Pensions predictions for 2024

In last year’s predictions, we surmised that the pensions industry at large had put “a busy and unpredictable 12 months” at the top of its wish list at the start of 2022. It seems like everyone enjoyed having that wish granted so much last year that they asked for more of the same in 2023 and well, we certainly got it!

What started out as a steady year soon took a different turn. One by one we were faced with big changes and significant events: the abolishment of the lifetime allowance (LTA), a significant cyber incident at one of UK’s largest pension administrators, a court case addressing the long standing problem of missing section 37 confirmations (proceedings many of us had wished for, followed by a decision that none of us wanted), and the announcement of the Mansion House reforms (later addressed further in the Autumn Statement). 

That’s really quite enough for one year, but at the time of writing, just under two weeks of 2023 remain, so there’s still time for more. If we’ve learned anything as an industry in recent years, it’s to expect the unexpected! For now though, we’re hoping for a quieter end to 2023 and looking forward to what 2024 has in store.

Appeal in Virgin Media Limited v NTL Pension Trustees II Limited and others 

On 5 December 2023 the trustees of the NTL Pension Plan confirmed that the appeal hearing will take place before the Court of Appeal on 25 - 26 June 2024.   

The first instance decision, which held that rule amendments which affect so called “section 9(2B)” rights are void where a 37 confirmation was not obtained, could have far reaching consequences for formerly contracted out schemes. 

One problem arising from the case is that of missing section 37 confirmations where it was obtained but subsequently lost. The High Court did not address this issue. Shortly after the judgment the NTL trustee confirmed that permission had been granted for a further hearing (separate to the appeal) to hear arguments on what other documents might evidence the confirmation was given. That hearing has not happened yet and may not happen before the appeal.

The grounds for appeal are not yet known, and it is impossible to predict its outcome. Many will be hoping for a reversal.  However, the High Court judgment was fairly robust, so it remains to be seen how much room for change there really is.

Farewell to the LTA?

The government announced that the LTA would be abolished from 6 April 2023 in the Spring Budget.  Its removal from law is a two-step process: 

1. The Finance (No 2) Act 2023 amended existing legislation so that no LTA charge arises on or after 6 April 2023. The LTA still exists in law and will continue to exist until legislation removing it is passed.  
2. The draft legislation to achieve that, the Finance Bill 2023-24, published on 29 November and the government is adamant that it will come into force on 6 April 2024. 

But will we really be bidding a final fair well to the LTA come 6 April? Possibly not.

There have been industry calls to delay this second stage of the LTA’s removal because extracting it from the existing legislation is an intricate and complex job. It is not just a case of deleting the relevant words (a big enough job in and of itself), it’s also about understanding the impact of their removal on that legislation, on policy, and elsewhere. 

Whilst the Finance Bill 2023-24 does contain detailed provisions, it could be that the government decides that removing the LTA entirely is too big and complicated a job to get right before the end of the current tax year (remember, in early consultation the government thought it could make all of the necessary legislative changes for A-day to take place on 6 April 2004. In the event it took an additional two years).

On top of the complexity of the job is the looming general election, which could ultimately determine the LTA’s fate, the Labour Party has so far maintained that it will reinstate the LTA if elected. Whether it would in reality is a different story though, since putting it back in place would be just as complicated, if not more, as abolishing it in the first place. The election must take place by the end of January 2025 and the Autumn Statement has sparked speculation that it might happen as early as Spring 2024.  

New DB funding regime

Louise Davey (interim director of regulatory policy, analysis and advice at the Pensions Regulator (TPR)) recently told the Work and Pensions Committee that the Occupational Pension Schemes (Funding and Investment Strategy and Amendment) Regulations (Funding Regulations) will be introduced “in the new year” and will be in force by April 2024. TPR’s defined benefit funding code of practice (Code) will also be in force by that date. 

