Pensions Weekly Update - 28 February 2024

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Here is our weekly summary of key legal and regulatory developments relevant to occupational pension schemes that you might have missed, with links for further information.

The government has published a consultation on options for defined benefit (DB) pension schemes. This follows on from its response to a call for evidence published in November 2023. The consultation considers two key topics: the use and extraction of surplus, and the establishment of a public consolidator for DB schemes that are unattractive to a commercial consolidator. One of the objectives of the consultation is to increase pension fund investment in productive finance. The consultation examines several possibilities. In relation to surplus, the consultation recognises that some trustees may be prevented by their scheme rules from paying out surplus, and asks whether there should be a statutory override allowing trustees to distribute surplus, or to give trustees power to amend scheme rules. If one-off payments of surplus to members are permitted (rather than benefit augmentation), should there be a change to the tax rules so that they do not constitute unauthorised payments? Should there be a 100% Pension Protection Fund (PPF) underpin, and how would it work, in order to safeguard benefits? In relation to the PPF acting as a public consolidator, the consultation explores how eligibility for the consolidator would work, whether transferred funds should be segregated or pooled, if there should be standardised benefit structures, and how the consolidator could provide security for members’ benefits without having an unfair advantage over commercial consolidators. Consultation closes at 11:59 p.m. on 19 April 2024.
The Finance Act 2024 received royal assent on 22 February 2024. This is the legislation that abolishes the lifetime allowance charge. HMRC’s newsletter 156 confirms that, in relation to the abolition of the lifetime allowance, any required amendments to primary legislation will be made through regulations. HMRC says that it will publish a further lifetime allowance newsletter in the next couple of weeks (which means by 8 March 2024). Newsletter 156 also includes information about the tax treatment of interest payments arising as a result of compensation paid under the Public Service Pensions and Judicial Offices Act 2022 (which addresses unlawful discrimination in public service pension schemes).
The Pensions Regulator (TPR) announced organisational changes from April 2024 to better support and engage with the industry, in view of the shift towards fewer, larger pension schemes. Chair of TPR, Sarah Smart, said “The market should expect us to engage with it differently from now on. Our new structure means we will be swifter to address compliance failures and market-wide risks while being more dynamic in our industry engagement and bringing innovation to the fore.”
TPR has published a blog encouraging trustees to take account of the work of the Taskforce on Social Factors, the recommendations of the UK Transition Plan Taskforce and in particular to take account of the recommendations of the Taskforce on Nature-related Financial Disclosures when making investment decisions. The blog also notes that the Department for Work and Pensions will be carrying out a review of the regulations that implemented the recommendations of the Taskforce on Climate-related Financial Disclosures.
The Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) Order 2024 will come into force on 11 March 2024. A pensions dashboards provider must be authorised under the Financial Services and Markets Act 2000 (or must be exempt) in order to operate a dashboard that connects to the digital architecture of the Money and Pensions Service.
In our weekly update of 31 January 2024, we noted that the draft Occupational Pension Schemes (Funding and Investment Strategy and Amendment) Regulations 2024 had been laid before Parliament. A further draft of those regulations has now been published on legislation.gov.uk, which replaces the draft published in January 2024. The key change is to clarify that certain amendments made to the Occupational Pension Schemes (Scheme Funding) Regulations 2005 will only apply in respect of valuations on or after 22 September 2024.