Court strikes out claims by members where benefit statements sent to wrong address

The High Court has struck out the vast majority of claims brought by a group of over 400 pension scheme members after a scheme administrator sent benefit statements to their old addresses (Farley v Paymaster (1836) Limited).  For more detail, click here.

Tax rate on authorised surplus payments reduced

The Government has reduced the tax rate applicable when an authorised surplus payment is made from a pension scheme to an employer.  The rate has been reduced from 35% to 25% with effect from 6 April 2024.

New company law requirements

The Economic Crime and Corporate Transparency Act 2023 has introduced a new requirement for a company's registered office to be "appropriate" and for a company to have a registered e-mail address.  A registered office will be appropriate if a document addressed to the company and delivered by hand or by post would be expected to come to the attention of a person acting on behalf of the company, and the delivery of a document to that address is capable of being recorded by obtaining acknowledgement of delivery.  This test means that it is no longer permissible for a company to use a PO box as its registered office.  The requirement came into force on 4 March 2024.

Companies will also be required to have a registered e-mail address, meaning that an e-mail sent to that address will come to the attention of someone acting on the company's behalf.  For companies already in existence on 4 March 2024, the registered e-mail address will need to be included when the company's next annual confirmation statement is submitted to Companies House.

Corporate trustees should ensure that they comply with the above requirements.

New right to Carer's Leave

The Carer's Leave Regulations 2024 came into force on 6 April 2024 and introduce a new right for employees to take leave of up to one week in a 12 month period in order to arrange care for a dependant with a long-term care need.  The minimum period of carer's leave which an employee may take is half a working day.  An employee who takes carer's leave is entitled to the benefit of all terms and conditions which would have applied had the employee not been absent save for terms and conditions about wages or salary.

Given that carer's leave can be no more than one week in a 12 month period, and that such leave may be as little as half a day, we suspect that many employers will choose to pay employees as normal during periods of carer's leave.  Where this happens, no pensions issues arise.  Where carer's leave is unpaid, we consider that pensionable service in a defined benefit scheme should be treated as continuing as normal throughout any period of carer's leave. We think that the courts would be likely to construe the "wages or salary" exception narrowly in the context of a defined benefit scheme where there is no direct link between the value of contributions paid and benefits accrued. The position where an employee is in pensionable service under a money purchase scheme is more complex.  Scheme rules should always be considered in case they confer rights that are more favourable  than the statutory position.

Consultation on statement of strategy

The Pensions Regulator (TPR) has consulted on its proposed approach to the statement of strategy (SoS) required under the new defined benefit funding regime.  The SoS is made up of two parts.  Part 1 is the funding and investment strategy (FIS) and Part 2 contains supplementary matters such as whether the FIS is being successfully implemented.  The SoS has to be submitted to TPR in a form set out by TPR.

TPR is proposing to prescribe a standard template for the SoS.  TPR proposes that there will be four versions of the template depending on whether the scheme is following the "Fast Track" or "Bespoke" route to meeting the funding requirements and whether the scheme has reached the "relevant date" under the scheme funding regime (broadly the date under which scheme is regarded as having reached "significant maturity").  

TPR also proposes to adjust the information required in relation to smaller schemes.  TPR is planning to use two different definitions of "smaller scheme", one for the purposes of determining what actuarial information needs to be submitted, and one for determining what investment information needs to be submitted.  In relation to the actuarial information requirements, TPR proposes to define smaller schemes as those with fewer than 100 members.  In relation to investment information, TPR is proposing to define smaller schemes as those with less than £30 million in section 179 liabilities (ie liabilities for the purpose of calculating whether the scheme is fulling funded for PPF purposes).

The consultation includes an example SoS for a scheme adopting the Bespoke funding route which has not yet reached significant maturity.

Responses to consultation

A number of respondents to the consultation have expressed concern that the volume of information which TPR proposes to require is disproportionate relative to any benefits that may be achieved as a result.

Annual funding statement

In April the Pensions Regulator (TPR) published its Annual Funding Statement 2024.   The statement is particularly relevant to schemes with valuation dates between 22 September 2023 and 21 September 2024.

One of TPR's key messages is that most schemes have seen material improvements in funding levels, with half of schemes expected to have exceeded their estimated buy-out funding levels.  It says that where funding levels have improved significantly, trustees should consider whether continuing with the existing strategy and level of risk is in the best long-term interests of members.  For the "sizeable minority" of schemes that are still in deficit on a technical provisions basis, TPR says that trustees should continue to focus on a recovery plan that is as short as is reasonable.  

As last year, TPR groups schemes into three broad categories: 1. funding level at or above buy-out; 2. funding level above technical provisions but below buy-out; and 3. funding level below technical provisions.  For schemes in group 2, TPR says that schemes may consider the emerging options such as consolidators and capital-backed journey plans, but acknowledges that it may be reasonable for trustees to take a "wait and see" approach given the immaturity of these options.  TPR expects there to be a clear timetable for future considerations.

