Here are our thoughts on six key pensions issues/trends which we think many scheme employers and trustees will be focussing on in 2024.

1.  Abolition of the lifetime allowance

Fundamental changes to the pensions tax regime will take effect on 6 April 2024 when the pensions lifetime allowance (LTA) is abolished and two new types of lump sum allowance are introduced.  Pension scheme rules or service contracts that refer to the LTA might have unintended consequences following abolition.  We recommend employers and trustees review these early in 2024.  Expect a more detailed bulletin from us on this shortly.

2.  The return of scheme surpluses

The tax charge applicable to authorised surplus repayments will reduce from 35% to 25% from 6 April 2024. Quite apart from that change, we are advising an increasing number of clients on pension scheme surpluses (either current or which may arise in the foreseeable future).  In particular, we are seeing clients seeking advice on:

• accounting treatment of surpluses.  Whilst ultimately a decision for the auditors, our experience is that accounting treatment may depend on the scheme's rules, and that different firms of auditors may sometimes reach different conclusions on this complex area; and
• escrow agreements where funds are held outside the scheme, but are available to the trustees if specified funding triggers are met.  Such arrangements are designed to avoid the issue of "trapped" surpluses.

3.  Buy-out and the alternatives as schemes move towards the end game

We expect the trend towards more scheme buy-outs to continue in 2024. We now have considerable experience of working with clients on the steps needed to achieve this, eg:

• preparing the formal benefit specifications needed to obtain a buy-out quotation;
• dealing with GMP equalisation, eg through the legal process of converting GMPs to non-GMP benefits;
• managing residual risks, ie the risk of claims against the trustees emerging after scheme assets have been paid out.

Often gaps in scheme records mean that it's necessary to "take a view" on how to deal with a particular issue.  It may be tempting to leave such matters to the scheme administrators, but it's important that trustees and, if applicable, employers follow and document a proper decision-making process to minimise the risk posed by claims that arise after scheme assets have been dispersed.

Where buy-out is not a viable option in the foreseeable future, we expect to see more schemes exploring the use of capital-backed journey plans (CBJP)  where there is an agreement between trustees and a third party funder.  The Pensions Regulator (TPR) is taking an interest in this area and we have seen it exploring CBJP options with distressed schemes.

4.  Data protection and cyber-security

Pensions-related cyber-attacks hit the headlines in 2023 and we have no doubt that cyber-attackers will continue to target pensions data in 2024.  We have provided data protection and cyber-security training to a number of our pensions clients and expect demand for this to continue in 2024.

Any schemes or employers still relying on EU standard contractual clauses (as amended by the ICO) to transfer personal date overseas should be aware of the need to put revised documentation in place by 21 March 2024.

5.  New scheme funding regime

The new scheme funding regime is due to apply to schemes with an effective valuation date from Autumn 2024 onwards (exact date TBC).  Schemes will need to have a formal funding and investment strategy which includes the "end game" for the scheme (eg buy-out) and the "journey plan" for getting there.  A key principle is that a scheme should have reached a state of low dependency on the employer by the time it has reached "significant maturity".  TPR expects the regulations to be in final form by April.

6.  Pensions Regulator's General Code

January has already seen the publication of the Pensions Regulator's General Code. This consolidates various existing codes of practice and also sets out the Regulator's expectations in relation to trustees' governance processes. 

The General Code is generally aimed at trustees. However, it covers some elements which are relevant to sponsors such as managing conflicts of interest.