The Autumn Statement was presented by the Chancellor of the Exchequer on 22 November 2023. It contained a number of pensions-related announcements, including the following:
- The government will legislate in the Finance Bill to remove the lifetime allowance (LTA). The legislation will set out the taxation of lump sums and lump sum death benefits, the application of LTA and lump sum protections, the tax treatment for overseas pensions, transitional arrangements and reporting requirements. The changes will take effect from 6 April 2024.
- To deal with the issue of small pension pots, the government is calling for evidence on a lifetime provider model which would allow individuals to have contributions paid into their existing pension scheme when they change employer and on a potential expanded role for collective DC (CDC) schemes in future. The government will also introduce a multiple default consolidator model for eligible small pension pots.
- The government will require DC occupational pension schemes to offer decumulation services and products at an appropriate quality and price when members access their pension savings, either themselves or through a partnership arrangement.
- To increase opportunities for DB schemes to invest in productive finance while fully protecting member benefits, the government will consult this winter on how the Pension Protection Fund (PPF) can act as a consolidator for schemes that are unattractive to commercial providers. The government will also consult this winter on appropriate changes to the surplus repayment regime and on enabling 100% PPF coverage for schemes that opt to pay a higher levy. In addition, the tax charge on an authorised surplus payment will be reduced from 35% to 25% from 6 April 2024.
- The Pensions Regulator (TPR) will introduce a register of trustees to aid engagement with trustees.
- The Financial Conduct Authority will consult on new value for money (VFM) rules for contract-based schemes in spring 2024, working closely with the government and TPR for consistency with the development of legislative requirements for DC trust-based schemes. In the meantime, actions from TPR will strengthen their existing supervisory approach.
- The government will commit £250 million to two successful bidders in the Long-Term Investment for Technology and Science (LIFTS) initiative, subject to final agreement. It will also establish a new Growth Fund within the British Business Bank to give pension schemes access to opportunities in the UK’s most promising businesses.
Dealing with small pension pots
Lifetime provider model
The government is calling for evidence on whether a lifetime provider model would improve outcomes for savers, how it can grow the CDC market, and whether there are synergies between the two. Under the lifetime provider model, rather than employers selecting the scheme to which they contribute on behalf of employees, they would contribute to the employee’s chosen scheme. A form of central architecture would allow employers to identify which scheme the employee is using as their lifetime provider, rather than the employee being required to inform their employer of their lifetime provider.
The government anticipates that exemptions will be required in circumstances where an employer provides a better offering than the lifetime provider e.g. DB schemes and some DC or CDC schemes that have more generous features than the lifetime provider.
The call for evidence also covers the potential benefits of encouraging or requiring employers to automatically enrol their employees into a scheme offering a CDC option and whether there is merit in considering a potential CDC lifetime provider model. The call for evidence closes on 24 January 2024.
Default consolidation of existing small pots
In addition, the call for evidence includes a response to the government’s consultation on proposals for the introduction of a default consolidator solution to deal with existing small DC pots. The response confirms that the default consolidator model will be introduced in broadly the same form as set out in the consultation. Schemes will be required to transfer DC pots of £1,000 or less which have been deferred for at least 12 months into one of multiple authorised consolidator schemes. A central clearing house will notify the scheme of the consolidator to which the transfer should be made. An industry delivery group will be created to work through the issues that implementing the default consolidator model presents, with the intention that this group will provide proposals to the government for consideration in late 2024.
DC decumulation services
The government has responded to its consultation on a proposed framework for supporting DC members in their decumulation choices. The response confirms that trustees of DC schemes will be required to offer a decumulation solution, or set of solutions, which are suitable for their members in general and consistent with the pensions freedoms. When they come to access their benefits, members will have the option to either choose the (or one of the) default solutions offered by the scheme or to access their benefits in one of the other manners permitted under the pension freedoms by transferring to another scheme. Trustees will either need to offer their chosen solution(s) in-house, or partner with another supplier who can provide them.
The government will legislate at the earliest opportunity to impose these duties. In the meantime, it will encourage schemes to voluntarily develop a decumulation offer or enhance their current services. To support this, TPR will publish interim guidance to show how the objectives of these policies can be met without legislation.
DB investment in productive finance
The government has responded to its call for evidence on how investment by DB schemes in productive finance could be increased while maintaining benefit security for members. The response concludes that the government will:
- Introduce measures to make surplus payments easier while a scheme is ongoing.
- Establish a public sector consolidator run by the PPF by 2026.
The government will consult this winter on the detail of these measures, including design, eligibility, safeguards for the consolidator and the viability of introducing an option for schemes to pay a higher PPF levy in return for 100% benefit protection by the PPF.
Trustee skills and capability
The government has responded to its call for evidence on how trustee skills and capability could be improved and barriers to effective decision-making removed. The response concludes that while trustees would benefit from more support, guidance and training, one of the key barriers to achieving better long-term outcomes for members is a damaging and continual focus on cost and minimising all risks. While the government believes that the new VFM framework, once implemented, will help to shift this focus, there are several areas where it will take immediate action including:
- Working with TPR to put in place a trustee register – this will enable TPR to collect information to assess whether knowledge and understanding requirements are being met and can be used to target those trustees that require additional support.
- Encouraging accreditation of professional trustees – TPR’s General Code will set accreditation for professional trustees as an expectation.
- Updates to TPR’s investment guidance – TPR is currently reviewing its Trustee Toolkit to align with its codes of practice and guidance, and is also expected to publish additional guidance on investment decisions and alternative assets by the end of 2023.
- Engaging with employers selecting a pension scheme – the government will work with TPR to provide further information for employers on what factors should be assessed when they are selecting a pension scheme. This will focus on the key message that when selecting a scheme, employers should consider the best value and long-term outcomes for members, rather than solely focusing on costs and charges.
How we can help
In addition to keeping trustees and employers updated on implementation of the announcements, Mayer Brown can advise on the implications of the announcements for them and their pension schemes. We can also provide training on the announcements.