7 days

7 Days is a weekly round up of developments in pensions, normally published on Monday afternoons. We collate this information from key industry sources, such as the DWP, HMRC and TPR.

In this 7 Days

• Automatic enrolment (“AE”) developments
• TPR reports on impact of LDI crisis on DB schemes
• PLSA updates retirement living standards
• DWP launches Small Pots Delivery Group
• Report on fiduciary duties, sustainability and climate change issued
• PPI publishes report on the gender pensions gap

Automatic enrolment (“AE”) developments

On 6 February 2024, the DWP published its annual review of the AE earnings trigger and qualifying earnings band for 2022/23, concluding that the existing earnings trigger threshold of £10,000 remains the correct level and will not change for 2024/25. As earnings grow, the DWP estimates that freezing the earnings trigger will bring private pension participation to 15.8 million.

The current lower and upper earnings bands will also be maintained at the same level for 2024/25, at £6,240 and £50,270 respectively. The Government intends to consult on implementing changes to AE, including removing the lower earnings band, “at the earliest opportunity”.

The DWP has also:

• responded to its call for evidence on alternative quality requirements for DB and hybrid schemes being used for AE and has decided to retain the existing alternative quality requirements
• published research on low earners and workplace pension saving, and engaging with pensions at timely moments, which support its ongoing policy development on AE. The DWP considers that wider pension scheme participation would go some way to addressing inequalities that remain in workplace pension saving, for example the lower number of female employees who are eligible to be auto enrolled.

TPR reports on impact of LDI crisis on DB schemes

On 7 February 2024, the WPC published a letter from TPR containing a report on the impact of the LDI crisis on DB  schemes in 2022. Setting out data on scheme funding, the report finds that the value of liabilities fell by a greater percentage than scheme assets over 2022 and so, overall, scheme funding levels improved over 2022. However, TPR notes that the “true impact of the events of 2022” will not be fully known for several years.

In response to the crisis, TPR focussed on three areas:

• building relationships with national and international regulators, including the FCA, Bank of England, the Central Bank of Ireland and the Commission de Surveillance du Secteur Financier in Luxembourg, in the monitoring of fund managers who provide LDI style investments
• improving operational processes within schemes so they can respond more effectively to market events
• improving data oversight and “market-facing expertise” to anticipate and manage risks on a system-wide level, including receiving regular flows of data from five UK fund managers and adding additional questions to the DB scheme return from 2024. The anticipated introduction of the new DB funding regime is also expected to result in TPR “receiving richer scheme valuation data”.

PLSA updates retirement living standards

The PLSA has updated its retirement living standards, reflecting “strong effects of rising prices in what’s needed to meet the cost of food and energy”. The standards are intended to help individuals picture what kind of lifestyle they could have in retirement, showing “minimum”, “moderate” and “comfortable” living standards. Costs have increased across all standards, with the minimum standard increasing from £12,800 to £14,400 for a single person and £19,900 to £22,400 for a couple.

DWP launches Small Pots Delivery Group

Following its response to the consultation on ending the proliferation of deferred small pots, the DWP has launched the Small Pots Delivery Group to support the introduction of multiple default consolidators. The group is chaired by the DWP and has representation from organisations including the FCA, TPR, PLSA and PASA. It is expected to provide proposals on various aspects, including the role and function of the proposed clearing house, in late 2024.

Report on fiduciary duties, sustainability and climate change issued

On 6 February 2024, the Financial Markets Law Committee published a report on trustees’ fiduciary duties and decision-making in the context of sustainability and climate change. The paper is intended to be used by trustees to help in their conversations with advisers. It sets out a general explanation of the legal position, including fiduciary duty and decision-making responsibility, and discusses how trustees can “better succeed in taking decisions in keeping with their fiduciary duties”.

PPI publishes report on the gender pensions gap

On 7 February 2024, the PPI published a report on the gender pensions gap, which is the measure of inequality between men and women’s pension outcomes. The report looks at factors that contribute to the inequality and is intended to support effective policy-making decisions to narrow the gap.

Its conclusions include that while women are more likely to participate in a DB scheme, which increases average women’s pension wealth by around 10%, women’s pension wealth is reduced compared to men’s by differing work patterns (33%) and the gender pay gap (16%).