The Department for Work and Pensions (DWP) consulted on the Funding Regulations back in July 2022 and has yet to issue its response. The Funding Regulations leave several key aspects to be decided and dealt with by the Code. TPR consulted on last December but announced in April it would be delayed until April 2024.

The DWP and TPR being on track for the April 2024 deadline is good news. However, some schemes will have less time than others to get to grips with the final requirements (whatever they may be), as Ms Davey confirmed they will apply to schemes that have valuations due from Autumn 2024. Trustees have 15 months from the effective date of a valuation to complete it, so that should give them (and their advisers) sufficient time to digest any changes to the Funding Regulations and the Code (if any). However, timings might become a bit trickier if the DWP misses the April 2024 deadline for the Funding Regulations. That would likely push things back to October 2024, which could cause some uncertainty for schemes with an autumn valuation date.

Changes to the conditions for transfer regulations

Could 2024 finally be the year in which the government decides to amend the Occupational and Personal Pension Schemes (Conditions for Transfer) Regulations 2021 (Transfer Regulations)? 

The DWP reviewed the Transfer Regulations in June this year and concluded that changes might be needed, but it did not commit to any particular timescales. We have known, as an industry, that the Transfer Regulations were not aligned with the policy behind them since the day they came into force). The Pensions Ombudsman has recently acknowledged this in the case of Mr W.

The Transfer Regulations were designed to identify and prevent transfers which present a risk to the member of a pension scam. One of the ways they do this is by requiring trustees to check for red and amber flags. Red flags prevent a transfer from proceeding. Amber flags require the member to seek guidance from Money Helper.   

Two flags in particular, have caused trustees considerable headaches: incentives (red flag) and overseas investments (amber flag). The flags are not clearly defined and capture any incentive or overseas investment, whether or not they are a cause for concern. In practice, both could feature in a low-risk transfer and so members are facing unnecessary obstacles, whilst trustees have been faced with the tricky decision of whether to take a literal or pragmatic approach to applying the Transfer Regulations.

For trustees, this issue will be a priority for 2024. However, whilst the DWP has acknowledged that there is further work to be done, its plate is rather full. Between the new funding regime and the Mansion House reforms, the DWP may not find time to address the Transfer Regulations before the second half of 2024 (if at all).

Mansion House

The Autumn Statement confirmed that the DWP continues to develop the Mansion House reforms at pace. At the moment, there is an ongoing consultation in relation to the so called “pot for life” model, and work is taking place in the background in relation to the consolidation of small deferred defined contribution (DC) pots, trustee duties in the DC decumulation phase, the expansion of collective DC schemes and a value for money framework (to name a few).

The reforms are part of the government’s wider growth agenda, and so we will expect some of them to appear in the Conservative Party manifesto as we approach a general election. That being the case, we will inevitably see more activity in this area. The Labour Party too has expressed its support for some of the reforms’ general principles, like consolidation, growth and reforming the UK pensions system, so whichever party comes into power, we are almost certainly going to see some of them come to fruition (albeit perhaps in slightly different forms). 

You can read more about the Mansion House reforms here and the Autumn Statement here. 

Notifiable events

Last year we thought that October 2023 would see the arrival of the new notifiable events regulations. However, much to the frustration of many, the DWP has remained silent on the matter and section 69A of Pension Schemes Act 2021 remains to be brought into force.

The changes (which you can read about here) will eventually introduce a new two-step notification process for certain employer related notifiable events. Employers will be required to make an initial notification to TPR at an earlier stage than is currently the case, followed by a further notice later in the life of an affected transaction.  

We’ve been waiting for a formal update from the DWP since a consultation on draft regulations setting out details of the affected events closed on 27 October 2021. The reason for the delay unknown. Changes to pensions law usually come into force in April or October in any given year. The latest informal update is that the regulations will not be published in April 2024, however no update beyond that has been provided. 

See you in 2024

It’s been a busy year across the pensions industry, so we hope everyone has a peaceful Christmas and festive season.  We look forward to catching up with our clients and contacts in early 2024 for what will no doubt be another interesting year.