In this article, we have picked out 5 key things for those responsible for pensions within their organisation to be aware of.
1. Extending the Pensions Regulator (TPR) notifiable event regime
We covered this in detail in our article last year and it was then expected that the expanded requirements for notifiable events would come into force in April 2022. This implementation date was delayed, however it is now anticipated that the new regime will come into force in 2023. The impact of the new regulations will be that employers in defined benefit pension schemes will be required to inform TPR when a ‘decision in principle’ is made in relation to certain corporate transactions, including sale of a material portion of the business or assets, granting security over assets above a certain value and some corporate restructuring. We will provide further information on the proposed implementation date once available.
2. Possible extension of auto-enrolment
The Pensions (Extension of Automatic Enrolment) Bill was introduced as a private members bill in 2022, and is due to have a second reading in the House of Commons in the first quarter of 2023. The bill proposes to reduce the lower age threshold for auto enrolment from 22 to 18 and further remove the lower end of the qualifying earnings band from the calculation of contributions. If passed, this legislation will have cost implications for employers as they will need to auto enrol more employees. However given the cost of living crisis it may be the case that employers find younger and or lower paid workers opting out, with a preference for having additional money in their pocket now, rather than saving for their future.
3. The Pensions Trust (TPT) Benefit Review
As many of you will be aware, employers participating in TPT pension schemes including SHPS are potentially impacted by an ongoing benefit review of the way these schemes have been administered. In particular, this concerns historic changes that have been made to TPT governing documents and whether these were valid, which could have a potential impact on benefits and increase liabilities for affected employers. TPT is asking the High Court to interpret the governing documents, and it is intended the case will be lodged with the court in the second quarter of 2023. Unfortunately employers won’t have an outcome in 2023 but they do have the ability to comment on the draft court papers TPT intend to lodge, provided they do so by the end of February 2023. Along with Isio, we have brought together a group of affected employers whom we are advising on the various stages of the review. Please get in touch with Kirsty Thompson for further information.
4. Pensions dashboard
2023 is the year that pensions go digital with pension schemes being required to connect with a pensions dashboard on a staged basis. Pension dashboards are digital services which will enable individuals to see clear information about their pensions savings with the intention of increasing engagement with pensions and making decisions on an informed basis. This will be of particular use where someone has had multiple periods of employment with different employers and different pension arrangements. Starting in 2023 and ending in 2025, all pension schemes are required to register and connect to a dashboard. Whilst there is nothing active for employers to do, the introduction of a dashboard is likely to mean increased employee engagement with pensions, particularly from those who are a way off retirement. In turn this may mean employees want to increase their pension contributions which could also result in an increase in employer contributions, where these are made on a matched basis.
5. Proposals to exit the LGPS
In the last few months we have been approached by a number of clients who had received actuarial advice that their LGPS liabilities were much lower than before as a result of the financial markets, and in some cases it was estimated they were now in surplus. As a result we have been busy advising clients on contractual restrictions which may impact on proposals to close the LGPS to future accrual of benefits, and how these can be overcome. We anticipate the trend will continue and in some cases clients may undertake speculative consultation on a proposal to close e.g. a proposal to close when the timing of markets allows for the lowest possible exit liability. We have also been advising clients about the recoverability of exit credits, since it is a discretion on the Fund as to whether it will pay an exit credit or not where an employer is in surplus when they exit. We have extensive experience on advising on the closure of the LGPS and other defined benefit schemes, for further information please contact Jane Bowen.