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.  

The Pensions Dashboards Regulations 2022, as amended by the Pensions Dashboards (Amendment) Regulations 2023, introduced a single “connection deadline” of 31 October 2026 for pension schemes to connect to the dashboard ecosystem. The Department for Work and Pensions (DWP) has now published a revised staged timetable for connection in guidance with the first connections date in April 2025.

On 29 April, the Pension Dashboard Programme published its April 2024 progress report.  It has also published an updated version of the data standards. These standards, covering the data requirements for finding and viewing pensions information, are mandatory for pension providers and schemes to connect to the ecosystem. They are there to help providers and schemes, and third-party organisations connecting on their behalf, to build a common set of message handling tools to receive and reply with data.

And on 4 September, the programme published an updated version of the technical standards.

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 scheme 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 an individual's 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.

The DWP has said that they intend to progress with the consolidator model. The working groups output will inform what is required by the Pension Scheme Bill. There has also been a mini consultation on whether to allow member only consolidation (where firms would only have to take pots where they already have a pot for a member).

Pensions (Extension of Automatic Enrolment) Act 2023

Pensions (Extension of Automatic Enrolment) (no 2) Bill completed its journey through Parliament and was granted Royal Assent.

The Pensions (Extension of Automatic Enrolment) Act 2023 creates powers to reduce the age for being automatically enrolled (to age 18) and enable pension saving from the first pound earned.

So, what’s next? The Department for Work and Pensions (DWP) will launch a consultation on implementing the new measures. Watch this space.

Sustainability Disclosure requirements

This is the long-awaited policy statement to the FCA’s sustainability disclosure requirements. This started with a discussion paper over two years ago, a consultation paper, ferocious industry feedback and two subsequent delays to this paper. This is the FCA’s attempt to curb the ongoing threat of greenwashing and introduce universal formality to how sustainable investment strategies are named and marketed.

The main headlines from the policy statement include:

• Four voluntary investment labels to use with sustainable investment strategies: Sustainability Focus/Sustainability Improvers/Sustainability Impact and Sustainability Mixed Goals.
• New naming and marketing rules which apply to both labelled and non-labelled investment solutions.
• A new disclosure regime for labelled solutions. Non-labelled solutions are also in-scope for the disclosure requirements if a solution is named or marketed on sustainability-related credentials. Non-labelled solutions cannot use ‘sustainable’, ‘sustainability’ or ‘impact’ in the fund name.
• A new anti-greenwashing rule applying to all regulated firms. This applies a sustainability lens to the existing FCA requirement that all communications should be clear, fair and not misleading.
• Proposals for portfolio management products and services (i.e. DFM and MPS) are to be tackled in a separate consultation paper expected in early 2024. This should detail how the labels and accompanying disclosure requirements can and should be applied to portfolios.
• There are no specific sustainability-based rules for advisers. The FCA has instead announced that it will be establishing an independent working group to help support advisers on sustainability-related matters.

Firms must meet the naming and marketing rules from 2 December 2024. However, on 9 September 2024, to further help firms to comply with the SDR rules, FCA announced that it is offering limited temporary flexibility to the naming and marketing rules in exceptional circumstances. 

PS23/16 Sustainability Disclosure Requirements (SDR) and investment labels

FCA’s Outcome on Thematic Review of Retirement Income Advice

The Financial Conduct Authority (FCA) has written to the Chief Executives of financial advice firms asking them to review their processes when providing retirement income advice after the FCA’s Thematic Review of Retirement Income Advice (TR24/1).

The aim of the review: 

• To gain detailed insights into how the retirement income advice market is functioning.
• Understand whether firms’ advice models consider the specific needs of consumers in decumulation.
• Consider whether consumers are being provided with suitable retirement income advice when accessing benefits built up through pension savings, and take appropriate action to tackle any harms identified.
• Inform FCA’s future areas of focus.

They have also published a Retirement Income Advice Assessment Tool (RIAAT) with instructions and an article on Cashflow modelling (CFM), in connection with the outcome of review.

FCA consultation (CP24/16): The Value for Money Framework ​

​The FCA are consulting on detailed rules and guidance for a new VFM framework for savers invested in default arrangements of workplace DC pension schemes.​ The proposals will:

• Require consistent measurement and public disclosure of investment performance, costs, and service quality by firms for all such arrangements against metrics that will allow VFM to be assessed effectively.​
• Enable those overseeing and challenging an arrangement’s value – IGCs and GAA for contract-based schemes – to assess performance against other arrangements on a consistent and objective basis.​
• Require public disclosure of assessment outcomes including a 'red, amber, green' (RAG) VFM rating for each arrangement.​
• Require firms to take specified actions where an arrangement has been assessed as not VFM (red or amber).​

[GAA means Governance Advisory Arrangement]

​The consultation notes that the VFM metrics for Longstanding workplace arrangements should be compared with that of active schemes when considering RAG ratings.​

​The consultation closed on 17 October.

​The FCA has not set an implementation timeline. They will do this based on the consultation feedback, and in consultation with the DWP, who will use this information to inform the Pensions Bill (required to set comparable rules for Trust based schemes).​

CP24/16: The Value for Money Framework

Inheritance Tax on pensions: liability, reporting and payment

In the Autumn Budget, the government announced that unused pension funds and death benefits payable from a pension will form part of a person’s estate for Inheritance Tax (IHT) purposes from 6 April 2027. As part of this change, the government proposes that pension scheme administrators will become liable for reporting and paying any IHT due on unused pension funds and death benefits.

A technical consultation has been launched, seeking views on the processes and information reporting requirements required to implement this change.

The consultation focuses on 2 main areas:

Reporting

Pension Scheme Administrators (PSAs): PSAs will be responsible for reporting the value of unused pension funds and death benefits to HM Revenue & Customs (HMRC).

Information Exchange: There will be a structured process for exchanging information between PSAs, personal representatives (PRs) of the deceased’s estate, beneficiaries, and HMRC.

Payment

PSAs’ Responsibility: PSAs will also be liable for paying any IHT due on these pension assets.

Tax Deduction at Source: For beneficiaries, the IHT will be deducted at source, meaning they will receive the inherited pension with the tax already taken off.

Annex B of the consultation also summarises which death benefits will be included.

The consultation closes on 22 January 2025.

Inheritance tax on pension death benefits from April 2027

Reducing tax-free overseas transfers of tax relieved UK pensions

In a bid to prevent UK residents from benefiting from double tax-free allowances, in the Autumn Budget, the Government announced changes to the tax treatment of overseas pension transfers. They have also published draft legislation.

The proposals

• Overseas Transfer Charge (OTC): The government removed the exclusion from the OTC for transfers to Qualifying Recognised Overseas Pension Schemes (QROPS) established in the European Economic Area (EEA) and Gibraltar. This means that such transfers will now be subject to a 25% tax charge unless specific conditions are met.
• Alignment of Conditions: From 6 April 2025, the conditions for Overseas Pension Schemes (OPS) and Recognised Overseas Pension Schemes (ROPS) established in the EEA will be aligned with those established in the rest of the world. This includes requirements for regulation by a local pension regulator and the existence of a double taxation agreement with the UK.
• Scheme Administrators: Starting 6 April 2026, all scheme administrators of registered pension schemes must be UK residents.