Welcome to your weekly update from the Allen & Overy Pensions team, covering all the latest legal and regulatory developments in the world of workplace pensions.

This week we cover the following topics: TPO statement on recoupment of overpayments following CMG decision; HMRC: lifetime allowance newsletter (December 2023); Divorce: reminder and new guidance; Dashboards penalties: prohibition on indemnity from scheme assets; Draft Order: operating a dashboard service to be a regulated activity; Draft regulations: CMP schemes.

TPO statement on recoupment of overpayments following CMG decision

The Pensions Ombudsman (TPO) has published a statement and press release expressing its disappointment with the Court of Appeal’s recent ruling in the CMG case (read more) that it is not a ‘competent court’ for the purposes of recoupment of overpayments.

TPO says that the DWP intends, when possible, to introduce legislation empowering TPO to bring an outstanding overpayment dispute to an end without the need for a county court order, to remove this additional hurdle. It emphasises that the role of the County Court in such cases is only to enforce the determination made by TPO, not to reconsider the merits of the complaint.

Pending the proposed change in the law, TPO advises parties to ensure that all possible defences to the recovery of overpayments are raised and properly dealt with during IDR processes and suggests that in the majority of cases parties will be able to reach an agreement to resolve the dispute. If the matter does come to TPO for determination, a scheme looking to commence recoupment in line with that determination will now have to obtain an order from the county court nearest to the member. The statement provides practical details about this process – the determination will set out a schedule of the amount and rate of recoupment, and the statement directs schemes to the appropriate procedure rules to be followed. TPO will provide a copy of the factsheet with relevant determinations.

Read the statement.

Read the press release.

HMRC: lifetime allowance newsletter (December 2023)

HMRC’s second lifetime allowance newsletter sets out information and practical guidance on various aspects of the changes to be introduced in April 2024. The newsletter provides summaries of the treatment of various lump sums and where to find these in the draft legislation – in particular it confirms that a member's pension commencement lump sum will be free from income tax provided it is within the permitted maximum, and describes the new pension commencement excess lump sum (this is relevant for members who are permitted under scheme rules to take a lump sum in excess of their lump sum allowance; the excess element is liable to income tax at the member’s marginal rate). It also confirms that payment of a trivial commutation lump sum, winding-up lump sum and other small lump sums will not reduce a member’s available lump sum allowance, or lump sum and death benefit allowance.

The newsletter also includes:

• confirmation that the Finance Bill 2023-24 does not include legislation to bring dependants’ or nominees’ flexi-access pension or annuity (BCE 5C and 5D) into taxation, so these payments will remain tax-free;
• confirmation of the retention of certain lump sum and lump sum death benefit enhancement factors;
• a new deadline of 5 April 2025 for applications for fixed protection 2016 and individual protection 2016;
• information on changes to scheme reporting requirements; and
• commentary on transitional arrangements for individuals where a benefit crystallisation event has occurred prior to 6 April 2024.

HMRC promises to provide support for schemes through the implementation of the abolition of the lifetime allowance – for example, working groups may be set up to discuss the detail and effect of the legislation.

Read the newsletter.

Divorce: reminder and new guidance

Revised guidance from the Pensions and Lifetime Savings Association (PLSA) on helping members with pension sharing orders (PSOs) on divorce applies from 2 January 2024. The guidance sets out indicative ranges of charges that private sector occupational pension schemes should consider making when providing information or taking other steps in relation to a PSO (higher or lower amounts may be appropriate, depending on the circumstances of each member’s request).

Separately, the Pension Advisory Group (PAG) has issued a final edition of its guide to the treatment of pensions on divorce. The PAG is a multi-disciplinary group of professionals specialising in the field of financial remedies and pensions on divorce and the guide was originally designed mainly for the benefit of others working in the field. It includes guidance on the essential stages in a typical case, from information-gathering to agreeing the wording of a pension sharing or pension attachment order and securing the approval of the pension provider to the wording of the order (inappropriate or ambiguous wording can create difficulties for schemes when they come to implement these orders). The guide may provide useful insight into procedural and other issues when dealing with divorce cases.

Read the PLSA guidance.

Read the PAG guide.

Dashboards penalties: prohibition on indemnity from scheme assets

Trustees and managers are prohibited from using pension scheme assets to indemnify themselves against penalties imposed by the Pensions Regulator (TPR) for breach of the pensions dashboards requirements, with effect from 1 January 2024.

New regulations have brought into force section 1(1) of the Pensions Dashboards (Prohibition of Indemnification) Act 2023 which extends existing provisions in the Pensions Act 2004 preventing the use of scheme assets for reimbursing, or providing for reimbursement of (for example, by paying for insurance), certain penalties. Those provisions now include penalties imposed by TPR for non-compliance with the Pensions Dashboards Regulations 2022. If trustees/managers use scheme assets to reimburse themselves, this will be an offence and they will be subject to a potential civil penalty, fine and/or imprisonment, unless they can demonstrate that they took all reasonable steps to secure compliance.

Read the regulations.

Draft Order: operating a dashboard service to be a regulated activity

The draft Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) Order 2024 provides that ‘operating a pensions dashboard service which connects to the Money and Pensions Service dashboards digital architecture’ will be a regulated activity. This means that the commercial providers of such services will be regulated by the Financial Conduct Authority in respect of that activity. The new regulated activity will apply in relation to all pension information that is requested or provided using a pensions dashboard.

The order is due to come into force on 11 March 2024.

Read the draft Order.

Draft regulations: CMP schemes

The draft Occupational Pension Schemes (Collective Money Purchase Schemes) (Amendment) Regulations 2023 make technical amendments to clarify issues relating to reductions to member benefits in collective money purchase (CMP) schemes and to provide for additional categories of flexi-access drawdown fund to which accrued rights in a CMP scheme can be transferred, including during wind-up of the scheme.

Read the draft regulations.