Pensions Weekly Update – 1 February 2023

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Here is our weekly summary of key legal and regulatory developments relevant to occupational pension schemes that you might have missed, with links for further information.

A Department for Work and Pensions (DWP) consultation titled “Extending Opportunities for Collective Defined Contribution Pension Schemes” calls for views on proposals to broaden the Collective Defined Contribution (CDC) provision beyond single or connected employer schemes to accommodate multi-employer schemes (including Master Trust arrangements). The DWP also seeks views on the role of CDC in decumulation and how CDC decumulation-only arrangements may operate in practice. The consultation period will run until 27 March 2023.
The DWP has issued a call for evidence to support the development of large-scale automated consolidation solutions for deferred defined contribution (DC) small pots in schemes used for automatic enrolment. This follows directly from the work of the Small Pots Cross-Industry Co-Ordination Group (which we have covered in previous updates) and focuses on two consolidation models: pot follows member and default consolidator/s. The DWP has conducted research showing that its target member audience finds both models appealing, due to their simplicity and the fact that they do not require member action. The call for evidence asks for input on the maximum value of pension pots eligible for automatic consolidation, noting that a pot size of around £4,000 is estimated to be the break-even point for pension providers to make a profit. The call for evidence closes on 27 March 2023.
The DWP has confirmed that the automatic enrolment thresholds will be frozen at their current levels for 2023/2024. The earnings trigger remains at £10,000, the lower-limit qualifying earnings band remains at £6,240 and the higher-limit qualifying earnings band remains at £50,270. In the meantime, the automatic enrolment review of 2017 has been back in the news, with the government stating to the Work and Pensions Committee: “We remain committed to the implementation of the 2017 Review ambitions in the mid-2020s. We aim to bring forward legislation at a suitable opportunity and when parliamentary time allows.” This will be subject to a consultation. Although we are now approaching the mid-2020s, there is no set timetable for this reform.
The DWP has published its final outcome documents on broadening the investment opportunities of defined contribution pension schemes. The response document incorporates its outcome of consultation on disclose-and-explain policies in relation to illiquid assets and its conclusions on exempting specific performance-based fees from the regulatory charge cap. The DWP intends to bring new regulations into force from 6 April 2023, subject to parliamentary approval. The draft statutory guidance has also been updated.
The DWP, The Pensions Regulator and the Financial Conduct Authority have issued a joint consultation proposing a value-for-money framework. This would initially apply to the default funds of DC pension schemes used for automatic enrolment but is intended to have wider application across DC pension provision in due course. The consultation aims to shift the focus away from low costs to a more holistic and informed view of the value that pension schemes provide. The proposals encourage greater transparency and standardisation of reporting across the DC pension market, which should enable trustees and employers to make comparisons between schemes. The consultation closes on 27 March 2023.
The Department for Business, Energy & Industrial Strategy has published a consultation on a draft statutory code of practice, which will set out employers’ responsibilities when seeking to change employment terms and conditions if there is the prospect of dismissal and re-engagement. Some employers adopt this approach when varying employment contract terms concerning their employees’ pension arrangements. For further commentary on the consultation, please refer to this blog by David Whincup, a partner in our Labour & Employment Practice.