Pensions Insight: 22 to 29 April 2024

In this insight, we cover TPR’s annual funding statement, its blog on new DB models, an important Pensions Ombudsman determination on the defences available to members in overpayment recoupment cases, the latest HMRC guidance on the abolition of the LTA, and a Pensions Dashboards Programme update.

TPR round-up

Annual Funding Statement 2024

The Pensions Regulator’s (TPR) Annual Funding Statement 2024 is fairly compact setting out three key messages, some general considerations and rethinking strategy commentary. It is set against a backdrop of continued improved scheme funding for many schemes and a transition to the revised funding regime that came into effect on 6 April. There is a clear emphasis on trustees looking at the endgame for their scheme and, when doing so, considering all of the potential options, not just the traditional buy-out route. We have produced an in-depth insight on the AFS which summarises the key points – you can access the article here.

Blog on new DB models and innovation

TPR’s 25 April blog discusses recent and emerging innovation in the pensions sector noting TPR’s readiness to ‘engage positively’ with providers of new market propositions that “offer trustees greater choice, while ensuring appropriate protection for savers”.

The blog discusses the move towards consolidation. TPR is ‘pleased’ that commercial superfunds are gaining ‘traction’ and it wishes to see this sector provide increased security for members – in recognition of the commercial nature of these vehicles, TPR has confirmed that it will soon publish its approach to profit release mechanisms for superfunds.

TPR is also formulating its approach to defined benefit (DB) alternative arrangements including capital backed journey plans (see here) and it will be publishing new guidance at some point later this year.

The blog goes on to discuss one emerging model – an offering to provide DB benefits to defined contribution (DC) savers. Although TPR supports new DC options, it warns that any new model needs to be within a suitable regulatory setting. At present, regulators and the Government are still considering whether this type of arrangement can be “supported, and we would not expect the market to develop further until this question has been resolved”. The blog ends with a note of caution for trustees that they would need to liaise with TPR’s market oversight team (created earlier this year) if they are considering a transfer to a new type of scheme.

(In March 2024, the pensions press published articles about a new occupational pension scheme (the Pension SuperHaven) which it is understood is intended to be structured so that, following a transfer-in of DC benefits, the scheme would provide a form of DB benefit.)

TPO determination on defences available to members in overpayment recoupment cases

The Pensions Ombudsman (TPO) determination in the case of Mr E and the BIC UK Pension Scheme provides a detailed analysis of the defences available to members where they have been overpaid benefits which the trustees propose recouping the overpayments by reducing or suspending future pension payments. TPO sets out his thinking on the application of change of position and estoppel defences to a repayment claim to recoupment and how the defence of laches works in a recoupment context. The case is important because it indicates how TPO will approach future complaints from members on recoupment and in what circumstances members might have a defence.

HMRC newsletter 159 – LTA abolition

HMRC’s Newsletter 159 was published on 25 April 2024. It covers various topics including, as expected, the abolition of the lifetime allowance (LTA). The LTA section of the newsletter:

• covers five different scenarios relating to the treatment of benefits where entitlement has arisen before 6 April 2024, but which are paid after this date;
• confirms various points on the pension commencement excess lump sum (PCELS) including that the requirement for a PCELS to be paid in connection with entitlement to a pension is not met if all of the pension is commuted to a PCELS and that a PCELS cannot be paid where another authorised lump sum could be provided instead or in respect of contracted-out rights;
• explains that the formula for calculating scheme-specific lump sums will be amended as it does not work correctly – schemes should contact HMRC directly to resolve issues prior to the legislation being corrected;
• confirms that an amendment will be made to correct an error in the statutory override which, at present, does not preserve scheme rules that refer to certain legislation which is being repealed;
• explains that further amending legislation will be introduced to correct a mistake in the standard transitional calculation which at present requires that the % of LTA used up calculation is applied to too many types of lump sum death benefits that were paid before 6 April 2024; and
• explains that all previous LTA abolition FAQs have been consolidated in a separate annex.

Pensions dashboards: PDP update report

The Pensions Dashboards Programme’s (PDP) latest update report confirms that:

• it will publish connection guidance and a code of connection later this year;
• the PDP is working with volunteers to build a direct route to connection – testing will start later this year also;
• it will publish data standards ‘soon’ and is updating other standards such as design, technical and reporting ones.