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Inclusion of McCloud remedy in cost cap not unlawful - Fire Brigades Union & Ors, R (On the Application Of) v His Majesty's Treasury & Anor  EWHC 527 (Admin)
A challenge against the Treasury decision to include the McCloud remedy in the cost cap mechanism ("CCM") has failed.
The CCM is a mechanism intended to control changes in costs of public pension schemes and operates by modifying members’ benefits (and/or contributions to such schemes) should the measured cost of future pension provision deviate from a set target.
The Claimants contended that modification of the CCM to include within it the costs of implementing what has been called “the McCloud Remedy” is unlawful in that, amongst other things, it is: (i) based on a misconstruction of the legislation; (ii) in breach of legitimate expectation; and (iii) indirectly discriminatory. It was claimed that, as a result, scheme members have been denied increases in benefits and/or reductions in contributions that would otherwise have been implemented.
The High Court ruled that the approach taken by the Treasury was not unlawful and the application for judicial review was dismissed. It is understood that the relevant unions are seeking permission to appeal.
The Occupational Pension Schemes (Pension Protection Fund (Compensation) and Fraud Compensation Payments) (Amendment) Regulations 2023 (SI 2023/265)
Coming into force on 6th April 2023, these Regulations amend the Pension Protection Fund (Compensation) Regulations 2005 (SI 2005/670) so that compensation payments made to child dependants of PPF members up to the age of 23 do not cease if they take a break of more than 12 months between periods of full-time education. The Regulations also amend the Occupational Pension Schemes (Fraud Compensation Payments and Miscellaneous Amendments) Regulations 2005 (SI 2005/2184) to allow the Fraud Compensation Fund to make payments to trustees of pension schemes to cover the cost of making an application for compensation from the Fraud Compensation Fund.
Spring Budget 2023 – changes to pensions tax allowances
As part of the Spring Budget the government announced it is bringing forward policies that it claims will incentivise highly skilled individuals to remain in the labour market.
It was announced that in order to stop limits on the total tax-relieved pension savings an individual can make each year and over their lifetime from acting as a barrier to remaining in work it will:
- Remove the Lifetime Allowance charge with effect from 6 April 2023;
- Completely abolish the Lifetime Allowance it in a future Finance Bill; and
- Raise the Annual Allowance to £60,000 with effect on and from 6 April 2023.
The maximum Pension Commencement Lump Sum for those without protections will be retained at its current level of £268,275 and will be frozen thereafter.
In addition it was announced that to support those who have left the labour market to return and supplement their income, or build up their retirement savings, the government will increase the Money Purchase Annual Allowance from £4,000 to £10,000 and the minimum Tapered Annual Allowance from £4,000 to £10,000 from 6 April 2023. The adjusted income threshold for the Tapered Annual Allowance will also be increased from £240,000 to £260,000 from 6 April 2023.
To increase retention in the workforce of the public sector, open and closed public service pension schemes for a given workforce will be considered linked for the purposes of calculating Annual Allowance charges, thus allowing members to offset any negative real growth for Annual Allowance purposes in legacy public service pension schemes against the Annual Allowance. This will be legislated for through secondary legislation and will apply from April 2023 tax year.
The Pensions Dashboards Regulations 2022 came into force on 12 December 2022 and confirmed the staging timetable for connection of pension schemes to the dashboards. It has now been announced that the Pensions Dashboards Programme will be delayed.
The pensions minister has issued a statement confirming that additional time is required to deliver the complex technical solution to enable the connection of pension providers and schemes, in accordance with the connection deadlines set out in the Pensions Dashboards Regulations 2022 and the Financial Conduct Authority’s corresponding pensions dashboard rules for pension providers. This statement notes that more time is needed to deliver this complex build, and for the pensions industry to help facilitate the successful connection of a wide range of different IT systems to the dashboards digital architecture.
As a result the Pensions Dashboards Programme will be delayed and the new Chair of the Programme Board will develop a new plan for delivery.
It is expected that the DWP will legislate at the earliest opportunity to amend the timetable for the coming into force of the obligations and to provide clarity to pension schemes. A further update is expected before the summer recess.
TPR focus on climate and ESG non-compliance
TPR has confirmed that it is checking whether trustees of schemes with more than 100 members (unless exempt) have published a statement of investment principles (SIP) which details the policies controlling how a scheme invests, including consideration of financially material ESG and climate factors along with an implementation statement (IS) – which shows how the principles in the SIP have been implemented.
A review of a cross-section of SIP and IS statements is expected to follow in the summer and the outcome of this review will be shared with industry to highlight good practice.
TPR is warning trustees of schemes in scope that enforcement action may be taken against them if they fail to publish their SIP and/or implementation statement. TPR has the power to impose a fine of up to £50,000 (where the trustee is a corporate body).
PASA guidance on data readiness for buy-in and buyout
The guidance notes that data underpins every aspect of the management and delivery of pension benefits and that maintaining the highest standards of data quality applies not only for the purposes of ongoing administration and reporting to The Pensions Regulator but also enables smooth, efficient and preferential pricing terms when pursuing de-risking projects with insurers, such as buy-ins and buyouts.
The objective of ‘data-readiness’ is explained as ensuring that data is "complete, accurate and held in a consistent electronic format ready for proceeding with an insurer transaction".
Various aspects of data-readiness are explored including:
- The consequences of holding incomplete or poor quality data;
- What are the key data-items which must be held for all members;
- What actions can trustees take in advance of buy-in/out to demonstrate good governance; and
- Quick wins including on common data, compete and consistent data, marital screening and mortality screening.