Pensions Bulletin 2024/01
Our viewpoint
11 January 2024
- General Code published – at last!
- HMRC issues its first guidance on the LTA abolition law
- Spring Budget date set
- Advisory Group updates pensions on divorce guidance
- Pensions Ombudsman publishes Corporate Plan and responds to the competent court ruling
- Pensions dashboard legislation starts to be switched on
- Employer-related investment – another trustee given suspended prison sentence
- Employment law regulations laid in final form
General Code published – at last!
The Pensions Regulator published its long-awaited General Code of Practice on 10 January 2024. The Code was laid before Parliament on the same day and should come into force on 27 March 2024. A detailed consultation response is also included in the package.
The Code aims to improve governance of occupational pension schemes (whether DB or DC). It does this in two ways.
Consolidation and updating
First, by consolidating ten of the Regulator’s existing Codes, updated for the passage of time and regulatory change. This should make it easier for trustees to find the Regulator’s current expectations across a whole range of topics. As such the new Code lays down a challenge to trustee boards to establish whether how they are running their scheme is consistent with what the Regulator would like to see. These include areas such as the following:
- Investment governance – where the Code has set out a number of expectations
- Climate change – where the Code provides an opportunity to review the management of this systemic risk
- Administration and data – on which trustees will increasingly need to focus on as they consider their endgames
- Cyber risk – on which an increasing focus is likely in the next 12 months
- Member communications – on which the Code contains helpful reminders of what the Regulator expects to be referred to when drafting communications
New requirements
Second, by introducing some new requirements. These include, most notably, the effective system of governance (ESOG) requirements, which include priorities such as establishing a risk management function and a remuneration policy. Schemes with 100 or more members will need to prepare an own risk assessment (“ORA”) – an examination of how well the ESOG is working and how any potential risks are being mitigated.
Comment
The Code’s publication has been delayed so many times that it was becoming uncertain as to whether it would ever see the light of day. The now-settled version is not that different to the Regulator’s consultation draft issued in March 2021 (see Pensions Bulletin 2021/12) and thankfully remains grounded in what pensions law currently requires, eschewing what might be on the way as a result of the Mansion House and other initiatives.
Many of the Codes that this General Code now replaces had become very dated. Updating them and bringing them all together is very welcome. And its publication fires the starting gun for the effective system of governance requirements, which we discuss in our News Alert.
HMRC issues its first guidance on the LTA abolition law
Shortly before the Christmas break HMRC published a newsletter providing its latest news on pensions tax. This lifetime allowance guidance newsletter is devoted entirely to Schedule 9 of the Finance Bill that contains the necessary legislation to abolish the lifetime allowance and which is currently making its way through Parliament.
We reported on this Bill in a News Alert issued on 4 December. Below we highlight some further information that the HMRC newsletter provides on the Bill and related matters.
Authorised payments
There is an explanation of the purpose of the new “pension commencement excess lump sum”, but no indication of how limited its scope might be. We have concerns that as this new tax label is not reflected in current DWP law, occupational pension schemes may find that they cannot use it until DWP law is modified.
There is confirmation that dependants or nominees’ flexi-access pensions or annuities, which had been the subject of proposals to levy marginal rate tax on the entirety of the payment, will remain tax-free.
Tax reporting
HMRC sets out how lump sums that attract tax should be reported and how the tax deducted should be paid over. The processes for the 2024/25 tax year are set out along with an intention to expand the real time information (RTI) processes so that pension commencement excess lump sums can be reported in this manner from the 2025/26 year onwards.
HMRC also notes a drafting error in the Bill – the new requirement for administrators to report, in the Event Report, for each individual, every single lump sum payment taken from the scheme in that year that will reduce that individual’s available allowances. This is something we had queried in our News Alert and it is pleasing to see HMRC acknowledging this error. HMRC says that this “Event 24” is intended to only operate where the member has had a relevant benefit crystallisation event that exceeds their available allowance (which may be higher than the standard allowance due to the member relying upon a protection or enhancement factor). Hopefully, we will see an amendment moved to the Bill shortly.
HMRC also says that the current administrative process for taxation of a defined benefits lump sum death benefit or uncrystallised funds lump sum death benefit that HMRC confirmed could continue to be used for the 2023/24 tax year (see Pensions Bulletin 2023/18) will be made permanent and will apply to four other lump sum death benefits. And to speed up the reporting and assessing of a beneficiary’s income tax liability following the payment of a lump sum death benefit, the personal representative will be required to provide certain additional information to HMRC. HMRC also intends to update the notification process from 6 April 2025 and will create new guidance as part of this, with a form for the personal representative to complete, with the consequence that HMRC will then have the information needed to raise the tax charge at the beneficiary’s marginal rate.
And finally
The newsletter concludes by saying that HMRC is ready to support schemes through implementation of the new pensions tax law which is to start on 6 April 2024 and would welcome views from schemes on which aspects of the legislation they would most like to be covered in future communications. It also asks whether further lifetime allowance working groups would be helpful to walk through the detail and effect of the legislation.
Comment
This is a very useful newsletter with much thought clearly having gone into its construction. It also demonstrates the sheer scale of the challenge that this new regime will bring, largely for scheme administrators operating their processes behind the scenes. This new regime is clearly going to happen and in short order and the newsletter will focus the minds of those who need to know how to operate it.
Spring Budget date set
HM Treasury has announced that the Spring Budget will be held on 6 March 2024. Those wishing to make representations to HM Treasury have until 24 January 2024 to write in with comments on government policy or to suggest new policies to include in the Budget.
