In the latest edition of our Taylor Wessing Pensions Bulletin, we give a snapshot of some of the latest pensions developments from a legal perspective. These include:
Please get in touch with your usual Taylor Wessing pensions contact if you would like to discuss anything you have seen in the Bulletin.
Abolition of the Lifetime Allowance from 6 April 2024
Legislation has now been enacted abolishing the Lifetime Allowance with effect from 6 April 2024. This includes regulations, laid in Parliament on 14 March, which are designed to clarify some ambiguities in the original legislation.
The main principles are that, broadly, tax free cash will be measured against a new fixed capped lump sum allowance (set at £268,275), and that certain lump sums and death benefits will also be tested against a new threshold, set at the level of the current Lifetime Allowance (£1,073,100). The legislation contains a number of complexities around which lumps sums are tested against the allowances, measures to deal with members who have tax protections in place, and some limited "statutory override" provisions which may assist where the abolition of the Lifetime Allowance might otherwise have unintended consequences. In short, trustees should now:
- ensure their administrators have the necessary measures in place to administer schemes in accordance with the new allowances and related measures
- consider whether or not scheme communications need to be amended to reflect the abolition of the lifetime allowance and the new regime
- ask their legal advisers whether or not the scheme rules need to be amended to reflect the new legislation. As the new rules come into effect from 6 April 2024, this review should ideally take place as soon as possible.
It remains a possibility that a Labour government could result in the lifetime allowance abolition being reversed. Nonetheless, trustees should still act now to ensure that their schemes are operating in compliance with the tax rules in the meantime.
DB Pensions funding: The Pensions Regulator (TPR) launches a consultation on the statement of strategy
The new scheme funding regulations which look set to come into force from 6 April 2024, apply to valuations from 22 September 2024, require trustees of DB schemes to submit to TPR a statement of strategy on funding and investment. The statement will be in two parts, the first recording the scheme's funding and investment strategy and the second setting out various supplementary matters, such as how well the funding and investment strategy is being implemented. TPR has now launched a consultation which looks at the proposed form of the document that trustees will be required to submit, and the type and extent of information to be included in it.
It is also understood that TPR will soon be issuing a number of related documents, which will also be relevant for post-22 September 2024 valuations:
- guidance on fast-track parameters under the new scheme funding regime
- a new scheme funding code of practice (which is expected this summer), and
- a consultation on covenant guidance.
These documents together will constitute a substantial amount of information to digest, with potentially little time for schemes with valuations soon after 22 September to do so. The references to proportionality in the statement of scheme funding consultation are helpful, but trustees should continue to work with their advisers to understand what this means for their schemes and the documents they are required to produce and submit.
Spring Budget 2024 update
The key pensions takeaways from the Spring Budget apply to defined contribution (DC) arrangements. It was confirmed:
- that the Financial Conduct Authority (FCA) Value for Money (VFM) proposals will include requirements for contract-based DC funds to publish details of their default funds’ historic net investment returns and a breakdown of their UK investments. The proposals will require schemes to compare their performance, costs and other metrics against those of at least two schemes managing over £10 billion in assets (with this initial level being expected to increase significantly over time).Occupational DC pension schemes can expect to see similar requirements imposed on them, with the Government saying it intends to legislate 'at the earliest opportunity' to apply the VFM framework across the market. TPR is also to be provided with new powers to intervene in 'underperforming' schemes which will include closing a scheme to new employer entrants and, where necessary, winding up a scheme.
- that the Government remains committed, 'in the long term' to exploring a lifetime provider model for DC schemes (which was featured in the Autumn 2023 budget) and that it will continue to explore this.
There are no immediate action points for DC schemes from the Spring Budget though they should continue to monitor these possible developments, especially if the outcome of the expected General Election impacts on these measures being taken forward.
DWP Taskforce publishes guidance on social factors in investments
The DWP Taskforce on Social Disclosures, following a consultation at the end of last year, has published guidance for trustees on how to consider social risks and opportunities in investment. The guidance consists of four sections which include:
- details of why material social factors are important for trustees to consider, including its explanation of the legal duty to take into account material financial considerations when investing and referencing the recent paper produced by the Financial Markets Law Committee on trustee investment duties (see our note on this here)
- a framework for addressing social factors with practices being divided into 'baseline', 'good' and 'leading' indicators as a guide
- a materiality assessment framework to help trustees assess their investments' exposure to social factors risk using a top-down approach
- considering what data trustees can use in managing social factors in investment.
The guide is accompanied by a range of further supporting documents such as a quick start guide for trustees and a data sources directory and has been welcomed by TPR in helping trustees in an area where financially material social factors cannot be ignored. The guide does not have legal status but is helpful in assisting trustees in an area which can be difficult to navigate because of the lack of meaningful and comparable data.
