Pensions: what's new this week - 04 December 2023
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Welcome to your weekly update from the Allen & Overy Pensions team, covering all the latest legal and regulatory developments in the world of workplace pensions.
This week we cover the following topics: Draft legislation on abolition of LTA; TPR blog post on alternative DB scheme funding arrangements; TPR blog post on the changing pensions landscape; Latest HMRC newsletter; Latest revaluation order.
Draft legislation on abolition of LTA
The government has published a draft of the Finance Bill 2024, which includes revised provisions intended to remove the lifetime allowance (LTA – the limit on the amount of pension a person can build up tax efficiently over their lifetime) from pensions tax legislation with effect from 6 April 2024.
The abolition of the LTA was announced as part of the Spring Budget. The LTA charge stopped applying from 6 April 2023 but the LTA remained in legislation. The Finance Bill provisions are intended to remove this. As with the previous draft, the legislation introduces a cap on tax-free lump sums of GBP268,275 and a limit of GBP1,073,100 on tax-free lump sums and death benefit lump sums (higher caps applying for those with certain protections). This is intended to maintain entitlement to tax-free cash at the same level as prior to the abolition of the LTA.
There have been a number of changes since the earlier draft published in July 2023. Some of these are intended to address issues identified through consultation, as discussed in HMRC guidance published last week (read more) and in HMRC’s latest pension schemes newsletter (see below).
The Bill has started its journey through Parliament, having had its first reading in the House of Commons, and the date of its second reading is to be announced. We will provide further updates as the Bill progresses.
TPR blog post on alternative DB scheme funding arrangements
The Pensions Regulator (TPR) has published a blog post discussing the emergence of alternative DB scheme funding arrangements, in particular capital backed journey plans (CBJPs), also known as capital backed arrangements. The structure of these arrangements varies but typically involves a third-party funder providing additional capital to support the risks in the scheme, with the scheme’s assets being invested in a higher expected return portfolio.
TPR is supportive of CBJPs in principle in certain circumstances, for example when used by schemes with a distressed employer to secure benefits above PPF levels. However, it warns that it would need to scrutinise any CBJPs to make sure that they are appropriately set up and well run and would assess them using relevant parts of its superfunds guidance.
TPR plans to publish new guidance to help trustees and employers navigate alternative arrangements in the new year. In the meantime, the blog post sets out some issues TPR expects trustees to consider if contemplating one of these arrangements including, in particular, engaging early with TPR.
TPR blog post on the changing pensions landscape
TPR has also published a blog post discussing the changing pensions environment and welcoming the pensions-related developments in the Autumn Statement (read more). It highlights in particular developments in scheme consolidation; plans for a trustee register to raise standards of trusteeship; the value for money framework, which it continues to work on with the FCA and DWP; and the requirement for schemes to offer decumulation options, which it will develop guidance on for trustees.
Latest HMRC newsletter
HMRC has published its latest pension schemes newsletter (number 154). The newsletter sets out a summary of some of the announcements made in the Autumn Statement (read more). It comments on abolition of the LTA (discussed above) and says it will provide further details to schemes through a future lifetime allowance newsletter after introduction of the Finance Bill. The newsletter also explains that, following concerns with the proposed timelines, digitisation of relief at source will be postponed until at least April 2027, therefore the Autumn Statement did not include legislation on this.
The newsletter asks schemes to remind members who have exceeded their annual allowance for tax year 2022/23, and who do not have sufficient unused annual allowance to carry forward to cover the excess, to declare this on their self-assessment tax return, even if the scheme is paying the tax charge. It also includes reminders on other administrative points, including paying pension scheme charges, deleting scheme administrator identifications that are no longer in use and residency status reports for relief at source schemes.
Latest revaluation order
The latest annual revaluation order sets the higher revaluation percentage at 5% and the lower revaluation percentage at 2.5% for the period from 1 January 2023 to 31 December 2023. These annual orders set out the statutory minimum level of revaluation for pension benefits (excluding guaranteed minimum pensions) for deferred members where the final salary method of revaluation is used. The order comes into force on 1 January 2024.