In this news update, we highlight legal developments in UK pensions over the past five weeks.
This update covers:
- News from the Pensions Regulator (TPR)
- Data strategy
- Preventing pension scams
- Priorities for 2025
- DC and master trust supervision
- The DC landscape in 2024
- In relation to defined benefit (DB) pensions
- PPF levy 2025/26
- ICAEW guidance on Virgin Media
- Discretionary increases on pre-1997 pensions
- From HM Treasury / HMRC
- Changes to QROPS requirements
- Net pay arrangements: top ups
- AI in financial services and pensions
- Arcadia schemes: High Court sanctions merger
From the Pensions Regulator (TPR)
TPR data strategy
- On 3 March 2025, TPR published its data strategy, which it calls a “plan to benefit schemes, savers and the economy through improved data”. The strategy is part of TPR’s five year plan to drive adoption of the latest technologies and standards for data.
- In particular, TPR said it would be focusing on three key areas:
- Building strong foundations by implementing data principles, developing forward-thinking data professionals and advocating for open standards for data to collect, analyse, and interpret high-quality data for better decision-making.
- Reducing the regulatory burden by creating an internal data marketplace that links to the government’s National Data Library and the wider external data ecosystem. TPR’s internal data marketplace will enable its staff to access relevant data from one central location.
- Focusing on adding value by making sure all the data collected is directly related to good saver outcomes and supports efficient and effective regulation, competition and industry innovation.
- TPR also indicated that it would be:
- collaborating with industry and sharing best practice;
- setting up a working group with industry experts to help the pensions industry improve its use of digital tools, data and technology;
- creating a data management function to handle a broader range of data;
- bringing together pension and technology experts, along with professionals from other fields, to design a framework for “responsible innovation in pensions”; and
- establishing an AI advisory council, comprised of TPR staff and external experts, to oversee the ethical use of AI technologies.
- Additionally, TPR will be reviewing its internal processes to improve data proficiency for its internal teams, maximise its data quality, and improve its data platform “to enable a radical overhaul of [its] data collection and exchange mechanisms”.
Preventing scams: new leaflet for members
- TPR has explained some of its current efforts to fight scammers in a recent blog.
- In particular, readers are invited to join the Pension Scams Action Group (PSAG) and City of London Police at a webinar on “Fighting Pension Fraud” on 25 March 2025.
- PSAG has also issued an updated scam leaflet, outlining a checklist for members to go through if they are ever approached about their pension. TPR expects schemes to send the leaflet to members with annual pension statements and to any member requesting a transfer.
TPR’s priorities for 2025
- In a recent blog, TPR’s Chief Executive Nausicaa Delfas, explains that TPR is shifting its approach to a more prudential style of regulation, “addressing risks not just at an individual scheme level, but also those risks which impact the market and wider financial ecosystem”.
- The blog also sets out TPR’s intentions for the next 12 months, including:
- launching an innovation hub to encourage industry to support market innovation;
- continuing to protect savers’ outcomes from climate-related risks and benefit from opportunities from the UK’s transition to a net-zero economy;
- implementing a more strategic approach to raising standards of trusteeship; and
- helping defined benefit schemes consider the full range of alternative models of provision through new guidance.
TPR sets out new DC and master trust supervision regime
TPR is evolving its approach to oversight of the DC and master trust market, moving towards a prudential-style regulation model with greater emphasis on:
- managing regulatory risks
- anticipating potential threats to savers; and
- addressing risks to the UK economy.
- Under the new regime, schemes will be grouped into four segments:
- Monoline master trusts (larger schemes with more market risk);
- Commercial master trusts;
- Non-commercial master trusts and collective defined contribution (CDC) schemes; and
- DC schemes for single or connected employers.
- Each scheme in the monoline and commercial segments will be allocated a dedicated team, with expertise in financial analysis, business strategy, investment, and legal compliance and regulation. TPR comments that the same expertise will also be available for schemes in the other two segments.
TPR 2024 DC landscape
TPR had published its 2024 DC landscape report. According to the report, in 2024:
- The number of defined contribution (DC) schemes dropped by 15%, to 920. The decrease is primarily among schemes with fewer than 5,000 members.
- At the same time, membership of DC schemes increased by 6% from 28.8m to 30.6m . Of these, 28m memberships are in master trusts. The number of active memberships remained stable at 11.1m, but deferred memberships increased from 17.7m to 19.5m.
- DC scheme assets increased by 25% to £205bn, through a combination of contributions and investment returns.
- Research by TPR shows that poorer governance standards are more common among smaller schemes, with only 17% of smaller schemes completing the obligatory enhanced value for members assessments in 2023.
Return to contents.
Defined benefit (DB) schemes
Pension Protection Fund (PPF) levy plans for 2025/26
- In a welcome move for defined benefit (DB) schemes, the PPF has reduced its levy estimate for 2025/26 to £45m, significantly less than the £100m estimate initially proposed. It’s expected that 99.7% of schemes will benefit from a reduction in their levy for the year.
- In addition, the DWP has confirmed that it is “considering proposals” to give the PPF more flexibility to reduce its levy, while retaining the ability to increase it in future years if circumstances require. The PPF has included a new provision in its levy rules that would enable the Board to calculate a zero levy if appropriate legislative changes are progressed.
ICAEW issues guidance relating to Virgin Media
- The Institute of Chartered Accountants in England and Wales (ICAEW) has published an information note setting out considerations for scheme trustees, sponsoring employers and auditors in light of the Court of Appeal decision in Virgin Media.
- The note recognises the ongoing uncertainty about the implications of the decision, both in terms of individual schemes’ circumstances and the lack of clarity whether the position will be affected by further legislation or by a future court decision. It also sets out considerations for sponsoring employers and auditors when drawing up company accounts and the auditor’s report.
