Pensions: what's new this week December 9, 2024

TPR publishes updated DB covenant guidance

The Pensions Regulator (TPR) has published updated guidance on the employer covenant supporting a defined benefit (DB) scheme, as the final part of its package of documents under the new DB funding framework. The guidance includes further clarification on TPR’s expectations together with case studies to assist trustees in applying the new concepts within the framework and reviewing their existing covenant analysis.

The guidance contains significant new material on areas such as assessing cash flow; determining the new concepts of the reliability period and covenant longevity period; valuing a contingent asset; how to determine reasonable affordability for an employer, and how to assess whether the level of risk in the scheme’s funding and investment strategy is supportable by the employer covenant. It also includes a section on proportionality to assist trustees in considering whether their existing covenant analysis remains appropriate; and lists factors relevant to determining the approach and frequency of ongoing assessments, including the circumstances in which trustees should consider commissioning a professional covenant assessment.

TPR expects all trustees of DB schemes to read applicable sections of the guidance in full.

Read the updated employer covenant guidance.

HMRC: latest Pension Schemes Newsletter 

HMRC’s latest Pension Schemes Newsletter (no. 165) includes a note that returns for the tax year 2024/25 must be filed on the Managing Pension Schemes service, and this will also be used by HMRC to send filing notices and notify deadlines. More information will be required as part of the return and this will vary by type and size of scheme.

Additional guidance for pension scheme administrators is also available.

HMRC also notes that where members took lump sums prior to the 2024 Autumn Budget due to speculation about potential tax changes, it is not possible to reverse this and restore their lump sum allowance. The payment of a tax- free lump sum cannot be undone and if such a lump sum is used to make further tax-relieved contributions to a registered pension scheme, this may be treated as an unauthorised member payment under the recycling rule.

The newsletter includes further commentary relating to the abolition of the lifetime allowance, including queries on transitional tax-free amount certificates and the circumstances in which an ‘age 75 BCE disregard’ applies.

Read Pension Schemes Newsletter no.165.

Read the additional guidance on the 2024/25 return for pension scheme administrators.

High Court ruling on financial interdependence: Thomas v Southwark Council

The High Court has ruled that the Pensions Ombudsman made an error of law in rejecting a complaint about a refusal to grant a cohabiting partner’s pension: Thomas v Southwark Council.

Mr Thomas had previously been married to Ms C, a member of the Local Government Pension Scheme. Following their divorce and reconciliation, he was living with her prior to her death. It was accepted that the other criteria for cohabitation were satisfied, but his claim for a dependant’s pension was rejected on the basis that there was insufficient evidence of financial interconnectivity – in particular, evidence relating to their joint business was not treated as relevant to personal financial dependency. TPO upheld the scheme’s decision following an investigation, finding that the proper process had been followed and that the decision was supported by the evidence gathered.

Mr Thomas appealed TPO’s determination – this is relatively unusual and can only take place on a point of law and with the permission of the High Court. His Honour Judge Keyser found that the respondent had looked (incorrectly) for evidence of Ms C’s financial dependence on Mr Thomas and had failed to consider questions about business expenses and personal expenses as a whole. On that basis, the decision-making process was flawed and TPO’s contrary conclusion was wrong in law. It was relevant that Ms C was providing Mr Thomas with accommodation in her home and that his flat was used to produce rental income (supporting the argument that he was financially dependent on her). It appeared that attention had not been paid to this point, potentially because Mr Thomas had not presented his evidence in the best way.

The decision highlights the difficulty in analysing complex issues of interdependency, particularly where applicants may find it difficult to provide clear or full explanations of the information that is relevant to the analysis.

Read the decision.

PASA guidance on data scoring

The Pensions Administration Standards Association has published guidance on data scoring to assist trustees with ongoing data testing and improvement.

Read the data scoring guidance.