As usual, it has been a busy year for pensions, and here Entrust trustee director, Tom Neale, outlines his top 10 developments from 2023...

1. Spring Budget 2023

The headline development of 2023 is the wide-ranging pension reform package that accompanied the Chancellor’s Autumn Statement which focuses on greater economic growth and consolidation.

Highlights include a potential defined contribution (DC) lifetime provider model, a forthcoming consultation on easing surplus access and a PPF operated public consolidator which is intended to be set up by 2026.

2023 also saw the industry advance defined benefit (DB) consolidation in practice: Clara-Pensions announced the first DB superfund transaction and Enplan enhanced its offering with the addition of Schroders’ investment capability.

2. Mansion House pension reforms & consolidation

Arguably, the most expansive development was the nine pension reforms announced in the Chancellor’s Mansion House speech aimed at delivering ‘greater economic growth’ and with a particular focus on consolidation of both the DB and defined contribution sector and increased investment in productive finance.

Meanwhile, the industry continues to advance DB consolidation in practice: Clara-Pensions has announced the first DB superfund transaction - members of the Sears Retail Pension Scheme will transfer to the Clara superfund during November; and Enplan enhanced its offering with the addition of Schroders’ investment capability.

3. LDI fallout continued

The fallout from the autumn 2022 liability-driven investment (LDI) crisis continued – in April, the Pensions Regulator (TPR) published trustee LDI guidance and the Financial Conduct Authority issued LDI manager guidance.

Many schemes using leveraged LDI have had to decide between reduced hedging or lower expected returns and have reconsidered the role that LDI should play.

4. Scheme funding improvements

Many DB schemes have seen funding improvements which means they will be much closer to buyout than expected. Some schemes may even have a surplus on winding up – a recent Pensions Ombudsman (TPO) determination provides useful guidance on trustees’ decision-making in such circumstances.

5. Virgin Media s37 judgment

The High Court has confirmed that rule amendments to a contracted-out DB scheme are void if actuarial confirmation required under section 37 of the Pension Schemes Act 1993 has not been obtained. The voidness covers both past and future pension rights and extends to all alterations not just adverse ones. We understand permission to appeal has been granted.

6. TPO not competent court

The Court of Appeal (CA) has confirmed that TPO is not a ‘competent court’ for the purposes of section 91(6), Pensions Act 1995 which requires that trustees who wish to recoup overpayments from a member cannot do so unless they obtain an order from a competent court where the member disputes the overpayment amount.

The CA’s finding means that, where TPO determines that trustees are entitled to recoup an overpayment, they must first apply to the County Court for an order allowing deduction before they can commence recoupment – however, they do not have to start an action in the County Court and the County Court does not have to consider merits.

7. Transfer regulations

The much awaited Department for Work and Pensions (DWP) review of the transfer regulations was published and overall, the regulations appear to be working as intended.

However, it noted the already identified issues with overseas investments and incentives – the DWP is now assessing whether changes are needed.

A recent TPO determination provides useful commentary on overseas investments – TPO held that a trustee had not acted unreasonably when deciding that a member’s transfer request raised an amber flag requiring the member to be referred to a pensions safeguarding appointment where the member wished to transfer to a UK registered pension scheme which included Global Funds.

8. Pensions dashboards delay
The ‘2023 go live’ date for pensions dashboards was delayed and we now have a new statutory single connection deadline of 31 October 2026. The guidance setting out new staging dates has not yet been published, the aim is to publish this at least 1 year before the first guidance connection date. TPR has urged schemes to continue their preparations.

9. Automatic Enrolment (AE) extension

The Pensions (Extension of Automatic Enrolment) Act 2023 allows regulations to be introduced extending AE by reducing the AE entry age to 18 and removing the Lower Earnings Limit from the qualifying earnings band so that contributions will be calculated from the first pound earned.

10. ESG (Environmental, Social and Governance)

TPR’s review of the climate change reports that larger schemes (£1bn+, master trusts and collective defined contribution) are required to produce showed mixed results. TPR found some ‘emerging good practice’ but also other areas where improvement is needed.

It has also reported on issues that have been identified with scenario analysis, some of which “appear to seriously underestimate the financial risk”. We also saw the first mandatory fine for non-publication of a climate change report.

TPR is also checking that trustees are complying with their statutory ESG and stewardship duties on statements of investment principles and implementation statements. It will review sample documents and publish its findings.

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