As usual, it has been a busy year in the pensions industry and here we take a look at the ‘top 10’ developments from 2024.
1. The Pensions Regulator’s (TPR) code of practice
TPR’s long-awaited new code of practice came into force on 28 March 2024. It combines and updates 11 (initially 10 but now including the revised DB funding code) of the 15 then existing codes of practice. Key new content includes the introduction of three significant governance concepts: (1) the effective system of governance; and a requirement for schemes with 100 or more members to, (2) complete an own risk assessment, and (3) to have a risk management function.
2. Section 37 confirmation and contracted-out defined benefit (DB) schemes
Contracted-out DB schemes have been grappling with the fallout from the Court of Appeal’s decision that rule alterations made to members’ contracted-out rights between 6 April 1997 and 5 April 2016 without written actuarial confirmation required under section 37 of the Pension Schemes Act 1993 are void. We are still waiting to hear from the Department for Work and Pensions (DWP) as to whether it will intervene to allow retrospective validation of otherwise invalid amendments. Impacted schemes should consider what action to take in response to the decision.
3. Revised DB funding and investment regime comes into effect
It was a long time coming, but 2024 saw the introduction of a revised DB funding and investment regime for valuations with an effective date on and after 22 September 2024. The Funding and Investment Regulations 2024 came into force on 6 April 2024 and the accompanying TPR revised DB funding code of practice came into effect on 12 November 2024. TPR has also published statement of strategy information on the four statement templates and the final Fast Track submission tests and conditions. One of the final pieces of the new regime jigsaw, TPR’s revised employer covenant guidance, was published on 4 December 2024.
4. Pensions dashboards staging dates confirmed
It was full steam ahead for pensions dashboards this year. Schemes in scope have been busy preparing for pensions dashboards following the March publication of the staged timetable for connecting to the dashboards ecosystem. The largest defined contribution schemes (DC) will have to connect first, by 30 April 2025 with other schemes following during the rest of 2025 up to the end of September 2026 – the Government confirmed its commitment to the timetable on 22 October. TPR also issued its compliance and enforcement policy.
5. Lifetime allowance (LTA) abolition
Another significant development in 2024 was the removal of the LTA on and from 6 April 2024. In its place are two new lump sum allowances: a lump sum and death benefit allowance of £1.073m and a lump sum allowance of £268,275. Since then, there have been three sets of technical amending regulations, the first of which introduced a statutory override for rules referencing LTA benefit limits.
6. Pensions Investment Review: DC and Local Government Pension Scheme (LGPS) megafunds
Just a few days after Labour won the general election, the new Chancellor of the Exchequer launched a two-stage pensions review of DC schemes and the LGPS with the aim of increasing pension investment in UK private equity and infrastructure and improving member outcomes through scale and consolidation. The Phase 1: Pensions Investment Review interim report was published on 14 November 2024 alongside two consultations; one on proposed structural, investment and governance changes in the LGPS and the second on proposals for achieving scale and consolidation and focusing on value over cost in DC arrangements. If implemented, the DC proposals will represent a seismic change for DC provision with multi-employer DC schemes used for auto-enrolment operating a maximum number of defaults which each have a minimum size of assets under management (indications are between £25bn to £50bn+) by 2030.
7. Autumn Budget and IHT changes
The headline pensions measure from the Chancellor’s Autumn Budget 2024 was that, as from 6 April 2027, most unused pension funds and death benefits in UK registered pension schemes and Qualifying Non-UK Pension Schemes will come within scope of inheritance tax. This represents a significant change to the present treatment of discretionary death benefits which are exempt. Both DB and DC benefits will be affected – a full list of impacted benefits can be found in Annex B of the Government’s IHT consultation.
8. Pension Schemes Bill
The King’s Speech on 17 July announced a forthcoming Pension Schemes Bill which will cover:
- for DC: the automatic consolidation of deferred small pots, a standardised value for money framework for trust-based DC arrangements, schemes having to offer members retirement solutions, and DC reform flowing from the outcome of the Pensions Investment Review; and
- for DB: commercial superfund consolidation, TPO being ‘reaffirmed’ as a competent court meaning schemes will no longer have to obtain a County Court order to enforce a TPO recoupment of overpayments determination, and an extension to the life expectancy eligibility requirements for PPF and Financial Assistance Scheme terminal illness lump sum payments.
9. Potential DB reforms
The former Government’s Mansion House DB scheme reforms aimed at increasing pension fund investment in UK productive finance through scale and consolidation progressed at pace during the first half of 2024. Things went quiet after the general election and, although we know the current Government supports the overall Mansion House aims, we do not yet know the precise direction of travel. Possible reforms include proposals on amending surplus rules to ease access and providing an endgame solution for schemes that have difficulty accessing buyout or a superfund through the Pension Protection Fund (the PPF) acting as the operator of a public consolidator vehicle. The PPF supports a public consolidator and believes it is ‘well placed’ to be the operator.
10. The Pensions Ombudsman (TPO) and recoupment of overpaid benefits
TPO produced an important determination on the defences available to a member where trustees are seeking recoupment of overpaid benefits. When considering defences, TPO will look at whether it is equitable to allow recoupment by reference to the change of position and estoppel defences underlying repayment claims. TPO will also determine whether a laches defence applies, essentially where recovery has been delayed and it would be unconscionable to permit recoupment. The key takeaway for schemes is that, when dealing with complaints from members about a potential recoupment of overpaid benefits, schemes will need to consider whether the member has a defence.
What to expect in 2025: We expect 2025 to be just as busy as 2024 has been. See here for Michael’s recent article on the top 10 developments to look out for in 2025.