Pensions Bulletin 2024/29

DB Funding Code issued

On 29 July 2024 the Pensions Regulator announced that the DB Funding Code had been laid before Parliament.  It can be viewed on the Pensions Regulator’s website here.

To accompany the Code the Regulator published its response to the earlier consultation on the draft Code. It also published its response to the consultation on its Fast Track parameters and general regulatory approach. This second response includes how the Regulator has finalised its position on the Fast Track parameters. Both consultations had taken place at the same time (see Pensions Bulletin 2022/47).

For further details of this important development see our News Alert.

Virgin Media – Appeal dismissed

Following the hearing in June 2024 (see Pensions Bulletin 2024/25) on 25 July 2024 the Court of Appeal unanimously dismissed the employer’s appeal against last year’s High Court judgment.

The High Court had held three things:

• The effect of section 37 of the Pension Schemes Act 1993 was to render invalid and void an amendment to the rules of a contracted-out scheme which related to certain contracted-out rights in so far as the amendment was introduced without the required actuarial confirmation.
• The contracted-out rights concerned – “section 9(2B) rights” – defined in the applicable regulations included both past service rights and future service rights.
• The requirement for actuarial confirmation, and the sanction of voidness absent such confirmation, applied to all amendments to the rules of a contracted-out scheme in relation to section 9(2B) rights, and not merely those which would or might adversely affect section 9(2B) rights. So, benefit improvements may be void/invalid as well.

The appeal concerned the second point above, it being argued before the Court that only past service rights fell within the required actuarial confirmation when a rule change relating to section 9(2B) rights was proposed. However, the Appeal Court did not accept this argument, concluding that “Bacon J came to the right conclusion in her impressive judgment” delivered in 2023.

In what is a case with widespread ramifications, we do not know at this time whether or not leave to appeal to the Supreme Court will be sought.

Box Clever – Hopefully the end in sight to a long-standing dispute

A quarter of a century since the events under scrutiny it seems that the dispute between ITV and the Pensions Regulator (see Pensions Bulletin 2018/21 for a summary) has finally come to an end in the form of a settlement announced by the Pensions Regulator.

The settlement is not a cash one. The agreement in principle will see all 2,800 members of the underfunded Box Clever scheme transfer to the ITV Pension Scheme. Members, who have been receiving benefits at Pension Protection Fund levels since 2014, will now receive full scheme benefits and back payments. In exchange, the Regulator will cease its regulatory action. 

The transfer will follow a data cleanse exercise which could take up to a year and ITV has termination rights if the data cleanse reveals materially increased liabilities compared to the settlement date. If ITV does not complete the transfer the Regulator will be free to recommence its regulatory proceedings – which, pre-settlement, comprise it seeking a Contribution Notice for the full Box Clever buy-out deficit of £76m, after agreement could not be reached on the Financial Support Directions it had previously issued.

Pensions Regulator updates DB superfunds guidance

As promised last August (see Pensions Bulletin 2023/32) and following industry engagement, on 26 July 2024 the Pensions Regulator issued further guidance on how it expects the interim regime for DB superfunds to operate. The updated guidance, which is across two documents, includes three main changes – in relation to capital release, the standalone principle and when reduced capital adequacy is permissible.

Capital release

The August 2023 version of the “DB superfunds guidance” only allowed capital to be released when benefits were bought out. The July 2024 version allows capital release when the total assets (in the pension scheme and capital buffer) exceed certain minimum capital adequacy expectations.

In particular, in a rewritten section 7.3.4 of the guidance, the Regulator expects capital to be released at most twice a year and only provided a capital release funding test has been satisfied. These tests need to be carried out at pre-determined six-monthly or annual dates. The test is satisfied if the surplus assets exceed the capital adequacy expectations by at least 33% – with any assets above this margin then able to be released. The Regulator also sets out additional safeguards, including that the investment risk profile should not be significantly altered, and that the superfund’s trustees should submit a formal statement to the Regulator before any release is made.

Standalone principle

Section 7.3.4 of the August 2023 version of the “DB superfunds guidance” stated that upon a transfer of a new scheme to the superfund, fresh capital was to be provided at a level which, together with value obtained through the transaction, would satisfy capital requirements if that pension scheme was considered in isolation.

The July 2024 version dispenses with the standalone test as long as the superfund in total is funded above the level at which capital might be released.

Reduced capital adequacy

The July 2024 version of the “Superfund guidance for prospective ceding trustees and employers” provides that the standard capital adequacy requirements may now be relaxed where a pension scheme’s sponsoring employer becomes insolvent and the scheme is unable to afford the buyout of full benefits, or to enter a superfund or capital backed arrangement on full capital adequacy terms. In such circumstances, trustees should be confident that the transaction is in members’ best interests and that, even on the lower capital adequacy basis, the level of benefits members might receive would represent a material improvement from buying out with an insurer on PPF+ benefits levels. The details are in Appendix A which has been completely rewritten to cover this “Group 3” scenario, along with two other scenarios in which the scheme enters a non-DB superfund capital-backed arrangement. 

Chancellor sets scene for tax-raising Autumn Budget

The Chancellor, Rachel Reeves, gave a statement to the House of Commons on 29 July 2024 focussed on Labour’s ‘spending inheritance’ from the Conservative administration, in which she revealed £22bn of “unfunded pressures” arising in the current fiscal year and her “immediate action” to address these. She also set the date for the Autumn Budget – 30 October 2024 – in which it is widely assumed that she will propose a number of additional taxation measures, none of which appeared in her party’s manifesto for the July General Election.

Under the heading of “immediate action” are measures that are intended to produce savings of £5.5bn in 2024/25 and £8.1bn in 2025/26. These include limiting winter fuel payments, currently paid on a universal basis to households with someone over State Pension Age, so that in future, such households will also have to be receiving certain social security benefits. This restriction will take place from winter 2024/25 and, due to devolution, impacts only England & Wales. The “immediate action” measures leave over £8bn of the £22bn that will need to be addressed by some other means.

Documents setting out details of a number of measures that will raise tax and which were in Labour’s “fully funded fully costed” manifesto were also published. These include VAT on private school fees, changes to the taxation of non-UK domiciled individuals, changes to the energy (oil and gas) profits levy, and the tax treatment of carried interest. Many of these are likely to appear in the Finance Bill that will be published shortly after the Autumn Budget.