TPR had said that it would publish its revised DB funding code over the summer, but the announcement of the General Election date has called into question whether the code will actually be in force by 22 September 2024.  Whilst the new funding regime is due to apply to schemes with a valuation date on or after 22 September 2024, TPR says it would be good practice for trustees to consider the steps they can take now to align (even if broadly) with the funding code when it is published, and to avoid having to make significant changes at the next valuation to be compliant.

Regulations introduce statutory override for rules referring to lifetime allowance

The Pensions (Abolition of Lifetime Allowance Charge etc) Regulations 2024 came into force on 6 April 2024 and make some important changes relating to abolition of the lifetime allowance (LTA).  These include: 

• a statutory override to retain in scheme rules any limits on benefits that have been drafted by reference to the LTA.  In such circumstances, references to the LTA or LTA charge have the meaning that they had immediately before 6 April 2024.  The override ceases to have effect at the end of tax year 2028-29;
• removal of the limit contained in the original draft of the legislation on the amount that can be paid as a pension commencement excess lump sum (the type of lump sum that broadly replaces the lifetime allowance excess lump sum);
• providing that where a lump sum is paid on or after 6 April 2024, but the member became entitled to the lump sum before that date, the pre-6 April 2024 tax rules govern the treatment of the lump sum; and
• changes to when lump sums need to be reported to HMRC due to exceeding the relevant allowances.

One consequence of the latest round of amendments relates to the provision for a reference in scheme rules to a lifetime allowance excess lump sum to be treated as a reference to a pension commencement excess lump sum. That provision will now cease to have effect at the end of tax year 2028-29 rather than applying indefinitely.  We suspect that this is a drafting error.

Another set of regulations is due to be made with retrospective effect from 6 April 2024 covering various points mentioned in HMRC newsletters, plus possibly other points from HMRC's running list of issues raised by the pensions industry.

HMRC Pension schemes newsletters clarify points relating to LTA abolition

HMRC's Pension scheme newsletters 157, 158 and 159 have clarified various points relating LTA abolition.  These include:

Newsletter 159

• The tax treatment of benefits where the benefit is paid on or after 6 April 2024 but relates to an event which occurred before that date.
• Clarification of when a pension commencement excess lump sum can be paid.
• Confirmation that the policy intention is not to reduce individuals' entitlements to higher tax free lump sums where they hold valid protections.  The newsletter says that some elements of the legislation do not fully operate as intended and will be modified.
• Transitional provisions do not fully operate as intended regarding the question of how much of a member's existing allowance is to be treated as having been used up as a result of a lump sum payment before 6 April 2024.  This will be corrected through future regulations.
• Where a member requires a payment which is affected by further regulations but cannot wait for their introduction because of financial hardship, the newsletter suggests schemes contact HMRC directly at ltaadministration@hmrc.gov.uk and put "LTA further regulations – impacted member" in the subject line.

Newsletter 158

• The further set of regulations to be made relate primarily to specific protections or to individuals who plan to transfer their pension savings to a qualifying recognised overseas pension scheme (QROPS).  Members may need to wait until the regulations are in place before taking or transferring certain benefits.
• Clarification of the rules relating to members who take some benefits before and some after 6 April 2024.
• The Government will make regulations requiring transferring schemes to provide information to receiving schemes regarding how much of a member's fund crystallised before/after 6 April 2024.  This information is needed for calculating how much lump sum and death benefit allowance an individual has available.
• The Government will bring forward legislation so that individuals with enhanced protection (EP) can carry over the benefit of their protection when taking a transfer value.  The newsletter suggests members with EP may wish to delay taking a transfer value until the legislation is in force.
• The Government will amend the legislation to ensure it operates as intended in relation to transfers to qualifying recognised overseas pension schemes (QROPS).  

Newsletter 157 contains a series of FAQs relating to the tax regime post-LTA abolition as does HMRC's March 2024 Lifetime allowance guidance newsletter.

Ombudsman holds Trustees only entitled to recover small proportion of total overpaid pension

The Ombudsman has decided in an overpayments case that the Trustees are only entitled to recover £6554 of the total £90,934 in overpaid pension which they were seeking to reclaim from a member (Mr E CAS-55100-G3W9).  The Ombudsman's lengthy determination considers the possible defences where trustees are seeking to recover overpaid pension by deducting it from future payments.  For more detail, click here.

Ombudsman upholds retrospective amendment of pre-17 May 1990 benefits

The Pensions Ombudsman has not upheld a complaint from a member whose Normal Retirement Age (NRA) was retrospectively amended from 60 to 65 in respect of benefits accrued before 17 May 1990 (the date of the Barber judgment that held that pension benefits had to be equalised for men and women).  The scheme's amendment power allowed retrospective amendments, and the amendment was made before the coming into force of section 67 of the Pensions Act 1995 which prohibited adverse amendments to accrued rights without member consent.

