Horizon scanning

FCA/DWP - Pensions Dashboard 

The Pensions Act gives the power to the Secretary of State, MAPS or a party appointed by the Secretary of State to create the regulations for Dashboard.  

Following on from her announcement in March 2023, Laura Trott, the Parliamentary under Secretary of State for Pensions, issued a further written ministerial statement providing an update on the timeline for connecting to pensions dashboards. The Government has published amending regulations with a new approach to delivery that allows the government to work more collaboratively with the pensions industry - setting out the staging timeline in guidance to be consulted on with industry later this year.   

The Pensions Minister stated “In recognition that the requirement to connect to the digital architecture should remain mandatory, we will include a connection deadline in legislation of 31 October 2026. This is not the Dashboards Available Point – the point at which dashboards will be accessible to the public – which could be earlier than this.”

HMRC - Changes to lifetime allowance – 6 April 2024 

On 18 July, the Government published draft legislation for consultation on the changes coming in from 6 April 2024 with regards to the abolition of the lifetime allowance.

To summarise the main proposed changes-

• The lifetime allowance will be abolished. Tax-free lump sums (including the tax-free elements of lump sums) and tax-free lump sum death benefits will instead be tested against a lifetime limit, set at £1,073,100 (an individual’s ‘lump sum and death benefit allowance’). Any lump sums paid above this level will be taxed at the individual’s or beneficiaries’ marginal rate of income tax.
• Within that overall limit, there will be a tax-free limit for pension commencement lump sums and the tax-free element of an uncrystallised funds pension lump sum, trivial commutation lump sums and winding-up lump sums. This tax-free limit will be known as the ‘lump sum allowance’. This will be set at £268,275 (which is equivalent to 25% of £1,073,100) or any higher protected amount.

After publication of the consultation, it has emerged that the intention is for beneficiary drawdown and beneficiary annuities where the member dies before age 75 will be subject to income tax.

Consultation around the removal of the lifetime allowance

HMRC - Increasing the normal minimum pension age  

The normal minimum pension age is increasing for most individuals on 6 April 2028 to age 57. This change affects people born after 6 April 1971. 

The government originally announced their intention to increase the normal minimum pension age from age 55 to 57 from April 2028 back in July 2014. The legislation required to make the change was included in the Finance Act 2022. 
Some individuals have a protected pension age in their pension scheme, which is the right to take benefits before age 57. Individuals don’t need to register this right with HMRC. 

Between 2026 and 2028, the State Pension age is changing to 67. Originally it was proposed the minimum pension age would be linked to State Pension ages, so it was always 10 years earlier, but this was not included in the Finance Act 2022.

Increase in normal minimum pension age in 2028

FCA - A new Consumer Duty (PS22/9) 

The FCA has been considering since 2018 how to take forward feedback from stakeholders that the level of harm in consumer markets was too high and that a change in regulatory approach was necessary. Its 2019 Feedback Statement concluded that a review of its Principles was necessary, as well as consideration of a private right of action for consumers to obtain recourse.  The result of that review was the publication of CP21/13 which proposed a new overarching “Consumer Duty” and looks to measure firms by the customer outcomes achieved. The proposal set a new and higher expectation of the standard of conduct expected from firms dealing with retail customers and will apply across all retail financial services, including those that are several steps removed from the end consumer. 

The Consumer Duty is comprised of a package of measures:

• new “Consumer Principle” which serves as a holistic standard of conduct and sits above the existing “treating customers fairly” and other Principles 
• a set of “Cross-cutting Rules” that flesh out the new Consumer Principle and clarify the behaviours required 
• the “Four Outcomes”, being specific rules and guidance aligned to Communications, Products & services, Customer Service, and Price & Value.

The package of measures raise the bar in terms of the conduct expected from firms, in particular by giving the Principles greater bite and increasing the requirements on firms to evidence good outcomes and proactively take account of real-world customer behaviours before harm occurs. 

In early December 2021, the FCA published CP21/36, responding to feedback received on CP21/13 and proposing further details for consultation. They dropped the idea of introducing a Private Right of Action, which was a key area of contention for the industry. In July 2022, final rules were published, alongside confirmation that the implementation period would be extended to one year for new products and two years for legacy products. This was widely welcomed by the industry, which had lobbied for such an extension.

The new Consumer Duty: Guidance and Support 

FCA - Improving outcomes in non-workplace pensions PS22/15) 

From 1 December 2023 the FCA require firms to offer new non-advised consumers buying a non-workplace pension a ready-made, standardised investment solution (‘default option’) alongside other investments. This must be based on the needs of the product’s target market and be prominently presented to customers. There is no requirement to auto-invest customers in the default, they must choose to invest in it. 

The FCA will also require firms to send a notification (‘cash warning’) to all existing and new non-workplace consumers, advised and non-advised, with potentially inappropriate levels of cash (greater than 25% of total non-workplace consumers assets and monetary threshold of £1,000) for a prolonged period of 6 months or longer, to warn them that their pension savings are at risk of being eroded by inflation. The warnings must be provided within 3 months of the conditions being met and annually thereafter until 5 years before normal minimum pension age (or protected pension age if lower).

Improving outcomes in non-workplace pensions - PS22/15

Consultation on a policy framework to support individuals use their pension savings in decumulation

This is a follow up consultation to the DWP’s earlier Call for Evidence titled ‘Helping savers understand their choices’.  The DWP want to place a duty on trustees to offer decumulation services which are suitable for their members and consistent with the pension freedoms.

• They want schemes to provide a solution or solutions that deliver what members want to achieve from their later life income.
• They want schemes to guide their members towards products and services based on their response to simple questions.
• They want to understand the practical considerations involved with partnering arrangements to provide these solutions.
• They want to establish whether a centralised scheme is needed to deliver decumulation options where trustees don’t offer them directly.
• They want to know what the government can do to encourage a decumulation Collective Defined Contribution (CDC) market to emerge.

Helping savers understand their pension choices

Ending the proliferation of small pots

This is the government response to the call for evidence “addressing the challenge of deferred small pots”.  It proposes a multiple consolidator model as a solution utilising either a clearing house or central registry to match pots and communicate with members. There would be a new authorisation regime to be a consolidator. It proposes this rather than the other option being considered, such as pension follows member.

It also signals a further consultation on “stapling” where the members active pension pot is assigned as their pot for life unless they actively choose an alternative provider as a potential next step to reduce the “flow” of small pots.

Pension trustee skills, capability and culture

DWP and HMT have issued a call for evidence to deepen the evidence base around trustee capability and other barriers to trustees doing their job in a way which is effective and results in the best outcomes for savers.

It is focused on three areas:

• Trustee skills and capability.
• The role of advice.
• Other barriers to trustee effectiveness.

They are particularly interested in:

• Whether trustees have the right knowledge and skills to consider investment in the full breadth of investment opportunities.
• Trustee capability for Defined Contribution (DC), Defined Benefit (DB), and Collective Defined Contribution (CDC) schemes, as well as hybrid schemes.