In our first insight of 2025 we provide links to our retrospective insight article looking at the headline pensions developments in 2024 and our recent article from Pensions Age on what to expect in 2025. We also provide our usual round-up of the key developments from the last few weeks.
A look back and a look ahead: the top ten 2024 and 2025 pensions developments
2024 was a busy year for pensions and we expect 2025 to be as busy. See here for the ‘top 10’ developments from 2024 and here for those that are expected in 2025.
TPR round-up
TPR’s revised DB covenant guidance
On 4 December 2024, The Pensions Regulator (TPR) published revised defined benefit (DB) covenant guidance which it refers to as being the ‘last piece of the jigsaw’ for valuations with effective dates on and after 22 September 2024 which must be produced under the new funding and investment regime. The guidance expands on the covenant references in TPR’s new DB funding code.
Schemes now have clarity as to TPR’s expectations on covenant assessment. The assessment now includes new components on cash flow, reasonable affordability, maximum affordable contributions, the reliability period, covenant longevity and contingent assets.
In keeping with the Funding Code, there is an emphasis on the assessment being proportionate and reflective of the employer’s support and the scheme’s circumstances.
Worked examples are provided throughout the guidance on those aspects that require ‘the highest level of judgement’ from trustees.
TPR has not consulted on the guidance but notes that it will amend the guidance when required and will include industry feedback which can be provided through covenantguidance@tpr.gov.uk.
Key actions for trustees:
“For many, this will bake in best practice, but we expect all trustees to read applicable sections of the guidance in full and make sure their members are protected...
TPR expects trustees to use this guidance to review whether their existing covenant analysis is focused in the right areas and remains proportionate, especially if they have experienced a significant change in their scheme funding position in recent years.” [Source: TPR press release]
More detail can be found in our in-depth insight that can be accessed here.
Updated TPR dashboards guidance
On 17 December 2024, TPR published updated dashboards guidance to take into account ‘external developments’ and ‘industry feedback’.
Action:
Trustees and schemes administrators should read through the amended guidance as it contains new material throughout including:
- the adoption of the term ‘savers’ to refer to dashboard users and using ‘members’ to refer to individuals who have been matched by schemes;
- information regarding registering schemes with the Money and Pensions Service’ Governance Register which is required to make sure that only regulated schemes can connect and that the requisite standards are satisfied;
- confirmation in the ‘Matching people with their pensions’ section that potential members will have to verify their identity using GOV.UK One Login before they can issue a ‘find request’; and
- additional material regarding schemes with multiple sections and AVC arrangements.
ACA, APL and SPP update on Virgin Media case and DWP intervention
On 17 December 2024, an update on the Virgin Media case was issued by the Association of Consulting Actuaries, the Association of Pension Lawyers and the Society of Pension Professionals. Following the Court of Appeal’s decision in July 2024, these organisations established a working group to lobby the Government about possible intervention to allay the adverse effect of the ruling in appropriate cases.
Since its last update on 26 July 2024, the working group has been liaising with the Department for Work and Pensions (DWP) on possible government intervention which would retrospectively validate amendments that would be invalid because section 37 confirmation was required but not obtained (and which would have been provided) or cannot be found. The liaison has included providing the DWP with information on the adverse impact that the decision will have on the DB pensions sector and looking at how intervention might be structured.
The working group still support the Government stepping in and hope to be able to provide a further update in the New Year.
TPO blog on operating model review and case management initiative
The Pensions Ombudsman’s (TPO) 18 December Operating Model Review blog provides an update on the improvements that are being implemented at TPO. These include: the requirement for all complaints to go through a scheme’s internal dispute resolution procedure before going to TPO; an example determination that has been made under the new expedited decision process; confirmation that TPO will produce a periodic summary of expedited determinations; an update on the progress being made to reduce the complex caseload through expansion of specialist working teams; and the use of lead cases in industry-wide and scheme-specific issues relating to several members.
PPF delays decision on 2025/26 levy until January 2025
On 12 December 2024, the Pension Protection Fund (PPF) confirmed that it has delayed its decision on the 2025/26 levy rules consultation until January 2025. This is to allow it to consider the future of the levy with the DWP and the possibility of introducing legislation to allow the PPF to reduce the levy below the £100m proposed for the 2025/26 levy, possibly reducing it even to zero. There have been calls for the levy to be reduced below £100m due to the current strong funding position of the PPF and recent levy consultations have noted the need for legislative change to allow for this.
The Pensions Act 2004 caps year-to-year increases on the levy to 25% to protect levy payers from big levy hikes. However, this now restricts the PPF from introducing a commensurate levy in a reasonable timeframe should there be funding issues. It also means that the levy could not start up again if it was dropped to zero.
