Pensions Insight: 28 May to 3 June 2024

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This insight covers the upcoming general election, the latest on the WPC’s Norton scheme inquiry and an update on discount rates to be used for PPF valuations.

General election – Parliament dissolved

The build up to the 4 July general election is well underway. As part of the preparations, Parliament has been dissolved meaning that the current parliamentary session has ended, and parliamentary activity will pretty much come to a stop. For pensions, those developments which involve Parliament will not progress. This includes publication of the Pensions Regulator’s (TPR’s) revised defined benefit (DB) funding code of practice prior to 22 September 2024, as it needs to be laid before Parliament for 40 days before coming into force, and the second set of LTA removal regulations.

Quite how the Mansion House reforms will develop will likely depend to an extent on whether the Conservatives remain in power – Labour’s Financing Growth plans from January 2024 refer to pension initiatives similar to the aims of the Mansion House reforms including greater consolidation and DC investment in UK growth assets, albeit Labour has previously indicated that it would reverse the abolition of the lifetime allowance (LTA). We will have to wait and see what the pension priorities of the new Government are – their manifestos will provide further detail but at the time of writing these have not yet been published.

The state pension and triple lock have already featured in the campaign with the Conservatives announcing that they wish to increase the income tax personal allowance for those over state pension age so that it increases in line with the state pension triple lock (the highest of earnings growth, inflation and 2.5%). This would effectively mean that the state pension would fall below the tax-free threshold. Labour has pledged to protect the triple lock but has indicated that it would not introduce a similar income tax policy. The Liberal Democrats confirmed back in Autumn 2023 that they would support the state pension triple lock.

The Pensions and Lifetime Savings Association has published its Pension Priorities for the First 100 Days of a new Government covering five core pension areas noting that “the future remains uncertain as people are not saving enough for retirement…The next Government must do everything it can to help everyone reach a good income in retirement…”.

HMRC newsletter 160 and LTA abolition

On 30 May 2024, HMRC published pensions schemes newsletter 160 containing the latest HMRC news on the LTA abolition including:

  • a tool for members to see if they can apply for a transitional tax-free amount certificate from their scheme;
  • additional details as to how serious ill health lump sums, standalone lump sums and lump sum death benefits in respect of members under age 75 should be reported to HMRC; and
  • details as to how administrators can register for a lump sum reporting workshop.

Norton scheme WPC inquiry – possible areas of further consideration

The Work and Pensions Committee (WPC) inquiry into the Norton pension scam was not completed prior to the prorogation of Parliament. However, the WPC has issued a letter to the Work and Pensions Secretary of State which summarises the central points which it believes would merit further consideration and potential policy amendment in the new Parliament.

Regulatory framework gaps

The WPC notes that, although identified gaps (including scheme registration and pension transfer rules) in the regulatory framework have now been addressed, they did allow “the events with the Norton Scheme to happen”.

TPR changes

New working arrangements have been set up following the Norton case including fast tracking whistleblowing reports to an investigations team. The WPC has further recommendations including speeding up action taken after issues with trustee behaviour are notified and improving reporting to TPR generally regarding scams.

Remit of TPR extending to cover administrators

Another suggestion from the WPC is for TPR’s remit to be extended to cover pension scheme administrators (one of the administrators of the Norton scheme knew nothing about pension regulation and the Deputy Pensions Ombudsman noted his amazement that such a company could act in this capacity). It is understood that TPR is liaising with the DWP regarding this. TPR has also instigated a voluntary supervisory administrator framework.

Issues with small schemes

One of the potential problems identified as regards acting on the Norton scheme warning signs was that it was a small scheme. The Pension Scams Industry Group (PSIG) noted an apparent tendency for TPR to focus on the larger schemes, relying on self-reporting and whistleblowing to a greater extent for smaller scheme issues.

One of the ways in which this potential issue might be alleviated may be to make the appointment of a professional trustee a condition of registration. Although the Government has actively considered this possibility, it has noted difficulties, e.g., supply constraints, preventing this at present.

TPR having rule-making powers

The WPC note that past reviews of TPR have recommended it having rule-making powers so that it can ‘respond better to emerging risk’. This is another potential review area for the next Government.

The Pensions Ombudsman (TPO) and funding

TPO wishes to explore having demand-led funding akin to that which the Financial Ombudsman Service has.

Fraud Compensation Fund

The WPC inquiry also noted two possible changes to eligibility criteria for the Fraud Compensation Fund: (1) removing the requirement for a Scheme Failure Notice which necessitates an employer liquidation; and (2) allowing the Fund to make payments before scheme recoveries are made.

PPF to move to bespoke discount rate for sections 143 and 152 valuations

The PPF’s initial response to its March 2024 consultation on actuarial assumption valuation amendments confirms that responses were ‘generally supportive’ and that it will be implementing the proposed changes for section 143 (used to see if a PPF-eligible scheme has sufficient assets to secure benefits outside the PPF following an employer insolvency) and section 152 valuations (used for reconsideration applications).

The PPF will be moving to use of a bespoke discount rate for these valuations for smaller schemes (with liabilities of less than around £50m) to provide flexibility and to reflect buyout pricing more accurately for such schemes. Using a standard discount rate means that the buyout cost for smaller schemes can be underestimated and use of a bespoke rate should counter this distortionary effect.

New assumptions guidance took effect from 31 May 2024 and updated guidance documents will be published on its website shortly alongside the full consultation response.

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