Pensions Insight: 27 January to 10 February 2025

Our latest insight covers recent key pensions developments including a recent TPO determination that an employer breached a contractual entitlement to provide mirror pension benefits, the Government’s proposals for easing refund of surplus rules, and an update on pre-1997 discretionary pension increases.

TPO finds that an employer breached its contractual promise to provide ‘mirror’ benefits following a transfer

The Pensions Ombudsman (TPO) has determined that:

• a new employer acted in breach of law and was guilty of maladministration in:
  • failing to provide a pensioner, Mr H, with mirror pension benefits following a transfer to its pension scheme in line with a contractual obligation provided to Mr H when he agreed to transfer and thereby acting in breach of its Imperial duty of good faith; and
  • not documenting the contractual obligations for almost 18 years, and upon finding out about them, attempting not to provide them in breach of contract;
• the trustee of the new scheme acted in breach of trust (but not maladministration as it had acted upon legal advice) by not providing Mr H with the employer promised benefits upon receiving a transfer of Mr H’s benefits from the predecessor scheme and for not administering the new scheme in accordance with its rules.

The determination runs to 69 pages (typically a TPO determination will be much shorter between 10-15 pages) and covers important ground on the areas of contractual pension benefit entitlements (which do not often arise in the pensions sphere), estoppel by convention (which is also rare in a pensions context) and limitation. Read our case summary for further details.

Government confirms it will ease rules on refund of surplus

Following months of speculation, the Government has confirmed that it will introduce more flexibility for employers to access surplus in defined benefit occupational pension schemes. The changes form part of the Government’s wider growth initiative and its wish to see pension funds invest more heavily in the UK.

Prime Minister, Keir Starmer, and Chancellor of the Exchequer, Rachel Reeves, hosted a meeting with ‘leaders of Britain’s biggest businesses’ on 28 January 2025, where they outlined details of how the surplus refund reforms will operate, albeit further information has not yet been released publicly. The Department for Work and Pensions’ (DWP) response to the February 2024 ‘Options for DB schemes’ consultation which is expected in spring 2025 should contain more information.

The Pensions Regulator (TPR) supports the Government’s plans provided there are member protections in place, noting that approximately 80% of schemes are currently fully funded.

Government considering PPF levy reduction flexibility and PPF more than halves 2025/26 levy to £45m

On 30 January 2025, the DWP announced that it is considering whether to provide the Pension Protection Fund (the PPF) with the ability to reduce the levy. The press release ties such flexibility in with its economic growth initiative, noting that employers paying a lower levy would have more money to invest in their businesses.

The PPF has warmly welcomed the announcement, explaining that its discussions with the Government means that it is able to reduce its levy estimate for 2025/26 from £100m to its lowest ever level, £45m. As a result, 99.7% of schemes should see a levy reduction next year. The PPF has also included in its levy rules the ability to calculate a zero risk-based and scheme-based levy which it intends to utilise before invoicing if it “can be confident” that the legislative amendments which will provide the flexibility to do this will be included in the upcoming Pension Schemes Bill.

Our recent insight explains why the PPF has to date been constrained from reducing its levy below previous levels despite the PPF having a significant surplus.

The Pension Protection Fund and Occupational Pension Schemes (Levy Ceiling) Order 2025 was laid before Parliament on 3 February 2025. This sets the levy ceiling for the 2025/26 financial year at £1,403,184,443.44. The ceiling sets the maximum amount of pension protection levies that the PPF can impose. It increases in line with earnings increases over a relevant review period, which for the period concerned (1 August 2023 to 31 July 2024) was 4%. The amount collected by the PPF has always been much less than the ceiling.

DC and LGPS: Pensions Investment Review final recommendations to be published in spring 2025

The Chancellor’s 29 January 2025 speech on economic growth referenced both the 28 January refund of surplus announcement and the Government’s final recommendations on phase one of its defined contribution and Local Government Pension Scheme (LGPS) investment pensions review which the Chancellor confirmed would be published this spring. The interim report of the review was published together with a consultation on DC consolidation and another on investment reforms to the LGPS in November 2024 – see here for further details.