The PLSA (and other industry commentators) have commended the delay. It is thought that the DWP could possibly announce that the upcoming Pension Schemes Bill will include the necessary legislative change allowing the PPF to introduce necessary increases should it reduce the levy and then need to increase it materially because of a change in its funding position.
PASA publishes data scoring guidance
On 2 December 2024, the Pensions Administration Standards Association (PASA) published new data scoring guidance providing support for trustees and administrators on how to approach data scoring, TPR requirements, the importance of data quality, data accuracy, testing, scheme-specific data and sections on key trustee and administrator actions including additional practices that can be implemented so that data is both consistent and reliable.
Action:
Trustees should liaise with the scheme administrator on the guidance and whether the scheme needs to adopt any changes as a result.
HMRC Newsletter 165
HMRC’s latest Newsletter covers five topics:
- The managing pension scheme service which will need to be used from April 2025 to submit 2024 to 2025 tax returns and 2023 to 2024 tax returns onwards.
- The tax treatment of pension payments to trustees in bankruptcy – following payments to a trustee in bankruptcy, the money purchase annual allowance may apply to future contributions made by the member. However, payments to the trustee are taxable at basic rate even if the member is a higher rate taxpayer as they are treated as income received by the trustee.
- The tax treatment of tax-free lump sums paid back into a registered pension scheme prompted by member queries as to the return of pension commencement lump sums (PCLS) and uncrystallised funds pension lump sums (UFPLS) which were taken because of conjecture before the 2024 Autumn Budget that these benefits might be impacted.
- The newsletter notes that payment of a tax-free lump sum cannot be reversed with restoration of the member’s lump sum allowance (on the basis that neither a PCLS nor an UFPLS is a new product, so a pension contract and policy cooling-off period does not apply). Furthermore, if the conditions for a PCLS or UFPLS such as entitlement to a relevant pension, lifetime annuity or drawdown within 6 months of the PCLS being paid, are not met the payment may be unauthorised and incur an unauthorised payments charge.
- The lifetime allowance abolition. The newsletter covers a variety of topics including several on transitional tax-free amount certificates and age 75 payments.
- Residency status reports.
FCA consultation on targeted support for pensions decision-making
On 12 December 2024, the Financial Conduct Authority (FCA) published a consultation paper as part of the Government and FCA Advice Guidance Boundary review on high-level proposals for a new regulated targeted support framework for pension consumers. It is intended to bridge the gap between general guidance, for example, provided by MoneyHelper, and bespoke advice. Targeted support would be available for both pension and non-pension consumers – the FCA consultation covers how it might work for pensions.
Under the pensions proposals, authorised firms would be permitted to provide tailored suggestions to consumers based on similar circumstances rather than on individual circumstances as is the case with bespoke advice. The support would be provided to a specific consumer sector where a firm has “reasonable grounds for believing that delivery of targeted support suggestions would deliver a better outcome for their customers”. The consultation closes on 13 February 2025.
No financial compensation scheme for DWP communication delays of increases to women’s SPA
The Government has confirmed that it will not be setting up a financial compensation scheme for those women born in the 1950s whom the Parliamentary and Health Service Ombudsman (the PHSO) concluded should be financially compensated because the Government failed to provide accurate, adequate and timely details of state pension age (SPA) increases.
The Government reached this decision because:
- the PHSO’s findings did not “properly take into account research” that the majority of those affected were aware of SPA increases (referencing research showing that 73% of women aged 45-54 were so aware);
- sending letters earlier (rather than delaying them as the PHSO found the DWP had) would not have had the effect referenced by the PHSO (“wouldn’t have made a difference for most”); and
- the proposed compensation scheme would be “highly impractical due to high claim volumes” with “significant challenges” and the possibility of a “high number of unjustified payments”.
Ultimately, the Government response concludes that “Introducing such a scheme is neither fair nor feasible and would not represent good value for taxpayers. Therefore, no financial compensation scheme will be set up.”
The BBC reported of campaigners’ fury about the Government’s conclusions. Some in the pensions industry have also criticised the decision – Sir Steve Webb, former Pensions Secretary, believes it sets a ‘worrying precedent’ and Baroness Ros Altman thought that a hardship fund or pension credit early access should have been set up.
Indications from the PHSO report were that the compensation suggested could amount to a rather eye- watering £3.5bn to £10.5bn. This would have placed a significant strain on an already strained public purse and the Government has baulked at spending such huge amounts given it disagrees with the PHSO’s decision on various grounds.