Pensions Insight: 11 to 18 March 2024

This week’s insight covers the LTA removal regulations that introduce a statutory scheme rule override for LTA benefit limits, the authorised surplus payments charge reduction to 25%, an update on TPR’s VfM initiative, Clara Pensions’ second superfund transfer deal and the WPC’s inquiry into the Norton Motorcycles schemes.

LTA removal

Regulations remedy various issues prior to LTA Removal Day and introduce statutory override for rules referencing LTA benefit limits

The Pensions (Abolition of Lifetime Allowance Charge etc) Regulations 2024 were laid before the House of Commons on 14 March 2024 and will come into force on 6 April 2024 (LTA Removal Day). The regulations remedy certain issues identified in the Finance Act 2024 (FA24) lifetime allowance (LTA) removal provisions, the most notable of which is the introduction of a transitional statutory override for scheme rules that limit benefits by reference to the LTA. The key changes are detailed below.

Statutory override

There are two statutory override changes in the regulations:

• the introduction of a new transitional statutory override which provides that the interpretation of scheme rules imposing a limit on benefit amounts by reference to the member’s LTA, the standard LTA or the LTA charge will not be affected by the LTA removal changes; and
• the existing FA24 statutory override which permits references to the lifetime allowance excess lump sum (LTAELS) in a scheme’s rules to be read as a reference to the PCELS will be expanded to reference rule wording relating to both entitlement and payment of the LTAELS.

The surprise introduction of the LTA benefit limit statutory override has come rather late in the day but is welcomed as it addresses the possibility that the FA24 could remove LTA-referenced benefit limits unless rule amendments are made to prevent any unintentional impact (with issues potentially arising if such amendments were not introduced before LTA Removal Day).

Schemes now have a temporary reprieve. However, they should note that the statutory overrides only apply until the end of the 2028-29 tax year so schemes will still need to check and make rule amendments where necessary before the overrides expire to: (1) retain LTA benefit limits; and (2) allow a PCELS to be offered, from the beginning of tax year 2029-30 onwards.

Changes to PCELS

The regulations make two changes to the way in which the new pension commencement excess lump sum (a PCELS) will operate:

• the permitted maximum is being removed from the calculation of a PCELS because of concerns that this would restrict lump sum amounts especially in comparison to the current position on the LTAELS;
• members will need to have used up either their lump sum allowance (LSA) or their lump sum and death benefit allowance (LSDBA) before being able to take a PCELS (previously, the PCELS worked so that a member had to have used up just their LSA but this would have caused unintended issues and has therefore been amended).

New ‘event 24’ reports

The regulations make the necessary changes to create new HMRC reporting ‘event 24’ to allow for reporting of the payment of the new relevant benefit crystallisation events (RBCEs) to HMRC where the payment amount exceeds wholly or in part the LSA or LSDBA. A report must be made in respect of members with protected allowances where the lump sum would have exceeded the non-protected lump sum allowance.

Entitlement to lump sums before LTA Removal Date

The regulations provide that, the LTA removal changes should be disregarded where a lump sum entitlement arose before LTA Removal Date but is paid on or after that date.

LTA protections

The regulations also deal with transitional issues regarding the operation of LTA protections under the new regime so that allowances reduce properly.

Authorised surplus payments charge reduction legislation introduced

On 11 March 2024, the Authorised Surplus Payments Charge (Variation of Rate) Order 2024 was laid before the House of Commons. It reduces the authorised surplus payments charge that applies when an authorised surplus payment is made to an employer from 35% to 25% with effect from 6 April 2024.

The reduction forms part of the package of changes that were announced by the Government in the Autumn Statement 2023 – the package includes further proposed changes to the rules on surplus – see our insight for further details.

DC and VfM: Update on TPR review of VfM requirements in respect of specified schemes

The Pensions Regulator’s (TPR) update on its value for members (VfM) initiative for specified schemes (DC schemes with less than £100m in assets which are required to carry out a more detailed annual VfM assessment) confirms that, following an initial pilot, it will now start to analyse scheme return data to check that specified schemes are complying with the VfM requirements.

16% of the sample pilot schemes decided to wind up their DC arrangements because they did not offer good value. TPR has also issued a fine of £12,500 against a corporate trustee, details of which will be covered in TPR’s July to December 2023 compliance and enforcement bulletin.

Action: Specified schemes must ensure that they are meeting relevant requirements in respect of the VfM assessment including winding up the DC scheme or taking immediate improvement steps where the scheme does not provide VfM.

Clara Pensions announces second superfund deal with Debenhams Retirement Scheme

Clara Pensions has announced its second superfund deal (the first was with the Sears scheme) with the trustees of the Debenhams Retirement Scheme to provide the scheme’s 10,400 members with full scheme benefits and back payments totalling £4m in relation to any reductions that were applied during the Pension Protection Fund (the PPF) assessment period that commenced in 2019. Clara will provide an extra £34m of capital to support the transaction.

The PPF noted that the collaborative approach taken has “helped secure a better than initially expected outcome for members. This deal also demonstrates the success of our PPF+ Advisory panel, which we introduced in 2022 to support overfunded schemes to explore options beyond the PPF…”.

Fraud Compensation Fund payment in respect of Norton Motorcycles scheme members

The Norton Motorcycles case is progressing – the trustee of the three Norton pension schemes has confirmed in oral evidence provided to the Work and Pension Committee’s (WPC) inquiry into the Norton Motorcycles case that the Fraud Compensation Fund (FCF) has paid an initial £9.4m compensation payment following a necessary finding of dishonesty (this is despite the eligibility conditions not yet being satisfied as there has not been a qualifying insolvency event).

The PPF’s response (as the manager of the FCF) to the WPC’s inquiry refers to there being a “case for reviewing legislation to better support future victims of scam schemes” and to “make sure the FCF can process claims more efficiently”.