MPs have voted in favour of Bill for women born in the 1950s

On 28 January 2025, MPs voted in favour of the Private Members’ Women’s State Pension Age (Ombudsman Report and Compensation Scheme) Bill which was put forward by Stephen Flynn MP. The Bill, if passed, would require the Secretary of State to produce proposals for a compensation scheme for women born between 6 April 1950 to 5 April 1960 inclusive following the Parliamentary and Health Service Ombudsman’s findings that the DWP had failed in its communications with them about forthcoming state pension age increases. The Government recently announced that it would not be setting up the recommended financial compensation scheme.

Regulations made requiring corporate directors to verify their identity

Regulations have been made which will, when brought into force, require corporate directors to verify their identity. The changes form part of the amendments introduced by the Economic Crime & Corporate Transparency Act 2023 which “aims to tackle economic crime and modernise rules around corporate transparency”.

Those required to do so will be able to verify their identity through either an authorised corporate service provider (ACSP) or the registrar of companies. A draft version of the rules setting out what information will be required and what action applicants must take in respect of their verification application has also been published. Companies House will also provide additional non-statutory guidance for ACSPs.

Companies House’s outline transition plan for its reform under the 2023 Act provides target dates for implementation of key changes including that from/ by the following dates, Companies House should be able to:

Separate Regulations have also been published which allow the registrar of companies to allocate unique identifiers to ACSPs and to individuals associated with certain entities that are not companies formed under the Companies Act 2006.

The changes form part of the amendments introduced by the Economic Crime & Corporate Transparency Act 2023 which “aims to tackle economic crime and modernise rules around corporate transparency”.

WPC publishes correspondence confirming that DWP is liaising with TPR on pre-1997 discretionary pension increases

The Work and Pensions Committee (WPC) has published a letter from the DWP on discretionary pension increases relating to pre-April 1997 rights.

Statute does not require the indexation of pensions in payment relating to pensionable service before 6 April 1997 (other than guaranteed minimum pension earned after 6 April 1988). This means that such pensions only increase if the scheme’s rules provide this or if a discretionary power to do so is exercised. The value of these benefits if not increased is therefore eroded over time due to the impact of inflation, the effect being particularly prevalent in times of high inflation.

There has been recent discussion regarding the indexation of such rights in the PPF and the Financial Assistance Scheme (FAS) and in occupational pension schemes. A member campaign group called the Pre-1997 Alliance is lobbying Parliament to step in and address the issue. The WPC has also been considering the issue and, in its March 2024 report, recommended that TPR research the issue and that the DWP and TPR look at how members’ ‘reasonable expectations’ for additional benefits, especially around discretionary pension increases, can be satisfied including from the use of scheme surplus.

The DWP’s letter confirms that liaison with TPR is taking place – this spring, TPR will publish results on discretionary indexation that it is gathering through the scheme return. The pensions minister will also correspond separately with the WPC on pre-1997 increases in the PPF and FAS.

Treasury Committee call for evidence on AI in financial services

On 3 February 2025, the Treasury Committee launched a new inquiry into artificial intelligence and financial services including banking and pensions. Areas covered include how AI is presently utilised, potential benefits and opportunities, risks for financial stabilities, the position of the UK compared to other countries, cyber risk and what protections might be required to protect consumers. Evidence can be submitted until 17 March 2025.

TPR blog on latest steps being taken to address pension scams

TPR’s 6 February 2025 blog sets out the latest steps being taken to counter pension scams. After covering the recent ScamSmart campaign and Pledge to combat pension scams, the blog explains:

• how secondees from TPR are working with the City of London Police and the National Economic Crime Centre to “strengthen collaboration between law enforcement and the pensions industry and align our approach with national fraud strategies”; and
• that Action Fraud is improving its reporting process with a new service which will be rolled out in 2025 – schemes are reminded to report suspicions to Action Fraud – such reports are particularly helpful in early detection and prevention.