Q1 2024 outlook for pension scheme trustees and employers

The DWP has stated that the DB funding and investment strategy regulations will be published in final form in early 2024 and are expected to have an effective date of April 2024. However, they will not apply to valuations until after TPR’s funding code is finalised. This is expected to be over the course of 2024 and we understand the current aim is for the new rules to apply to schemes with valuation dates towards the end of 2024.

The Work and Pensions Committee (WPC) has raised concerns about possible conflicts between the Chancellor’s Mansion House reforms (which aim to encourage pension schemes to invest more in productive assets) and the DB funding code. TPR has noted that it believes its latest draft of the DB funding code is consistent with the Government’s policy as it allows for pension schemes to invest in growth assets.

The Chancellor’s Autumn Statement provided further details on the Government’s agenda for DB schemes. As part of its policy to support investment in UK productive assets, the Government intends to facilitate DB schemes running on for surplus with appropriate safeguards put in place and making surplus extraction easier. It has also announced a reduction in the tax charge on surplus refunds from 35% to 25% with effect from 6 April 2024.

Two DWP consultations are expected over the winter:

• The first, on the detail for changes to the surplus rules. This is expected to cover a wide range of areas including levels at which surplus is extracted, how to reflect covenant, whether to provide a statutory override for sponsors, facilitating increases to members’ benefits from surplus, and extending PPF cover to 100% of benefits on an opt-in basis.
• The second, on expanding the role of the PPF to act as a public sector consolidator, by 2026. The intention behind this is to give DB schemes that are unattractive to commercial providers another route to discharge their liabilities.

The DWP believes there is a case for a ‘lifetime provider’ model for workplace DC pension savings, as automatic enrolment and frequent job changes mean that employees may otherwise end up with several pension pots with the inefficiencies and sub-optimal outcomes this can bring. The DWP’s call for evidence, which closes on 24 January 2024, explores individuals having a single DC ‘pot for life’ so they can direct pension contributions to be paid into their existing pension scheme when they change jobs.

Meanwhile, the DWP has confirmed that it will proceed with the multiple default consolidator option for eligible deferred pension pots under £1,000. An industry delivery group to support the DWP to work through the issues involved in implementing the plan is due to be launched in early 2024.