LGPS Current Issues | November 2024
And in other news
Autumn Budget – Inheritance tax
The Chancellor of the Exchequer, Rachel Reeves, delivered the Labour Government’s first Budget on 30 October 2024. The focus was a package of tax increases amounting to more than £40 billion (including increases to Employer National Insurance and Capital Gains Tax).
Despite speculation in the lead up to the Budget, the biggest pension-related change is that from 6 April 2027 most unused pension funds and death benefits will form part of an individual’s estate for Inheritance tax purposes. The Government’s intention is to align their tax treatment with other types of inherited assets and remove the incentive to use pensions as a tax-planning vehicle for wealth transfer after death.
The new measures will cover payments from registered pension schemes following the death of a member where the recipient is not the spouse or civil partner. The Government plans to bring all death benefits from these types of schemes within scope, with the exception of dependants’ scheme pensions and charity lump sum death benefits. However, the Government has confirmed that all life policy products purchased with pension funds or alongside them as part of a pension package offered by an employer will not be in scope. This may mean that separately insured lump sum death benefits are out of scope.
The Government has published a consultation on the technical aspects of how pension scheme administrators (PSAs) will report and pay any inheritance tax due on unused pension funds and death benefits. The consultation runs until 22 January 2025. The consultation is limited to the implementation of the new regime, rather than whether to implement it and what benefits should be in scope.
Whilst this change will have greater implications for DC Schemes, as it stands there will still be an impact on LGPS members (and also administration teams) where death benefit recipients aren’t spouse/civil partners.
The area of pensions taxation remains a complex subject. For further details on how we can support Funds, Members and Employers in this area, please refer to our recent briefing note. Please also refer to the Funding Section for further comment around the change to National Insurance and implications this may have.
Pension Dashboards updates
There continues to be a flurry of activity in relation to Pension Dashboards from a number of different stakeholders given the connection timetables being targeted.
A written statement from the Pensions’ Minister Emma Reynolds was released on 22 October 2024 confirming the Government’s commitment to the existing timetable for schemes connecting to the ecosystem which will begin in April 2025 (with an overall deadline of 31 October 2026 as set out in legislation). The Pension Dashboards Programme (PDP) has been asked to focus on the Moneyhelper dashboard service before turning to commercial dashboards to help the public realise the benefits of dashboards as early as possible.
In addition to the above:
- PDP have published v1.1 of the draft Technical Standards in September. These will now need to be approved by the Secretary of State for Work and Pensions. The technical standards are what data and dashboard providers will use to interface with the central technical architecture and/or each other. New draft versions of reporting standards (v1.2), data standards (v1.3), and code of connection (v1.2) were also published in November. The PDP have also confirmed that dashboard users will verify their identity with their GOV.UK one login and published blogs around the code of connection and further guidance on the connection journey, testing and timelines.
- The Pensions Administration Standards Association (PASA) have published the first content in their new Dashboards Toolkit. The initial content focuses on AVCs and includes checklists, questionnaires and details of AVC providers and preferred connection approaches, which administering authorities will need to be aware of in relation to their own providers.
- The Pensions Regulator (TPR) published their compliance and enforcement policy (and associated blog) in September setting out their approach to ensure schemes comply with their dashboard duties and how they will respond to cases of non-compliance. TPR have also started to contact schemes to ensure they have the right processes and controls in place in relation to data and will be issuing surveys to all Scheme managers (including LGPS) asking for updates on how “dashboard ready” they are. They have also published a “hot topics” article and will also host a webinar on 26 November.
Lifetime Allowance abolition
Following on from a short consultation over the summer, on 7 October 2024 the Pensions (Abolition of Lifetime Allowance Charge etc) (No 2) Regulations 2024 were laid.
The Pensions (Abolition of Lifetime Allowance Charge (No 3) Regulations 2024 were subsequently laid on 9 October (although are currently in draft).
Both sets of regulations will come into force on 18 November 2024 and have effect from the tax year 2024/25. The new regulations serve to implement minor corrections relating to LTA protections and new provisions relating to Transitional Tax-Free Amount Certificates (TTFAC) and Trivial Commutation Lump Sums (TCLS).
The LGPS administrator guide is currently in the process of being updated to reflect the new regulatory changes.
Expedited decision making – The Pensions Ombudsman (TPO)
On 25 September 2024, the Pensions Ombudsman, Dominic Harris, published a blog that confirmed that the TPO has now fully rolled out expedited decision making (short form decisions and determinations) as part of their operating model.
The aim is to improve their customer service and provide complainants with an outcome to their complaint as soon as possible.
In October 2024 it was also announced that Anthony Arter, the former Pensions Ombudsman, will continue in his current role of the Deputy Pensions Ombudsman for a further three months until the process to recruit a new Deputy is completed.
2023/24 LGPS Statistics published
On 24 October, MHCLG published the LGPS Statistics for 2023/24.
The statistical release covers income/expenditure levels, employer and employee contributions and also membership movements, and how they compare to 2022/23.
Gender Pay Gap / Opt-out survey
As referenced in the Pension Review section, Phase 2 of the Pensions Review will focus on retirement adequacy in particular.
Part of this will be linked to closing the Gender Pensions Gap and we understand the Minister is interested in the opportunity to do something meaningful in this area, and fast. Work continues on various workstreams involving a number of different stakeholders in the sector e.g. regulatory change linked to shared cost APCs, surveys on opt-outs, and also gender pay/pension reporting, 2025 valuation outcomes etc.
Our recent briefing note sets out further comment on some of the issues that Funds, and employers, should be thinking about here and how we can support on these.