Pensions Insight: 22 to 30 May 2023

In this Insight we provide an update on the Retained EU Law (Revocation and Reform) Bill and the Finance (No. 2) Bill. We also report on the ClientEarth climate change court case, possible plans of the Government to expand the Pension Protection Fund and the new Chief Executive of the Pensions Regulator’s speech on delivering value for savers. Our final item provides the latest on the McCloud remedy.

Retained EU Law (Revocation and Reform) Bill – progress update

In our most recent Insights, we provided updates on the Retained EU Law (Revocation and Reform) Bill which is currently making its way through Parliament. Since our last update, the Bill received its third reading in the House of Lords and, subsequently, the Lords’ suggested amendments have been considered by the House of Commons (the Government disagreeing with the majority of the Lords’ changes). Of note is the following:

• New provision (clause 17) – updates from the Government on progress: the Lords (with Government support) have inserted a new provision under which the Secretary of State will update the Government’s retained EU law dashboard and provide an update report on the revocation and reform of retained EU law. The dashboard will be updated quarterly.
• Clause 1 sunset provision: although the retained EU law listed in Schedule 1 to the Bill will still be revoked at the end of 2023, the Lords’ parliamentary oversight provision has been removed by the House of Commons.
• Clause 2 sunset provision (repeal of section 4, European Union (Withdrawal) Act 2018): this sunset provision will automatically repeal retained EU law derived from directly effective EU treaties and EU directives at the end of 2023. The Government has now removed the Lords’ addition which would have required the Government to identify the laws being revoked and give Parliament the power to decide whether each should be repealed.
• Statutory instrument sifting provision: the Government has removed the Lords’ addition which would have made all statutory instruments brought in under certain provisions of the Bill subject to ‘sifting’ and additional scrutiny requirements. Sifting is the parliamentary process under which statutory instruments that are not subject to approval by Parliament (but brought in subject to a power of annulment) are changed so that they are made subject to parliamentary approval.

The Bill is scheduled to return to the Lords on 6 June 2023 when the amendments made in the Commons will be considered – the changes will be passed between both Houses of Parliament until all amendments have been settled.

Updated Finance (No. 2) Bill 2023 published following committee stage

A revised version of the Finance (No. 2) Bill was published on 24 May 2023 following the committee stage in the House of Commons. This is the Bill that will give legal effect to the March 2023 Budget pension changes with the exception of the abolition of the lifetime allowance (see our Insight).

The revised version reflects the amendments made in the House of Commons committee stage that took place on 18 and 19 April 2023 (see our Insight for coverage of the amendments). The Bill will now proceed to the Commons Report stage although a date for this has not yet been set.

ClientEarth climate change case – judge to reconsider dismissal of case

In our last Insight, we reported on the High Court’s dismissal of ClientEarth’s derivative climate change claim against the board of directors of Shell plc – ClientEarth has reported that it has been granted an oral hearing for the judge to reconsider their decision.

Possible expansion of the PPF to cover challenged smaller DB pension schemes

There have been press reports that the Government is considering whether to expand the remit of the Pension Protection Fund (PPF) to cover smaller defined benefit pension schemes including those that have stressed sponsoring employers. Part of the reason for this appears to be to allow investment in assets that such schemes may not otherwise invest in.

The reports follow the PPF’s response to the Work and Pensions Select Committee’s inquiry on the future of defined benefit (DB) schemes which noted the benefits of consolidation particularly for smaller and smaller (approximately 1,800 schemes have fewer than 100 members and total of c.£15bn in assets) stressed schemes – the benefits would include allowing investments in a wider range of assets akin to how the PPF is able to approach investment. The PPF’s response noted it is “ready to explore, and if required to actively support, the development of any potential solutions in this area”.

Expanding the PPF in this way would represent a significant change to DB pensions and could potentially have an impact not just on the schemes directly within scope but also other DB pension schemes in terms of possible ramifications on matters such as the PPF levy – the PPF is funded through a combination of the levy and the assets received from schemes that transfer to it. Legislative changes would be needed to change the PPF’s role in this way.

Chief Executive of the Regulator delivers speech on value for UK savers

On 23 May 2023 at the Professional Pensions Live event in London, the new Chief Executive of the Pensions Regulator, Nausicaa Delfas, delivered a speech outlining the Regulator’s priorities for ensuring value for UK savers and issuing a ‘call for action’ asking those in the industry to ‘unite to meet the pensions challenge’.

Joint VfM framework

Reference was made to the new joint value for money (VfM) framework (see our insight) and stressed the need for the industry to embrace innovation claiming that there was currently ‘a lack of innovation and fluidity in the market’ and that this was facilitating significant risks.

Consolidation of poorly performing DC schemes

The Chief Executive warned that the Regulator will challenge trustees of poorly performing defined contribution (DC) schemes – the Regulator’s message to trustees is clear, “wind up and put members into a better run scheme”, if not, the Regulator will consider using its powers.

High standards and push to professional trusteeship

The speech also highlighted the high standards expected of trustees and that the Regulator believes that every trustee body should include someone who meets professional standards and is exploring the possibility of a trustee registration system to support this.

McCloud remedy update

HMRC launches consultation for Public Service Pension Schemes (Rectification of Unlawful Discrimination) (Tax) (No.2) Regulations 2023

A draft of the Public Service Pension Schemes (Rectification of Unlawful Discrimination) (Tax) (No. 2) Regulations 2023 was published for consultation by HMRC on 22 May 2023. These regulations make further amendments to tax legislation to change the tax treatment of individuals impacted by the remedy in the McCloud Case. They follow the Public Service Pension Schemes (Rectification of Unlawful Discrimination) (Tax) Regulations 2023 that came into force on 6 February 2023 to address tax ‘anomalies’ in the McCloud remedy because of its retrospective nature (see our Insight). The second set of regulations provide administrators with relevant information on the tax changes and members with information on relevant approaches to annual allowance, lifetime allowance or unauthorised payments tax charges for the tax years covering 2019 to 2023. The consultation will close on 19 June 2023 at 23:59.

HMRC publishes McCloud remedy newsletter

HMRC’s 23 May 2023 newsletter covering progress made on the implementation of the McCloud remedy confirms that HMRC will publish public sector remedy guidance in autumn 2023. Those that wish to be part of the preceding guidance testing should email publicservicepensionsremedy@hmrc.gov.uk and put ‘Guidance testing’ in the subject line.