7 days

7 Days is a weekly round up of developments in pensions, normally published on Monday afternoons. We collate this information from key industry sources, such as the DWP, HMRC and TPR.

In this 7 Days

• HMRC comments on tax treatment of PCLS in LTA guidance newsletter
• Pensions dashboards developments
• TPO publishes competent court factsheet
• TPO publishes its Corporate Plan 2023-26
• Pension Advisory Group publishes second pensions on divorce guide
• High Court considers effect of invalidly executed deed

HMRC comments on tax treatment of PCLS in LTA guidance newsletter

On 20 December 2023, HMRC published an LTA guidance newsletter which discusses various issues relating to the removal of the LTA from 6 April 2024.

The newsletter includes confirmation that, following consultation, the current tax treatment of a PCLS will be broadly maintained from 6 April 2024 by the Finance Bill 2023-24. Under the draft legislation, which is subject to change, a PCLS will be tax-free up to the “permitted maximum”. This will be the lower of 25% of the member’s benefits crystallising, or the member’s available “lump sum allowance” or “lump sum and death benefit allowance”. The standard lump sum allowance will be frozen at £268,275, being 25% of the current LTA, and the standard lump sum and death benefit allowance will be £1,073,100, matching the current standard LTA (see our Alert for details of the new allowances).

Lump sums paid in excess of the permitted maximum will be unauthorised payments unless they qualify as another type of authorised lump sum payment. A new authorised payment is proposed, the “pension commencement excess lump sum”, which will be available only where the member has used up all of their lump sum allowance and “the total of the member’s scheme pension capital value exceeds their available lump sum death benefit allowance”.

The concept of the LTA excess lump sum will also be removed.

Pensions dashboards developments

Work continues to develop the regulatory framework for pensions dashboards, with the following developments in December 2023:

• regulations were made to bring the Pensions Dashboards (Prohibition of Indemnification) Act 2023 into force on 1 January 2024. The Act prohibits trustees and managers from being reimbursed out of scheme assets in respect of penalties imposed under pensions dashboards regulations, in line with the position for other areas of pensions legislation
• a draft Order was published to make operating a commercial pensions dashboard service which connects to the MaPS architecture an FCA-regulated activity. The draft Order suggests that it will come into force on 11 March 2024. The FCA has already consulted on a proposed regulatory framework for the new pensions dashboard service market and a response is awaited, and
• on 29 December 2023, the PDP published a blog on progress during 2023. Looking ahead to 2024, work will continue on the connection dates guidance alongside data standards.

TPO publishes competent court factsheet

On 20 December 2023, TPO published a factsheet explaining the effect of the Court of Appeal’s CMG judgment on cases where a pension scheme looks to recover an overpayment by making deductions from future pension instalments (“recoupment”). In CMG, the Court of Appeal found that, where an overpayment is disputed by the member, a TPO determination alone is not sufficient for a pension scheme to recoup the overpayment and the trustees must apply to the County Court to enforce the determination.

The factsheet comments that the DWP intends to introduce legislation to formally empower TPO to bring an overpayment dispute to an end without the need for a County Court order. It sets out guidance on managing overpayment disputes in the meantime, including summarising the process that trustees should follow to apply to the County Court.

TPO publishes its Corporate Plan 2023-26

On 21 December 2023, TPO published its Corporate Plan 2023-26, setting out its strategic goals for the next three years. These are similar to last year’s, including reducing waiting times and identifying further working efficiencies. It is not yet known to what extent the cyber incident in 2023 has impacted recent waiting times.

The Pensions Dishonesty Unit, which was established as a pilot in November 2021 to investigate allegations of serious breaches of trust, misappropriation of pension funds and dishonest or fraudulent behaviour by trustees, will be funded for a further two years to 2024-25.

Pension Advisory Group publishes second pensions on divorce guide

On 20 December 2023, the Pension Advisory Group published the second edition of its guide to the treatment of pensions on divorce. The guide is mainly aimed at professionals working in the field, and aims to help enable “more consistent and fairer outcomes” in the treatment of pensions on divorce.

High Court considers effect of invalidly executed deed

The High Court has considered the effect of an agreement which was stated to be executed as a deed but had not been validly executed on behalf of the company (for example, by two statutory directors). However, the company’s signatories were represented as being able to execute a deed on its behalf, and the other party had relied on that representation. The Court found that in the specific circumstances, the agreement should take effect as a deed.

While not a pensions case, the judge’s conclusions on the application of “estoppel by representation” may also be applicable in the pensions context. Put simply, an estoppel by representation involves one person making a representation regarding a fact or the law to another with the intention of inducing the other person to rely upon it.

That said, this case’s relevance will be very fact specific. Perhaps the bigger lesson to take from this case is that there are strict requirements for the valid execution of deeds, and there may be very significant consequences if they are not complied with.

See our case summary for details.