Pensions Bulletin 2024/48

PPF Purple Book headline funding figures down but details show improvements 

On 5 December 2024 the Pension Protection Fund published its latest annual Purple Book, which focuses on the funding position of DB pension schemes, whilst also including information on scheme membership, asset allocation, de-risking and more.  

Of particular note this year is that the PPF has substantially revised its funding figures so as to show a much lower overall section 179 funding ratio – from 134% at 31 March 2023 as published in the 2023 Purple Book to a new estimate of 120% at the same date, and then an increase to 123% at 31 March 2024. The buyout funding ratio was revised downwards by even more – from 112% to 90% at 31 March 2023, and then an increase to 94% at 31 March 2024. 

Both downward adjustments reflect a refinement in the PPF’s roll-forward methodology used to estimate funding positions, which now allows for the more granular asset data captured by the Pensions Regulator in its Scheme Returns as well as cashflow information, rather than reflecting an actual reduction in scheme funding. 

As at 31 March 2024, the net section 179 funding position of all schemes in the PPF universe is a surplus of £219.2bn, compared to £206.9bn last year (restated from £358.9bn reported then). The section 179 deficit of schemes in deficit improved from £34.9bn last year (restated from £8.2bn reported then) to £20.9bn – it is these schemes that could use up the PPF’s reserves of £13.2bn should their sponsors become insolvent.  

The number of PPF eligible schemes has now fallen to 4,974, compared to 5,063 in 2023. 78% of these schemes have assets of less than £100m, and 74% are closed to new benefit accrual. 

Shortly, after the publication of this year’s Purple Book the PPF published the PPF 7800 index for 30 November 2024. The significance of this latest monthly publication is that, for the first time, it shows the funding status of PPF-eligible schemes on the refined methodology. The above Purple Book net section 179 funding surplus of £219.2bn at 31 March 2024 has improved to £235.5bn at 30 November 2024, but the above deficit figure of £20.9bn at 31 March 2024 has worsened to £22.8bn at 30 November 2024. 

Joint statement on DB pension scheme data issued 

On 4 December 2024 a joint statement was issued by the Office for National Statistics, the Pensions Regulator and the Pension Protection Fund on defined benefit pension scheme data. 

Its purpose was to acknowledge the different datasets and methodologies that each organisation has for estimating DB pension scheme funding positions, and that although their datasets are expected to show greater alignment in future (due in part to the House of Commons Work and Pensions Committee nudging them in this direction), differences will inevitably remain. 

HMRC’s Newsletter 165 contains a smorgasbord of pensions tax technicalities 

There are five topics in HMRC’s latest pension schemes newsletter that was published on 5 December 2024 with perhaps the most noteworthy being “Tax treatment of tax-free lump sums paid back into a registered pension scheme”. This is because a number of individuals took tax-free lump sums early in the run up to the Budget given speculation that the Government was to limit such lump sums with immediate effect. Unsurprisingly, HMRC confirms that individuals cannot return their now unwanted tax-free lump sums to their pension scheme. There is also a reminder of the tax-free lump sum recycling rule which can result in unauthorised payment charges. 

Inevitably, there is also a fairly lengthy section on the Lifetime allowance abolition law. This comprises a promise that HMRC guidance is being updated to reflect the two sets of amending regulations that came into force on 18 November 2024 (see Pension Bulletin 2024/45) and many points of detail relating to transitional tax-free amount certificates, as referenced in one of these amending regulations. 

Other topics include the following: 

• A reminder that any pension scheme being asked by HMRC to submit a Pension Scheme Return for the 2024/25 tax year onwards can only do this through the Managing Pension Schemes service. 
• A reminder that Event Reports for the tax year 2023/24 onwards can only be submitted through the Managing Pension Schemes service. 
• A correction to a previous article relating to pension payments to trustees in bankruptcy with HMRC now saying that where a bankrupt individual’s pension benefits are being paid to such trustees, they are taxable only at the basic rate, even if the individual is a higher rate taxpayer – this is as a consequence of such payments being treated as income received by the trustees in bankruptcy, rather than being the individual’s income. 
• The need for scheme administrators of relief at source schemes to submit their annual return of information from which HMRC will inform the scheme administrator of the residency tax status of scheme members. 

FRC proposes changes to Pensions TAS 

On 9 December 2024 the Financial Reporting Council launched a consultation on proposed changes to Technical Actuarial Standard 300: Pensions. This next step for TAS 300, which will be mainly of interest to pensions actuaries, had been expected ever since the FRC settled version 2.0 of TAS 300 in December 2023 (see Pensions Bulletin 2023/50), with this proposed version 2.1 largely being a consequence of the new DB funding regime now being in place. 

Scheme funding 

The scheme funding and financing section of the TAS has been substantially rewritten and re-ordered, using in places the terminology of the new DB Funding regime, and with all communication matters now set out together. The scope of TAS 300 has been extended so that advice to employers relating to the funding and investment strategy is now included – previously only advice to trustees on funding and investment objectives was in scope. Minor changes have been made to Appendix A that sets out the information to be included in the scheme funding report. On this, there is a useful clarification that although the information must be included, the level of detail, in what is a disclosure document, is a matter of judgement. The glossary has been extended to pick up the terminology of the new DB Funding regime. 

Other matters 

The section relating to incentive exercises and scheme modifications has been renamed as “benefit alterations or other activities”, the scope of which now has had added to it: 

• a change to accrued benefits without contributions to the pension scheme of at least equal value calculated using appropriate assumptions;
• a payment of, or a commitment to pay in future, administration expenses from the pension scheme without contributions to the pension scheme of at least equal value calculated using appropriate assumptions;
• a payment to the employer. 

This reflects the recent transformation in many DB schemes’ funding positions with actuarial advice increasingly being requested on how surplus funding might be used. 

Separately, the FRC considered whether to make changes to TAS 300 in relation to buy-ins and capital-backed journey plans, or other similar arrangements, but is proposing not to at this revision, saying that TAS 100 together with the provisions of TAS 300 relating to funding and financing (as now being proposed), adequately addresses the risks associated with technical actuarial work in these areas. 

Next steps 

Consultation closes on 10 March 2025, ahead of which the FRC is running a webinar on 14 January 2025 to explore the proposed revisions to TAS 300. The FRC intends to publish the final version of this revision in Q3 2025. It acknowledges that when the final version is issued there may be some scheme funding valuations, approaching finalisation, which due to their effective date being before 22 September 2024, are not subject to the new DB funding regime, but intends that by bringing version 2.1 into force a month after publication, this will give a sufficient window for these valuations to be completed by reference to version 2.0 of TAS 300.

Call for simplification of pension scheme annual report and accounts 

The Pensions Research Accountants Group (PRAG) is leading a call by certain members of the Joint Industry Forum on Workplace Pensions, for the Government to amend regulations that govern the content of occupational pension schemes’ annual report and accounts. 

In a letter addressed to the Department for Work and Pensions, the signatories say that pension scheme annual report and accounts have become very long, as a direct result of regulations driving the inclusion of additional statements and reporting, making the annual report and accounts “unwieldy, of little use to members and costly to produce”. They also point to the delays this material creates to the finalisation of the annual report and accounts. 

This material includes the DC Chair’s Statement, the Engagement Policy Implementation Statement and the TCFD statements. In addition, many trustees add the Statement of Investment Principles to the report because of cross-references made to it in the material that has to be contained within the report. 

The letter says that the annual report and accounts is not the right place for the above, they should no longer be contained there, with references being made instead to the websites where this information can be found.