Pensions: Are employers ready for the challenge?

Changes to pensions always have implications for workers. The increasing volume and scope of recent and upcoming changes, however, have far-reaching implications for employers too, not only in terms of a better-informed workforce able to better plan for retirement and to challenge employers, but also in terms of compliance requirements and getting ready for sales and funding negotiations so as to avoid delays and potential negative impact. Employers are really being challenged to help deliver positive outcomes for workers and punished where not on top of requirements.

ESG and climate change factors

Increased scrutiny of businesses and reporting obligations for pension schemes under the Taskforce on Climate-related Financial Disclosures (TCFD) recommendations (June 2017) on pension investments will result in increased specific focus on ESG (environmental, social and governance) and climate change, and how companies are futureproofing in terms of change so that they survive and thrive. “Adapt or die” has never been a truer mantra. Pension scheme trustees and providers are looking for confidence on the future for businesses and improved investment returns. Not only that, but there will be impact on covenants monitored by business funders, potential investors, and pension trustees and providers. Businesses that delay understanding these obligations and taking steps, do so at their peril.

Stronger nudge for saver guidance

The DWP’s “Stronger Nudge” to pensions guidance, and through that protection against pension scams, has resulted in regulations, the Occupational and Personal Pension Schemes (Disclosure of Information) (Requirements to Refer Members to Guidance etc) (Amendment) Regulations 2022 (SI 2022/30), amending the Disclosure Regulations from 1 June 2022. The new requirements apply to members of occupational pension schemes with defined contribution (“DC”) benefits. Trustees and managers must facilitate access to pensions guidance, including offering to book appointments when these members wish to put benefits into payment or to transfer them.

Free guidance will be supplied via the Government service Pension Wise, to help members consider the options for accessing their DC pension, taking into account their overall financial situation when they retire.

Trustees will also have to keep records confirming whether members actually took or opted out of receiving guidance.

Pensions dashboards

The principal of the statutory Pensions Dashboard Programme stated that “Pensions dashboards will enable individuals to access their pensions information online, securely and all in one place, thereby supporting better planning for retirement and growing financial wellbeing”. Originally planned to go live in 2019, this is a massive data-gathering undertaking. The first data delivery date has been delayed until 2023. Pension providers and administrators are working on arrangements to provide the data required. They will need input from employers and for them to ultimately meet the costs.

Higher minimum age to take pension payments

Under the current Finance Bill, the age at which workers can put pensions into payment is to rise from 55 to 57 from April 2028. However, some schemes may allow members who meet qualifying conditions to retire at an earlier protected pension age without the need for consent. This can have implications for securing pension benefits with insurers, tax consequences and also in corporate transactions.

Auto-enrolment non-compliance penalties

Within five months of the start date for compliance with auto-enrolment duties, an employer must submit a declaration of compliance to the Pension Regulator (“tPR”) setting out prescribed details. Failure to do so can result in a compliance notice from tPR, then a fixed penalty notice for £400 followed by an escalating penalty at a daily rate from £50-£10,000. This will apply even for startup businesses, as in the recent decision by the First-tier Tribunal, Pelaw MOT Ltd v The Pensions Regulator [2022] UKFTT PEN-2021-0179 (GRC) (11 January 2022). Dismissing an appeal, it was found that the employer had no reasonable excuse for non-compliance with the compliance notice. While acknowledging that the penalty was more significant for a small, new business, the tribunal was not persuaded by the argument that the £400 penalty was unaffordable.

Defined benefit schemes

In good news for defined benefit schemes, the Pension Protection Fund has announced a one-off limit applying to the risk-based levy for 2022-23, which means that 82% of schemes can expect to pay a lower risk-based levy for that year.

Conclusion

Steps to promote a better-informed workforce should deliver benefits for workers and employers, but employers need to act now to become better informed, plan and execute change to maximise opportunities to recruit and retain workers, and optimise covenant impact and business funding opportunities and corporate deal outcomes.