Pensions

Labour's victory in the General Election was not expected to result in the widespread abandonment of the last Government's ongoing pensions initiatives and this was confirmed at the opening of the new Parliament with the announcement of a forthcoming Pension Schemes Bill. 

The last Government had various initiatives underway. The Pension Schemes Bill will take up several of these, including:

• the automatic consolidation of small deferred defined contribution (DC) pension pots;
• a value for money assessment and reporting regime for trust-based DC schemes (to mirror an equivalent new regime for personal pensions);
• a requirement for DC schemes to offer a retirement income solution or range of solutions, including default investment options where assets remain invested pending drawdown; and
• facilitating the consolidation of defined benefit (DB) pension schemes in commercial 'superfunds'.

Notably, there was no mention of a public DB consolidator scheme (aimed at smaller schemes); easier access to surplus (to encourage DB schemes to be run-on rather than insured); or multi-employer collective DC schemes (to permit commercial offerings). And nor was there mention of Labour's manifesto promise to require pension schemes and others to develop and implement climate transition plans. The new Government clearly needs more time to think about those initiatives.

There is also a bigger picture pensions review underway. This is looking at DC pension provision and the Local Government Pension Scheme, including how and where pension fund assets are invested and, later, DC member outcomes. Economic growth is the new Government's main priority, and they will be looking to pension funds to help them with this in various ways.

Looking ahead, there is confident speculation that the new Government's first Budget, due to be delivered on 30 October 2024, will seek to raise revenue by reducing pension contribution tax reliefs and/or greater taxation of certain pension scheme benefits.

A new regime for DB pension scheme funding and investment applies where a scheme valuation has an effective date on or after 22 September 2024. Legislation and a Pensions Regulator code of practice set out new principles governing how DB schemes will have to be funded, alongside an integrated investment strategy. This must be based on a determined long-term objective for the scheme to provide benefits, for example: buy-out with an insurer, consolidation with another/other scheme(s) or indefinite run-on.

There are new requirements for schemes to have a 'funding and investment strategy' (FIS) for ensuring that benefits can be provided over the long term. This must include a targeted funding level(s) to be achieved by a particular date or dates, and information on the investments intended to be held, as at particular dates, along the way.

The FIS must be set out in a statement of strategy (SoS), alongside supplementary matters concerning aspects of the FIS and its implementation. Trustees must obtain the agreement of the employer to the scheme's FIS (unless they unilaterally set employer contributions, in which case the obligation is only to consult) and must consult the employer on the supplementary content in the SoS.

Our briefing from earlier this year set out the structure of the new regime. What's Happening in Pensions Issue 111 notes material changes to the code of practice from the consultation draft.

The Court of Appeal has upheld a High Court decision on the validity (or rather otherwise) of a rule amendment affecting benefits in a DB contracted-out pension scheme which was made without obtaining the actuary's written confirmation about the adequacy of benefits, as required at the time by legislation.

There are potential implications for other DB schemes that were contracted-out of the additional state pension (which was very common), where amendments were made affecting scheme benefits between 6 April 1997 and 5 April 2016, if no actuarial confirmation was given. The risk is that an amendment, for example one reducing benefits for future service, was ineffective.

Our initial alert gives more detail and a Q&As briefing looks further at the practical implications.