In the latest edition of our Pensions Bulletin, we give a snapshot of some recent pensions developments from a legal perspective. These include:
Pension changes in the Budget
The Chancellor Rachel Reeves delivered her first Budget on 30 October, which included the following:
IHT
The Government announced, quite unexpectedly, that from 6 April 2027 most unused pension funds and death benefits within registered pension schemes (which will impact both DC schemes and also lump sums payable from DB schemes) will be included within the value of a person’s estate for Inheritance Tax purposes. In addition, pension scheme administrators will become liable for reporting and paying any Inheritance Tax due on the pension elements. The Government has also published a consultation on the processes required to implement these changes.
The consultation document says 'all life policy products purchased with pension funds or alongside them as part of a pension package offered by an employer are not in scope of the changes [in this consultation document].' This suggests that insured death benefits will be out of scope, but this remains to be clarified.
It is not anticipated that payments out of excepted group life policies will be affected by these proposals, but trustees, scheme administrators and decision-makers in relation to discretionary trusts (who determine the recipient of lump sum death benefits) will need to consider with their advisers whether there are implications for them in due course.
Transfers to overseas arrangements
The previous exemption from the overseas transfers charge for transfers to overseas arrangements in the EEA or Gibraltar was removed with effect from 30 October 2024.
The Pensions Regulator's Defined Benefit Scheme funding code comes into force
TPR's Defined Benefit funding code (which sets out TPR's guidance and expectations on how schemes should comply with the funding and investment strategy requirements) came into force with effect on and from 12 November and applies to schemes with actuarial valuation dates on and after 22 September. For further information and background on the new code, see here and from TPR see here, or speak to your usual Taylor Wessing pensions contact.
Pensions Investment Review Interim Report and Mansion House proposals
The Interim Report of the Pensions Investment Review was published on the same day Rachel Reeves delivered her first Mansion House Chancellor's speech promoting a focus on value and the underlying theme of creating larger pension funds that can invest in UK businesses and infrastructure broadly by addressing these two areas:
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introducing legal requirements for there to be a minimum size and maximum number of DC pension scheme default funds
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requiring LGPS administering authorities to consolidate so that that there are fewer, larger capital pools.
Two consultations have been published at the same time as the interim report which provides more detail on these areas:
The 'Local Government Pension Scheme (England and Wales) : Fit for the future' relates to the LGPS and its structure (especially in the pooling of assets), investment (eg investing in the localities and regions in the UK) and governance.
'Pensions Investment Review : Unlocking the UK pensions market for growth' applies to DC pension schemes and looks at three main strands:
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Requiring there to be a minimum size and maximum number of default funds; the consultation says this will inevitably lead to consolidation in the multi-employer market and a much smaller group of providers. This will be supported by measures such as providing for a contractual override for contract-based pension arrangements (with member protections) to facilitate transfers without consent to either trust based or contract-based arrangements. It is said this will also make it easier to implement the multiple default consolidator model which the Government intends to introduce in the Pension Schemes Bill to allow the automatic consolidation of deferred small pots.
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The role of differential pricing in a consolidated market.
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The roles of employers and their advisers in the selection of workplace pension arrangements for their employees and this includes considering legislative proposals to encourage them to shift their focus from cost to value in that selection. For example, some of the questions in the consultation explore whether or not having a named executive in the employer who is responsible for the retirement outcomes for staff could shift the focus on cost and improve the quality of employer decision making on pensions, and what evidence there is that placing a duty on employers to consider value in their pension arrangements would result in better member outcomes. This points towards a more heavily regulated regime in this area for employers than is currently the case.
The consultation closes on 16 January next year and could lead to significant developments for DC pension schemes and for employers and their duties in relation to the selection (and review) of their workplace pension arrangements and we will share more as this area develops.
The Pensions Regulator publishes Compliance and Enforcement Policy for CDC pensions
The Pensions Regulator (TPR) has published its new compliance and enforcement policy in relation to collective defined contribution (CDC) pension schemes which sets out how it will approach the regulations of these schemes. This includes the use of risk notices to prompt trustees to take corrective action where TPR is concerned about the operation of the scheme (with de-authorisation being used in cases where there is a lack of appropriate response). TPR says it will evaluate CDC schemes on an annual basis, and send a report of its findings to each such scheme, which will include the key risks observed, actions it expects schemes to take and its planned engagement timetable. TPR will keep the intensity (frequency and detail) of its supervision of CDC schemes under review which will primarily be based on its assessment of risk.