Discretionary increases on pre-1997 pensions
- The DWP is working with the Pensions Regulator (TPR) to gather information about the provision of discretionary increases on
- This follows concern by the House of Commons Work and Pensions Committee about the impact of frozen (non-increasing) private pensions on scheme members who are disproportionally older, especially where schemes are now in surplus but where discretionary increases are no longer paid.
- In a letter to the WPC, the Secretary of State for Work and Pensions confirmed that: pensions built up before April 1997 (when increasing pensions in payment became compulsory).
- TPR is obtaining information on discretionary increases through its 2024 annual DB survey, which is sent to a number of occupational pension schemes. TPR plans to publish the results in the Spring.
- The Pensions Minister will shortly be writing to the WPC about indexation of pre-1997 pension rights in the Pension Protection Fund and the Financial Assistance Scheme.
Return to contents.
From HM Treasury / HMRC
- From 6 April this year, the conditions which schemes established in the European Economic Area (EEA) must meet in order to be an Overseas Pension Scheme (OPS) or Recognised Overseas Pension Scheme (ROPS) for HMRC purposes, will be aligned with conditions applicable to schemes established outside the EEA.
- The conditions include:
- An OPS (whether an occupational or non-occupational scheme) must be regulated by a pensions regulator in the country in which the OPS is established. If there is no regulator of non-occupational schemes, then the scheme provider must be regulated.
- A ROPS must be established in a country which has a Double Tax Agreement or a Tax Information Exchange Agreement with the UK.
- In April, HMRC will write to managers of qualifying recognised overseas pension schemes (QROPS) the EEA to ask for confirmation that the schemes meet the new conditions. A scheme which does not respond or comply with the conditions will cease to be a QROPS.
Net pay arrangements: first top ups due in 2026
- The government expects the first top up payments to eligible members of net pay arrangements to be made in 2026, in respect of pension contributions made in 2024/25. Approximately one million individuals are expected to receive an annual payment of around £70.
- As a reminder, the two ways of receiving income tax relief on member pension contributions are:
- "net pay”: typically used by occupational schemes, where member contributions are paid from gross salary, before deduction of income tax; and
- “relief at source”: typically used by personal pension schemes, where member contributions are paid out of net pay (after deduction of tax); the pension provider reclaims basic rate tax on member contributions from HMRC, with members who are higher rate taxpayers able to reclaim higher rate tax relief via their tax returns.
- Non-taxpayers earning below the income tax personal allowance are currently worse off if their pension scheme uses a net pay arrangement, as they do not benefit from any income tax relief. The new government top ups are intended to ensure individuals receive similar outcomes regardless of the type of pension arrangement used.
AI in financial services and pensions: Treasury Committee inquiry
- The Parliamentary Treasury Committee has launched an inquiry into potential impacts of the increased use of artificial intelligence (AI) in banking, pensions and other financial services. The inquiry’s call for evidence is open until 17 March 2025.
- The inquiry’s terms of reference of reference include:
- How different sectors use AI currently and how is this likely to change over next 10 years?
- How can AI improve productivity?
- What are the barriers to adoption of AI?
- Risks and mitigating risks to financial stability associated with using AI (including cybersecurity, herding and hallucination by AI models)
- Risks / benefits for consumers, especially vulnerable consumers
- Achieving an appropriate balance between regulation and seizing opportunities
Return to contents.
Arcadia schemes: High Court sanctions merger
Background
- Two pension schemes from the Arcadia group have been the subject to scrutiny in the High Court. As a reminder, the Arcadia group was part of Philip Green’s business empire which went bust very publicly some years ago, with significant deficits in the group’s defined benefit (DB) pension schemes.
- Various measures were put in place to restore the schemes’ funding. The intention was that the deficit repair contributions would be apportioned between the staff scheme and the executive scheme in such a way as to achieve equal funding levels between them.
Unintended differences in funding levels
- Despite intentions to fund the staff and executive schemes equally, various factors meant that that the funding levels of the two schemes significantly diverged. These factors included the effect of the Liz Truss mini-budget and differing demographic experience between the schemes.
- The result was that, while benefits in the staff scheme could be bought out in full with an insurer, the executive scheme was only 87% funded on a buy-out basis.
- Any further distributions from the sponsors’ ongoing liquidation had to be distributed in proportion to each scheme’s section 75 debt at the date of the Arcadia companies’ entering administration – which would only increase the disparity between each scheme’s funding level.
The solution: a merger?
- The answer seemed to be to merge the two staff and executive schemes, enabling surplus in the staff scheme to be used to help buy out the executive scheme benefits in full.
But merger prevented by scheme rules
- An issue arose though that the staff scheme rules included a provision prohibiting such a merger. The trustees had power to amend this rule but sought the court’s approval to do so.
High Court to the rescue
- The High Court considered the history of the two schemes, including that:
- The schemes had always been run as “sister schemes”;
- 50% of the executive scheme members had transferred in from the staff scheme following promotion; and
- The allocation of the bulk of earlier deficit repair contributions to the staff scheme had been done with the aim of achieving equal funding levels, not of producing surplus in one scheme and a deficit in the other.
- It was also significant that the staff scheme winding up rule required scheme assets to be used to provide only beneficiaries’ accrued benefits under the rules. The trustees had discretion to use any surplus to augment benefits, with any balance to be returned to the employers.
- The Court approved the trustees’ in principle decision to amend the staff scheme rules to remove the prohibition on merger. Although there was no legal obligation to enable the merger, there was a strong moral obligation to do so and it was entirely proper to take this into account.
[View source.]