Comment
We are not expecting any further pensions measures in the Spring Budget, which may well be the last fiscal event before the General Election, although it is possible that an election will not be called until after an early Autumn Statement.
Advisory Group updates pensions on divorce guidance
The Pensions Advisory Group – a multi-disciplinary group of professionals specialising in the field of financial remedies and pensions on divorce – has updated its guidance on how pensions should be treated on divorce. A blog, announcing its publication, can be found on the Financial Remedies Journal’s website.
First published in June 2019 (see Pensions Bulletin 2019/26) the second edition reflects various changes and events which have occurred since 2019, including developments in case law, changes to terminology introduced by the Divorce, Dissolution and Separation Act, the effects of Brexit on international family financial issues, the potential use of the Galbraith Tables, the abolition (and possible restoration) of the lifetime allowance, McCloud issues with public sector schemes and volatility in DB valuations following the 2022 LDI crisis.
Comment
Once again, the Group has produced a magisterial tome that will be of assistance primarily to legal practitioners and judges as they seek to understand issues relating to pensions on divorce impacting the cases they come across. This includes when to seek assistance from a pensions on divorce expert (a PODE) to assess the worth of pension assets in matrimonial property.
Pensions Ombudsman publishes Corporate Plan and responds to the competent court ruling
Following on from December’s publication of the annual report and accounts for the year ending 31 March 2023 (see Pensions Bulletin 2023/51), the Pensions Ombudsman has now published his latest corporate plan – for the three years ending 31 March 2026. This sets out some of the challenges facing the Ombudsman, especially in tackling what is expected to be a growing number of “pension complaints”, not helped by a June 2023 cyber incident. Priorities over the three year period include reducing customer waiting times whilst maintaining quality of service, embedding new ways of working and identifying further efficiencies, and strengthening relationships with stakeholders to improve dispute resolution in the pensions industry. However, somewhat worryingly, DWP funding is to fall over the same period.
Separately, the Ombudsman has set out his disappointment with the recent Court of Appeal ruling (see Pensions Bulletin 2023/44) that the Ombudsman is not a competent court for the purposes of concluding overpayment disputes where recoupment is sought. He says that in response to this ruling, the DWP is supporting legislative changes to formally empower the Ombudsman to bring an outstanding overpayment dispute to an end without the need for a County Court order. In the meantime the Ombudsman has published a factsheet to provide guidance on how overpayment disputes should be managed.
Comment
It is far from clear how the Ombudsman can make serious inroads into the case backlog without the DWP making the £1.7m additional funding agreed for 2023/24 permanent. And on the Court of Appeal ruling we are not expecting the DWP to ride to the rescue any time soon. An Act of Parliament will likely be needed which is not going to happen before the General Election other than possibly via a Private Member’s Bill.
Pensions dashboard legislation starts to be switched on
The Government has laid two sets of regulations before Parliament that may well give an indication that regulatory activity supporting the pensions dashboard is starting to pick up.
The first set of regulations brings into force the operative part of the Pensions Dashboards (Prohibition of Indemnification) Act 2023 which obtained Royal Assent in May 2023 (see Pensions Bulletin 2023/18). As a result, since 1 January 2024 it is a criminal offence for pension scheme trustees or managers to reimburse themselves, using the assets of the pension scheme, in respect of penalties imposed under pensions dashboards regulations.
The second set, which is in draft form, makes operating a pension dashboard service, which connects to the MaPS dashboards digital architecture, a regulated activity. This will enable the FCA to finalise its rules that will govern qualifying pensions dashboard services, on which it consulted in December 2022 (see Pensions Bulletin 2022/45) and on which the outcome is awaited. Once in final form, the Order will come into force on 11 March 2024.
A blog has also been published by the Pensions Dashboards Programme in which 2023 is acknowledged as having been a challenge, but one in which significant progress has been made, with 2024 being an important year for the programme.
Comment
2024 could well be the make-or-break year for the pensions dashboard. Unless sufficient progress has been made before the General Election is called, nothing can be done policy-wise during the campaign and quite possibly for many months after as a new incoming Government with a new Secretary of State could decide to take stock of a project that has been continually delayed since George Osborne announced in the 2016 Budget that it would be launched by the end of 2019.
Employer-related investment – another trustee given suspended prison sentence
Following prosecution by the Pensions Regulator, another trustee of an occupational pension scheme has been given a suspended prison sentence for making illegal loans to the sponsoring employer. There was a similar case involving a separate scheme on which we reported in March (see Pensions Bulletin 2023/13).
In the latest case, the Pensions Regulator reports that the trustee made five loans, totalling around £700,000, in breach of the employer-related investment law. It also says that ultimately all scheme monies were lost as the loans were converted into another employer-related investment which failed, although the individual concerned was not a trustee at the time of the failed investment.
Comment
Another demonstration that the Regulator will prosecute cases of illegal employer-related investment and that courts will convict. We hope that the consequences are now clear enough so that any illegality on employer loans is consigned to the history books.
Employment law regulations laid in final form
The regulations making changes to certain aspects of retained EU employment law that were laid in draft form in November 2023 (see Pensions Bulletin 2023/45) have now been laid in final form. The Employment Rights (Amendment, Revocation, and Transitional Provision) Regulations 2023 (SI 2023/1426) came into force on 1 January 2024. The Equality Act 2010 (Amendment) Regulations 2023 (SI 2023/1425), which preserve certain interpretive effects of retained EU law in the employment field, also came into force on 1 January 2024.
This Pensions Bulletin does not constitute advice, nor should it be taken as an authoritative statement of the law. For further help, please contact David Everett at our London office or the partner who normally advises you.
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