7 days

7 Days is a weekly round up of developments in pensions, normally published on Monday afternoons. We collate this information from key industry sources, such as the DWP, HMRC and TPR.

In this 7 Days

• LTA-Day preparation continues with new statutory override for scheme rules
• Order to reduce tax charge on return of surplus published
• TPR gives update on initiative to ensure compliance with value for members (“VfM”) requirements
• TPR speech on its growing role
• PPF blog on supporting overfunded schemes
• FCA speech on the future of pensions

LTA-Day preparation continues with new statutory override for scheme rules

As trailed in HMRC guidance, regulations have been made to address certain issues in preparation for the removal of the LTA on 6 April 2024.

Importantly, the regulations set out a new “statutory override” to help scheme rules continue to operate as intended where they contain benefit limits based on the LTA or related concepts.

The intended effect of the statutory override is that “where scheme rules limit a benefit by reference to the LTA for example, that rule shall automatically be read as continuing to impose that limit as if the LTA had continued to apply”. This is time limited and will end on 5 April 2029.

The regulations will make various other changes to existing legislation, including:

• removing the “permitted maximum” for the PCELS
• addressing issues in event reporting requirements under the new regime
• changes related to transitional provisions and reporting requirements for the overseas transfer allowance.

The regulations come into force on 6 April 2024.

Order to reduce tax charge on return of surplus published

An Order, along with an HMRC policy paper, has been published to reduce the tax due on a return of surplus to an employer, known as an authorised surplus payment, from 35% to 25%. This measure was announced in the Autumn Statement 2023 and will take effect from 6 April 2024.

TPR gives update on initiative to ensure compliance with value for members (“VfM”) requirements

On 14 March 2024, TPR published a press release giving an update on the pilot stage of its initiative to ensure compliance with the rules on VfM assessments for schemes with less than £100 million in assets. This stage involved a sample of hybrid schemes. 16% of trustees of schemes involved in the pilot reported that, having concluded their schemes do not offer good value, they have opted to wind them up.

TPR will now be “scrutinising information” from DC scheme returns, with the potential for fines to be issued for non-compliance. A fine of £12,500 has been issued against a corporate trustee, and further fines for non-compliance “will be issued shortly”.

TPR speech on its growing role

On 12 March 2024, TPR published a speech given by Nausicaa Delfas, Chief Executive of TPR, looking at the role of TPR and the wider pensions industry in the context of increasing consolidation and improved DB scheme funding levels. TPR intends to help drive consolidation in savers’ interests so that only schemes that deliver “good outcomes” remain.

TPR will increasingly use disclosures such as climate reports, the new DB statement of strategy and the proposed new VFM framework to “constructively challenge trustee decision-making so that savers’ interests are really being met”.

PPF blog on supporting overfunded schemes

On 14 March 2024, the PPF published a blog on how it has supported overfunded schemes “achieve great outcomes”. On average, more than half of schemes that enter a PPF assessment period are overfunded on the PPF funding basis. While large overfunded schemes may be able to secure benefits above PPF compensation levels with insurers or commercial consolidators, smaller schemes “face more difficulty when trying to find an end-game solution”. It is hoped that the Government’s commitment to establishing a public sector consolidator for DB schemes by 2026 will help address this issue.

FCA speech on the future of pensions

The FCA published a speech on the future of pensions on 13 March 2024. It discusses “gaps and inadequacies” in pension saving, despite the success of automatic enrolment. While forthcoming policy developments such as pensions dashboards and the proposed VFM framework will help address the gaps, regulators, consumers and firms are encouraged to act now to improve outcomes. This could include checking “whether products really are value and are invested in the right areas for savers and the economy”.