Pensions Bulletin 2024/39

Price inflation and earnings figures set the scene for next year’s pension increases

On 16 October 2024 the Office for National Statistics announced that the Consumer Prices Index (CPI) had risen by 1.7% over the twelve months to September 2024. Over the same period the Retail Prices Index rose by 2.7%. A day earlier the ONS released its latest earnings figures, which amongst other things contained a confirmation that the KAC3 average weekly earnings data (total pay, seasonally adjusted) for the three months to July 2024 was a 4.1% increase on the same figure 12 months prior.

These announcements set the scene for the calculation of a number of pension increases next year.

State pensions

We understand that the KAC3 figure above is what the Department for Work and Pensions ordinarily uses to determine the earnings element of the state pension “triple lock”. So, assuming the triple lock formula continues to operate in full, the earnings element of 4.1% should drive next April’s increases, being higher than the CPI figure of 1.7% and the fixed 2.5%. Therefore, the Basic State Pension (currently £169.50 pw) and the full rate of the Single Tier State Pension (currently £221.20 pw) should increase in April 2024 by 4.1%.

SERPS and S2P entitlements in payment should increase by 1.7% next April.

Occupational pensions

Next year, schemes that use September CPI as a reference point and apply the Limited Price Indexation rules to pensions in payment will have to increase them by at least 1.7% for both the pension that accrued between 6 April 1997 and 5 April 2005 (which is subject to a 5% cap) and for the pension that accrued after 5 April 2005 (which is subject to a 2.5% cap).

GMPs that accrued after 5 April 1988 should also increase next year by 1.7%, which is far lower than the 3% ceiling.

For pensions in deferment, the statutory minimum uses September inflation as a reference point and the revaluing of any pension in excess of GMP will reflect the CPI of 1.7%, but subject to how the overriding 2.5% and 5% cumulative caps bite. The 1.7% increase will come through in full, with greater scope now to enable last year’s 6.7% increase to come through in full.

The above comments relate to statutory minima. Many schemes will have increases in their rules that are in excess of this and some will use different inflation reference months.

Pensions tax

For members accruing defined benefits or cash balance, the September-to-September CPI is key to annual allowance calculations. The 1.7% increase is effectively the inflation allowance made before the annual allowance starts to be used up in the 2025/26 tax year.

Pensions Regulator calls again for more than minimum ESG compliance

In a blog posted on 14 October 2024, Mark Hill, the Pensions Regulator’s Climate and Sustainability Lead, calls on trustees to go beyond minimum compliance with their environmental, social and governance (ESG) duties and seek continuous improvement to improve portfolio resilience and deliver better outcomes for savers.
This blog follows on from the Regulator’s review in this area, the findings of which were published in August (see Pensions Bulletin 2024/30), and newly places emphasis on what the Regulator is intending to do next and what resources it is making available to trustees.

First up is the Regulator’s intention to “constructively challenge trustees’ decision-making”, although it is not clear how the Regulator is going to go about this.

Then, Mr Hill announces that the Regulator’s ESG materials have been brought into one place via a new landing page on its website. He calls on trustees to use this material to ensure they are doing everything they should to manage ESG factors and climate change risks in savers’ interests.

Finally, the Regulator is to refresh the Trustee Toolkit between now and next spring, including reviewing ESG content in the introduction to investment module.

Pensions tax law tidy up completed for now

Further regulations have been laid before Parliament that should complete much of the necessary error-fixing and omission resolving adjustments to pensions tax law in relation to the LTA abolition policy. These regulations follow the draft regulations laid last week (see Pensions Bulletin 2024/38) that covered similar but different ground.

The Pensions (Abolition of Lifetime Allowance Charge etc) (No. 2) Regulations 2024 (SI 2024/1012) also come into force on 18 November 2024 and are also backdated so that they have effect from the start of the 2024/25 tax year onwards.

The Explanatory Memorandum lists the nature of the amendments being made. They are too numerous to list, but include the following:

• Some major reworking of that part of the Finance Act 2004 that deals with those who had significant pension savings on 5 April 2006, notwithstanding the changes made here by the Finance Act 2024.
• Some important changes being made to the operation of the transitional tax-free amount certificate – of potential relevance to those who started to take benefits under the LTA regime and have more benefits to take in the post-LTA regime.

The regulations also make consequential adjustments across a long list of pensions tax law, both primary and secondary – not surprising given how fundamental the LTA was in the vast ream of pensions tax law that started with its introduction through the Finance Act 2004.

PASA launches its dashboard toolkit 

On 14 October 2024 the Pensions Administration Standards Association announced the publication of the first content of its “Dashboards Toolkit”; this being solely on AVCs.

There are three separate documents covering the following:

• A questionnaire for trustees to issue to their AVC providers in advance of connecting their scheme AVCs to dashboards;
• A checklist and suggested list of activities for administrators to connect to and maintain AVC data; and
• A list of AVC providers and their connection methods, which will be updated as PASA engages with more providers.

PASA recommends that schemes should contact their AVC providers directly before undertaking any work to connect AVCs to pensions dashboards, and also set up an AVC tracker where an individual scheme has multiple providers.

PASA expects to add to the toolkit regularly and will make further announcements on its website when new content is added.

LCP stewardship report published

We have published our latest stewardship report highlighting how we have helped our clients with their stewardship and responsible investment activities over the year to 31 March 2024 through the services and advice we have provided. The report also describes how we, as an investment service provider, have implemented the principles of the UK Stewardship Code 2020.

The Code itself is in the throes of a significant overhaul with the Financial Reporting Council promising a formal public consultation on its proposals later this year (see Pensions Bulletin 2024/28).