Pensions Insight: 12 to 19 February 2024

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In this Pensions Insight our focus is very much on caselaw. We report on a weighty High Court decision covering a wide range of key pensions issues including the effect of amendment power provisos on a conversion of benefits from final salary to money purchase and the Court of Appeal’s dismissal of the employers’ appeal in the Railways Pension Scheme case. We also cover HMRC’s first fortnightly LTA guidance newsletter on the forthcoming abolition of the LTA.

Case law round-up

Newell Trustees case: court consideration of amendment power provisos – conversion to money purchase valid but final salary link protected

The High Court has ruled on several longstanding issues of interest to the pensions industry including the effect of a proviso to the amendment power of the Parker Pension Plan in relation to a January 1992 conversion of certain members’ final salary benefits to money purchase. Other issues considered in the case include the validity of interim deeds, the effect of extrinsic contracts and age discrimination on the grounds that there was differential treatment of members based on their age. 

The judge, Mr Justice Michael Green, decided that the proviso which prevented amendments that “would prejudice or impair the benefits accrued in respect of membership up to that time” did not prevent the conversion but did protect the link to final pensionable salary which meant that an underpin had to be applied to the benefits of those final salary members that had transferred to the money purchase section. This underpin was not to be provided by reference to the final salary formula and future final pensionable salary but by providing the actuarial value of the accrued final salary benefits as at the date of the amendment, taking into account current data on salary increases, retirement dates and service. You can read our full case summary here.

Railways Pension Scheme appeal dismissed – meaning of determined by actuary and make good a shortfall

In a judgment handed down on 9 February 2024, the Court of Appeal has dismissed the two employers’ appeal of the High Court’s decision on the meaning of the words “as determined by the actuary” in respect of contributions (and other related matters) and “make good the shortfall” in the Railways Pension Scheme’s shortfall rule. 

(The shortfall rule provided that, if an actuarial valuation revealed a shortfall and the employer and trustee could not agree arrangements to make good the shortfall, the shortfall should be made good by the increase of contributions subject to a cap with the actuary determining both the rate and period of increase.)

The Court of Appeal’s decision means that:

  • “As determined by the actuary” wording involves the “exercise of professional skill and judgment” rather than the scheme actuary carrying out a ‘mathematical calculation’, in this case, to increase contributions. 
    When doing so, the actuary should, subject to professional guidance, take into account scheme knowledge and apply relevant actuarial assumptions and methodology – relevant factors to be taken into account by the actuary in the case were held by the High Court to include affordability, value for money and collectability. 
    Also of note was the Court of Appeal’s comments regarding a scheme actuary’s role. This will differ from scheme to scheme by reference to the scheme’s governing provisions. In this case, the scheme actuary did not act in a fiduciary capacity being appointed under the rules by contract. Therefore, rather than referring to the actuary exercising discretion (which the High Court had referenced) when carrying out actuarial functions including determining a matter, it was preferable to refer to the role in a contractual manner and to the actuary exercising ‘professional skill and judgment’.
  • “Make good the shortfall” in the relevant scheme rule meant that the shortfall under the relevant provision did not have to be removed entirely – the rule was not an ‘exhaustive and comprehensive regime’ for how the shortfall should be removed.

Although the judgment is case-specific, it has general relevance to many schemes whose rules often include the reference ‘determined by the actuary’, for example, in respect of augmentations, contributions commutation and early and late retirement factors. See our insight for a full summary of the High Court case.

HMRC LTA guidance newsletter

On 13 February 2024, HMRC published its first fortnightly lifetime allowance (LTA) guidance newsletter


The newsletter covers 18 FAQs on lump sums and lump sum death benefits, reporting requirements, the overseas transfer allowance, protections and enhancement factors and transitional arrangements. 

Transitional tax-free amount certificates

There is then a lengthy section on transitional tax-free amount certificates which members can apply for where they have had a benefit crystallisation event prior to 6 April 2024, and they do not wish to use the standard method for calculating the availability of the new lump sum allowances because they used up less than their available LTA. It points out that members should not use the certificate service to obtain a comparison between the standard calculation and the actual position – if the certificate shows a lower available allowance to the standard one it is this lower allowance that will apply.

Pension commencement excess lump sums (PCELS)

The newsletter also covers changes which will be made by regulations before 6 April 2024 to the new PCELS legislation to ensure that this lump sum operates as intended. As HMRC explains, this new lump sum has been created to permit individuals with crystallised benefits above £1.073m to commute more pension as lump sum. However, it is not supposed to operate in exactly the same way as the lifetime allowance excess lump sum which is being removed – it will remain the case that a PCELS will only be payable in connection with a pension. 

HMRC has confirmed that the permitted maximum that applies to the PCELS will be removed following concerns that this would restrict lump sum amounts especially in comparison to the current position on lifetime allowance excess lump sums (the comparable lump sum that is being removed under the new regime). 

It will also no longer be the case that members will need to have used up their lump sum allowance (LSA) before being able to take a PCELS – the test will be having to use up either the LSA or the lump sum and death benefit allowance. This will allow a member to take a PCELS where they have already received a serious ill-health lump sum (which does not use up any LSA).

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