Our thoughts

It is established law that for the period of the "Barber window", ie 17 May 1990 to the date from which benefits are equalised, benefits for male and female members must be provided on the more favourable basis. It is also established that equalisation can be effected by providing for benefits to accrue on the less favourable basis going forward.  In our experience, it is highly unusual to make a retrospective adverse amendment to pre-17 May 1990 benefits.  In this case the member complained that the amendment breached section 67 of the Pensions Act 1995.  That argument was doomed to fail because section 67 was not in force at the time the amendment was made.  One obvious question is whether agreeing to an adverse retrospective amendment was in keeping with the trustees' fiduciary duties.  However, it appears that this argument was not raised before the Ombudsman.

Pensions dashboards

On 25 March 2024 the Government published guidance setting out the dates by which it expects pension schemes to connect to the pensions dashboard.  Legally the deadline for connection is 31 October 2026, but trustees and pension providers are required to "have regard" to the guidance, which stipulates earlier dates, with the specific date dependent on type of scheme and number of relevant members.  For more detail, see our e-bulletin. The Pensions Regulator has updated its pensions dashboards guidance to reflect the new staging timetable.

In a separate but related development the DWP has published guidance to help trustees of schemes providing money purchase benefits to provide an annualised version of the member's accrued pot value as required by the dashboards regulations.

DC schemes to be required to disclose level of UK investment

On 2 March 2024 the Government announced that it will introduce requirements for DC pension funds to publicly disclose their level of investment in the UK.  It also announced that poorly performing schemes will not be allowed to take on new business from employers.

Genera Levy: Government abandons plan for £10,000 premium

In a consultation response published in April, the Government announced that it has abandoned its plan to add a premium of £10,000 to the General Levy (not to be confused with the PPF levy) for schemes with less than 10,000 members.  The Government had originally proposed to increase levy rates for all schemes by 4% per year and, as of April 2026, add a premium of £10,000 to schemes with memberships under 10,000.  However, the vast majority of consultation responses favoured the option of no premium and a 6.5% increase in levy rates for all schemes.  The Government has made regulations giving effect to this option with effect from 1 April 2024.

Social factors investment guidance for trustees

The Government has published a Guide from the Taskforce on Social Factors on "Considering social factors in pension scheme investments".  The Taskforce includes representatives from pension schemes, asset managers, investment consultants and cross-industry groups.  The guide defines "social factors" as "considerations about an investment that relate to people".  These include a wide range of factors, eg payment terms for suppliers, links to armed conflict, and health impacts on consumers.

The guide includes a description of what the Taskforce considers to be "Baseline", "Good" and "Leading" practice.  Under Baseline practice it suggest that Trustees should create at least a high level investment and stewardship policy covering social factors and should include social factor-related questions or requirements into their selection, appointment and monitoring of investment managers.

The guide includes factors to be considered and sources of information when evaluating portfolio exposure to social factor risks.

Although endorsed by the Government, the guide has no legal standing.

PPF publishes proposals for a public sector consolidator

In our last Update we reported that the Government was consulting on the establishment of a public sector consolidator administered by the PPF. The idea is to provide an alternative "endgame" solution for schemes unattractive to commercial providers (ie insurance companies offering buy-outs and commercial superfunds).  The PPF has published its proposition for the design of such a consolidator.

Under the PPF's proposals:

• the public sector consolidator would be under the management of the PPF board, but would be legally separate from other funds operated by the PPF;
• the aim of the consolidator will be to run on rather than act as a bridge to buy-out;
• members of schemes that transfer into the consolidator would be provided with the actuarial equivalent of their full scheme benefits, but through a number of standardised benefit structures;
• the PPF considers that the government would be the most appropriate provider of risk underwriting for the consolidator;
• schemes with a deficit would be allowed to enter provided the employers entered into a payment schedule to close the fixed deficit over time.  If the employer becomes insolvent before making all scheduled payments, member benefits would be reduced to reflect this (but would not be reduced below the level of PPF compensation that would have applied).

Our thoughts

The PPF's proposals may give an indication of the likely form of any public sector consolidator, but ultimately it will be for the government to decide whether a consolidator is established and, if so, in what form.  The government response to the consultation has not yet been published.

No extension of auto-enrolment before mid-2020s

We have previously reported on the Pensions (Extension of Automatic Enrolment) Act 2023.  The Act gives the government power to reduce the minimum age from which auto-enrolment applies (currently 22) and to reduce or remove the lower limit for "qualifying earnings".  The government must consult before exercising these powers.  According to a report in the pensions press, the current government has said that it does not plan to consult on the reforms until at least the mid-2020s.