pension, M&G and Mercer have signed the "Mansion House Compact" under which they commit to the objective of allocating at least 5% of their default funds to unlisted equities by 2030.
• The government will facilitate a programme of DC consolidation. A new value for money (VFM) framework will be introduced and the government will set out a roadmap to encourage the establishment of collective DC schemes.
• The British Business Bank will explore the case for the government to play a greater role in establishing DC investment vehicles.
• The government will introduce a statutory authorisation and supervision regime for DB superfunds.
• The government will investigate the possible role of the Pension Protection Fund, and the part that DB schemes could play, in productive investment.
• The government will explore how trustee skills and capability and decision-making could be improved.

For more information, please see our  legal update.

The Pensions Regulator (TPR) has published a  blog post welcoming the Reforms and:

• Emphasising the need for trustees of DC schemes to shift their focus when considering VFM from low costs to value.
• Announcing that TPR will update its investment governance guidance for DB and DC schemes and will provide new guidance this autumn on investing in productive finance.
• Underlining TPR's view that where trustees do not have the scale, expertise or appetite to deliver the best outcome for members, they should consolidate.

Action

No action required.

Trustees – improving skills and decision-making

The government is calling for evidence on how trustee skills and capability could be improved and barriers to making effective investment decisions removed. The call for evidence covers:

• Trustee skills and capability – current levels and how these could be improved, including trustee registration, trustee accreditation and further requirements for professional trustees.
• The role of advice, in particular investment advice.
• Barriers to trustee effectiveness – whether the current framework and guidance on fiduciary duties is sufficient to enable trustees to make decisions in the best long-term interests of members and whether trustees have sufficient time and employer support to fulfil their duties.

The call for evidence closes on 5 September 2023. For more information, please see our  legal update.

Action

Trustees should monitor the progress of the call for evidence.

Pensions tax – annual and lifetime allowance changes

The  Finance (No 2) Act 2023 has received Royal Assent. Among other things, the Act:

• Removes the lifetime allowance (LTA) charge.
• Increases the standard annual allowance (AA) to £60,000 and the money purchase AA to £10,000.
• Increases the minimum level of the tapered AA to £10,000 and the adjusted income threshold for the purposes of the tapered AA to £260,000.
• Amends the LTA protection provisions to reflect the fact that, from 6 April 2023, individuals with valid enhanced or fixed protection that was applied for before 15 March 2023 are able to accrue further benefits and transfer their benefits without losing that protection. The amendments also provide for those individuals to retain a right to any higher pension commencement lump sum to which they were entitled as of 5 April 2023.

In addition, HMRC is consulting on draft legislation abolishing the LTA. Broadly speaking, the draft legislation:

• Removes the concept of the LTA from the Finance Act 2004 and related legislation.
• Sets out the tax treatment of lump sums and lump sum death benefits in the absence of the LTA. A new "lump sum allowance" of £268,275 (i.e. 25% of the current LTA) and a new "lump sum and death benefit allowance" of £1,073,000 (i.e. the current LTA) will be created. Essentially, these allowances are the maximum amount of tax-free cash that an individual can receive from registered pension schemes. Individuals will not pay tax where the non-taxable element of lump sums they receive does not take them above these levels. To the extent that the otherwise non-taxable element of a lump sum exceeds these levels, it will be taxed at the recipient's marginal rate (except where lump sum protections apply). The allowances will be personal rather than scheme limits and will not take into account the payment of regular pension income. LTA excess lump sums will be abolished and the requirement to have available LTA to take any lump sum payment will be removed.
• Makes consequential amendments to the legislation on LTA protections following the abolition of the LTA. In particular, the ability to apply for fixed protection 2016 and individual protection 2016 will be removed from 6 April 2025.
• Provides a placeholder for the transitional arrangements where members have taken some benefits whilst the LTA existed – these clauses have not been published.

The consultation closes on 12 September 2023.

Action

Trustees and administrators should monitor the progress of the consultation.

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Originally Published July 2023

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This Mayer Brown article provides information and comments on legal issues and developments of interest. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein.