Pensions Bulletin 2024/49

Chancellor suspends second phase of the Pensions Review 

The Government’s “landmark” review of the UK pension system, launched in July 2024 (see Pensions Bulletin 2024/28), appears to be in trouble with media reports over the weekend of 14 and 15 December suggesting that the launch of the second phase has been “delayed indefinitely” at the behest of the Chancellor because of concerns about adding further costs to businesses. Subsequent to this, a Government spokesman was reported as saying that more details on the second phase will be set out “in due course”.

This second phase had been expected to be launched imminently, and although its terms of reference have yet to be published, back in July the Government said that this phase would consider further steps to improve pension outcomes and increase investment in UK markets, including assessing retirement adequacy.

The most notable casualty of this delay could well be any future increase in auto-enrolment minimum contribution rates as well as the extension of auto-enrolment coverage to give effect to the outcome of the 2017 review, on which the necessary Act of Parliament was belatedly enacted by the previous Government (see Pensions Bulletin 2023/37). For over a year we have been waiting for a consultation on regulations for the latter. However, they too would add to the financial burden on employers, particularly those facing a significant increase in employer NICs from April 2025 as a result of the October 2024 Budget decision to increase the rate of employer NICs and lower the threshold above which such NICs are payable (see Pensions Bulletin 2024/42). 

PPF postpones final 2025/26 levy determination until January 

On 12 December 2024 the Pension Protection Fund announced that it will conclude its decision on the 2025/26 levy in January 2025. It said that following the consultation which closed in October 2024, it is considering all options, including reducing the levy further before any legislative change and has been working closely with the Department for Work and Pensions to this end. It says that “Ultimately, we don’t want to charge the levy for any longer than is needed and are working towards this goal”. 

The PPF had proposed to keep the levy at £100m for 2025/26 in its September consultation (see Pensions Bulletin 2024/35) and was due to finalise its Determination by the end of December.  

State Pension Age increase – Government says no to financial compensation for 1950s-born women 

On 17 December 2024 the Government published its response to the Parliamentary and Health Service Ombudsman's investigation into women’s state pension age and associated issues (see Pensions Bulletin 2024/12). It has decided not to introduce a financial compensation scheme for 1950s-born women affected by the delay in sending individual letters informing them about the changes in the state pension age. 

And in a statement made to Parliament on the same day, Liz Kendall, Secretary of State for Work and Pensions, said that she does not agree with the Ombudsman’s approach to injustice or remedy, as, in her view: 

• the report did not properly take into account research showing there was actually considerable awareness that the State Pension age was increasing; and 
• sending letters earlier would not have had the impact the Ombudsman says, given that, according to research the Government says was sent to the Ombudsman, only around a quarter of those who are sent unsolicited letters actually remember receiving and reading them. 

In addition, she said that the proposed flat rate compensation scheme isn’t “fair or a proportionate use of taxpayer’s money”. 

FCA consults on “targeted support” as part of its advice/guidance boundary review 

On 12 December 2024 the Government announced that, together with the Financial Conduct Authority, the Government is taking forward a proposal for a new regime sitting between regulated advice and non-regulated guidance called “targeted support” which would allow FCA-authorised firms to provide suggestions appropriate to consumers in similar circumstances. Currently, such suggestions would be treated as regulated advice. 

To accompany this decision, the FCA launched a consultation on how the targeted support regime could operate for DC pensions. The paper, which had been promised immediately following the Chancellor’s Mansion House speech in November 2024 (see Pensions Bulletin 2024/45), sets out the role that targeted support could play in supporting people to save for the future and to navigate their options at retirement, as well as seeking feedback on the standards required to ensure targeted support is delivered to a high quality. 

Targeted support operates through the DC pension provider asking the consumer if they want to answer a limited number of questions, and from this generating a suggested appropriate option relevant to consumers with these common characteristics and needs.  It could be delivered as an optional extra to a guidance-based service. 

The FCA intends that targeted support within DC pensions will result in the following outcomes: 

• Consumers get the help they need to avoid poor outcomes, such as inadequate saving levels and poorly informed decumulation decisions, that leave them with less money in retirement. 
• Consumers are actively engaged with their pensions and given the right support to help them make decisions that meet their needs, providing them with a more adequate income in retirement. 
• Consumers have access to sufficient information to help them make decisions that reflect their risk appetite. 

The FCA recognises that targeted support involves a trade-off whereby an individual may not achieve the best possible outcome but believes that this is necessary to ensure a scalable service can be delivered. 

The paper explores the issues in some depth, but is conceptual in nature, with rules to follow later. There are 50 questions in the consultation which closes on 13 February 2025. The FCA then intends to issue a separate consultation on FCA rules and guidance by the end of the first half of 2025.  Legislative change may be necessary and given this it is not clear when providers can start to provide such support.  The FCA also says that it will provide an update on its work on “simplified advice” and will provide further clarity around the advice / guidance boundary. 

Alongside this consultation, the FCA has issued a separate discussion paper seeking views on whether further changes might be needed to better support consumers, such as the use of digital tools and modellers, consolidation of pension pots and the rules around Self-Invested Personal Pensions (SIPPs). This paper has nine broad questions, to which responses are requested by 27 February 2025.

Nest Corporation’s accounts set the scene for the DWP loan to start to be paid back 

Following on from the Nest pension scheme’s annual report and accounts for 2023/24 being made available in October 2024 (see Pensions Bulletin 2024/40), the Nest Corporation annual report and accounts for the same period have now been published.

Once again they show that expenditure exceeded income, necessitating a further draw down on the Government loan facility, but the gap between expenditure and income is now a fraction of what it was in 2022/23 (see Pensions Bulletin 2023/42) and so the DWP loan has increased by only £63m to stand at just under £1.2bn at 31 March 2024. Nest says that 2024/25 will be the first year in which it will start to pay back the loan and it forecasts (without giving any numbers) that over the next 14 years it will repay the loan in full in line with its agreement with the Government – so presumably by 2038/39.

As last year it is expecting its membership to reach 18 million people by 2030, now with £100bn assets under management by then.

Pensions Regulator publishes its annual report and accounts

On 12 December 2024 the Pensions Regulator published its annual report and accounts for the year ending 31 March 2024, revealing that for the first time, its expenditure rose above £100m, as its staffing level nudged the 1,000 mark.  

The Regulator achieved 15 of its 20 key performance indicator targets, with the five falling short being three amber and two red results. One of the reds relates to the notifiable events legislation on which the Regulator continues to wait for the DWP to respond to the consultation on its regulations and finalise the necessary law. The other red relates to employee engagement which fell following a “challenging year including periodic industrial action”. (On the same day the Public and Commercial Services Union issued a press release which suggests that agreement has been reached to end the industrial action.) 

The launch of the report was accompanied by upbeat messages from Chair Sarah Smart and Chief Executive Nausicaa Delfas, with a focus on a changing pensions landscape expected to result in fewer but much larger schemes than at present, and the actions that the Regulator is taking internally to prepare itself for this new reality, much of which it had already communicated to the market. The press release notes that just over a quarter of occupational pension schemes were “targeted for intervention” and seven in ten scheme memberships were “covered by relationship supervision”.

Pensions Regulator issues its latest DB landscape report  

On 11 December 2024 the Pensions Regulator published its latest overview of the occupational defined benefit and hybrid scheme landscape in the UK, reporting on scheme status, membership levels and assets under management. 

Key findings include the following (some are taken from the annex to the report): 

• The number of schemes reduced from 5,290 in 2023 to 5,190 in 2024, continuing a steady decline that has been observed since the survey began in 2012. The percentage of schemes that were closed to future accrual nudged up from 72% in 2023 to 73% in 2024. 
• Membership in private DB and hybrid schemes fell from 9,611,000 in 2023 to 9,424,000 in 2024. Of these, the percentage in open schemes fell slightly from 14% in 2023 to 13% in 2024.  Of the 9,424,000 members, only 661,000 were accruing benefits – a number that also dropped from 683,000 in 2023. 
• The technical provisions funding level has remained broadly similar to that in 2023, increasing to 118% in 2024 from 117% in 2023. This is a result of small reductions in both the amount of assets (4%) and technical provision liabilities (5%) since 2023. The percentage of schemes in technical provisions surplus is 80% in 2024 compared to 77% in 2023. 

As in previous years, the data for this report has been taken from the DB and hybrid scheme returns, this time reporting on data held by the Regulator at 31 March 2024. 

Following the recent joint announcement about DB pension scheme data (see Pensions Bulletin 2024/48), the Regulator makes it clear that asset and liability values should not be compared to previous versions of the DB landscape report and that it has restated 2023 values on the amended methodology (for the original numbers in last year’s report see Pensions Bulletin 2024/07).

MPs look into pensioner poverty 

The House of Commons’ Work and Pensions Select Committee has launched its first inquiry in the new Parliament, examining the impact of pensioner poverty and its potential mitigations, including on health, help with energy costs, and the costs that should be covered by the State Pension and other pension age benefits. 

Part of the motivation for this inquiry appears to be the Government’s decision to restrict Winter Fuel Payment eligibility to those in receipt of some means-tested benefits, such as the Pension Credit. The MPs intend to examine the situation, and did have the aim of informing the debate around the second phase of the pensions review, but it seems that their recommendations to Government with the aim of ensuring people get the support they need, will now need to take place in a policy vacuum.   

Written evidence should be submitted by 6 January 2025. 

Christmas and New Year break 

This is the last edition of the Pensions Bulletin for 2024. It will return after the Christmas and New Year break. We wish readers a merry Christmas and a prosperous and healthy New Year!