Happy New Year to all our readers!

As you get back to your (virtual) desks, we have prepared an A-Z summary of the key pensions-related developments you can expect in the coming year.

Auto-enrolment – This year marks the 10th anniversary of the introduction of automatic enrolment (can you believe it!). This grand social experiment has proved to be very successful in getting millions more people to save in workplace pension scheme but we can expect continued calls for the Government to extend auto-enrolment to those currently excluded and to increase the minimum contribution rates.

Benefit statements – Automatic enrolment schemes that provide money purchase benefits only will be required to issue the new simpler benefits statements from 1 October 2022.

Collective DC – Legislation enabling the creation of Collective DC schemes in the UK is due to come into force on 1 August 2022.

Dashboards – Work on the development of the digital architecture for pension dashboards will continue with a view to the first wave of schemes being required to submit data in 2023. The DWP is due to consult shortly on legislation which will set out the phasing process and the data schemes will be required to submit. It is important schemes make progress preparing their data this year to ensure they are dashboard ready.

ESG – The focus on climate and other ESG related risks will continue in 2022 as the climate risk monitoring and reporting requirements are extended to £1billion+ schemes and as more work is done to understand ESG risks and their potential impact on schemes’ investment strategies and on scheme sponsors.

Funding – The DWP is due to consult on new funding and investment regulations in the Spring. This will be followed by the consultation on the Regulator’s new DB Funding Code. Read more

GMP equalisation – Most schemes are still working towards being in a position to equalise members’ benefits for the effect of GMPs. With issues such as data, assumptions, tax and forfeiture all needing to be considered before benefits can be equalised, expect progress to continue to be slow but steady in 2022.

High inflation – 2022 is set to be marked by higher inflation than we have seen for many years. Trustees will need to consider what, if any, steps to take to adjust to this new economic environment.

Illiquid investments – The Government is likely to continue to encourage greater investment in illiquid investments by UK pension schemes including via the new Long-Term Asset Funds. Related to this, the DWP’s consultation on proposed changes to the DC charge cap to encourage greater investment in “productive finance”, which includes proposals to exclude “well-designed” performance fees from the cap, closes on 18 January 2022. Read more

Judicial review (RPI) – The hearing in the judicial review of the decisions relating to the reform of RPI in 2030 is due to take place this Summer. The outcome could have funding implications for some DB schemes. It will also be of interest to members with RPI-linked pension increases. Read more

Key case for trustee directors – The outcome of the legal challenge against the trustee directors of the USS pension scheme may have significant implications for the protection afforded to directors of corporate trustees, if the Court allows the novel ‘derivative’ action (which is being brought against the trustee directors in their personal capacity) to be heard. The outcome could also impact the approach trustees need to take to valuations, particularly in periods of market turbulence. Read more

Living Pension – The Living Wage foundation is continuing its work to develop the criteria for a new Living Pension accreditation.

Minimum pension age – Legislation is due to be included in the Finance Act 2022 which will see the normal minimum pension age increase to age 57 from 6 April 2028. All eyes are on the transitional protection which could create administrative headaches for schemes and providers.

Notifiable events – Several new employer notifiable events are due to be introduced in April 2022. With the maximum fines for failing to comply now set at £1million, directors of companies and groups with DB schemes need to ensure they are familiar with the new notification triggers. Read more

Offences – The new pensions criminal offences are now in force. Will they be tested in 2022?

Powers – Alongside the new criminal offences, the Pensions Regulator has also been given extended powers to issue contribution notices, new powers to issue financial penalties of up to £1 million in a range of scenarios and enhanced information gathering powers. DB sponsors, trustees, advisers and related parties will be eager to see how often (and in what circumstances) the Regulator chooses to exercise its new and extended powers in the months ahead.

Queen’s Speech – A Queen’s Speech in 2022 cannot be ruled out but, as things currently stand, it looks unlikely that it will feature another Pensions Bill.

Review of state pension age – The Government launched the latest review of state pension age on 14 December 2021. The review will consider whether the rules around pensionable age are appropriate, based on the latest life expectancy data and other evidence. Much of the work will be undertaken this year with the review required to be published by 7 May 2023 at the latest.

Small pots – The Small Pots Cross-Industry Co-ordination Group will continue its work to identify a solution to reduce the growing number of small pension pots being left behind in auto-enrolment schemes as workers change jobs or opt-out. Read more

Transfer conditions – The new transfer conditions, which are designed to help prevent pension scams, are now in force. Trustees, providers and administrators will need to keep their approach to implementing the new conditions under review as market practice evolves and in response to the Pension Scams Industry Group’s updated Code of Practice which is due to be published shortly. Read more

UK Pension Policy Framework – In December, the Pension Policy Institute launched the PPI UK Pensions Framework, a tool designed to support long-term analysis of how changes in the UK State and private pension system are impacting the experiences that people have in later life. The first full analysis of the system is due to be published in Q4 2022 and annually thereafter. Read more

Value for money – We can expect the FCA and Pensions Regulator to continue their work on developing a holistic framework and related metrics to assess value for money in all defined contribution pension schemes (workplace and non-workplace) following the publication of their joint discussion paper last Autumn.

Will it happen? – Now that Clara has become the first DB superfund to be ‘assessed’ by the Pensions Regulator, the most anticipated event in 2022 is – will we see the first scheme transfer to a DB superfund?

Life eXpectancy (ok we have cheated a bit) – Trustees of DB schemes will need to continue to monitor the direct and indirect impact of Covid-19 on longevity and consider how this should be reflected in their scheme’s longevity assumptions.

DiversitY – The drive for greater diversity within the pensions industry, including on trustee boards, looks set to continue this year, with the Regulator’s final blog before Christmas highlighting the steps it is taking to promote greater diversity and inclusion across the industry.

Zoom meetings – Yes, with home working back, virtual meetings look set to be the norm again in 2022 (let’s hope we all finally learn how to use the mute button!).

 

Contacts

If you wish to discuss how any of these developments may impact your scheme or organisation please contact one of our specialists or speak to your usual Herbert Smith Freehills’ contact.

Samantha Brown
Samantha Brown
Head of Employment, Pensions and Incentives, London
+44 20 7466 2249

Rachel Pinto
Rachel Pinto
Partner, Pensions, London
+44 20 7466 2638

Michael Aherne
Michael Aherne
Partner, Pensions, London
+44 20 7466 7527

Tim Smith
Tim Smith
Professional Support Consultant, London
+44 20 7466 2542

 

 

 

 

 

 

 

 

 

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