2024: my pensions predictions

I love making predictions in print for the year ahead. You get all the credit for being bold and decisive. And by December the following year, everyone has forgotten what you predicted for the previous year and no one ever checks.

Now, making predictions for next week, that’s an altogether more dangerous game. People can remember that long. Never do that.

2024 will be the biggest year for buy-outs ever

There are loads of schemes at or near buy-out levels of funding and they’ve now had nearly 18 months to get their houses in order since the LDI crisis put them in that happy position. As many of them as can are going to be looking to secure benefits with buy-out policies. Meanwhile, insurers are collectively gearing up to meet that demand. Activity levels should reach new heights.

It’s a fairly good bet that 2025 will be a bigger year still.

The great and the good will pay lip service to the Mansion House reforms, and then do exactly what they would have done anyway

The government has spotted pension fund surpluses and is eyeing up how it can apply them to purposes of its own choosing. It’s very keen on productive investment. When you’re a government up to your eyeballs in debt, the idea of drawing on other people’s funds to serve your purposes must be very appealing.

The government is not introducing legislation. Instead, it has proceeded by getting DC providers to commit to the objective of allocating at least 5% of their default funds to unlisted equities by 2030. That’s not too difficult a commitment for them to give. First, it’s just an objective and they can put members’ interests ahead of it. Secondly, it’s for 2030, by which time most of those signing up will have moved onto other jobs (including, no doubt, the Chancellor of the Exchequer), so blame for not achieving it can be liberally spread around. Thirdly, it’s not confined to UK unlisted securities, so the world is their oyster. Fourthly, there might of course be some suitable investment options in the UK that match the criteria, which would leave everyone happy.

It's a similar story with infrastructure investment. It might very well be a good thing for there to be more infrastructure investment by the private sector. But to persuade the private sector to make that investment, government needs to tackle the impediments it has created rather than hector the pensions industry. Trustees have their duties and they’re long attuned to working to the framework that those duties create. They’re not going to abandon it just to please the political class.

The pensions industry is often described as herd-like. And so it is. On the Serengeti, large ruminants follow long-established practices in part shaped by those who would prey on them, quietly but determinedly pursuing their own long-held objectives and usually moving together to avoid a nasty fate. Just so in pensions. The political predators can move the herd, but they will need to consider carefully whether the price is really worth paying. Stampedes can be crushing. You’d have thought that lesson would have been learned in October 2022.

Whoever is in government at the end of the year will be looking at ways to make pension scheme assets work for the public good. In the absence of some prescriptive legislation, trustees will keep their focus on member outcomes.

The Lifetime Allowance will be abolished on 6 April 2024 and it will be a messy scramble

In one sense, this is barely a prediction. The government has announced that as its implementation date. However, there are those who persist in believing that the government is going to call a general election in the spring. That could derail this timetable.

I don’t think it will. I’m firmly of the belief that the government will wait for later in the year (12 December 2024 is my guess for the date of the election, if you must know). So it will have time to complete its abolition – really, its replacement with new terminology – of the lifetime allowance.

One fly in the ointment was that in parts the original draft legislation didn’t work well. So, either the government presses ahead with its draft legislation unchanged and cause unnecessary disruption to the smooth operation of pension scheme administration or it will make some last minute changes, which pension schemes will need to adjust to at high speed shortly before the implementation date. HMRC has already announced changes to the operation of lump sum death benefits (really, the continuation of existing practice). Other changes may yet be required.

Either way, the changes will need documenting in pension scheme trust deeds and those will really need to wait until the Finance Act is finalised – it won’t leave the House of Commons before 18 January 2024, so that’s not imminent. Keep your diaries for February and March fairly clear until we know exactly the approach HMRC alights upon.

We will get the Funding Code

Surely we’ll see the Funding Code finalised? It’s there! All it needs is for a government minister to do the decent thing and lay it before Parliament. It’s an easy quick win. So those chomping at the bit for ESOGs and ORAs will probably get their hearts’ desire. Keep your excitement under control.

Nothing much else the government is mooting will actually happen

The government has made many other proposals for change in recent months, with an impressive workrate. But an election will intrude long before most of them are due to come to fruition. That election at present looks like one that the government is pretty unlikely to win. It will find it hard to get in-depth engagement from industry stakeholders, who will be reluctant to invest time in ideas that may well be junked in short order by their replacements.

Time horizons that go past the end of 2024 will be treated as vague aspirations. So, for example, the target date for the PPF becoming a consolidator for schemes unattractive to insurers might as well be 3026 for all the time most industry figures are going to spend on it, unless polling changes dramatically.

The best chance that most of the current government’s proposals have of making progress is by being so uncontroversial that a new government would stick with them. Even then, an incoming government is likely to want to conduct a stock-take.

The appeal in the Virgin Media case will solve nothing very much

It’s awfully inconvenient that the High Court decided that contracted-out schemes needed confirmations in writing from the actuary that they were satisfied the scheme continued to satisfy the statutory standard before deeds could be executed, or the deeds were void. So inconvenient, the case has been appealed to the Court of Appeal. Since then, basically no one has done anything, hoping the problem will go away.

Unfortunately, the appeal is not going to overturn the decision. It is focused on one point only: whether actuarial confirmations are required for future service changes as well as past service changes. So the fervent prayers of the pensions legal fraternity are not going to be answered: not by that route anyway.

There is justification for most schemes not doing much now. The impact of the appeal might well be relevant for many amendments and the Court of Appeal decision is likely to give some guidance on what constitutes a confirmation. If you try and sort out the problem too early, there’s a risk of getting the solution wrong and making the problem worse. And there remains the chance that the DWP may sort the problem out with legislation (drowning men clutch at straws too).

Still, schemes should already be thinking about protecting claims against advisers, so trustees should be carrying out a rudimentary examination of deeds to see whether they have a problem, and getting lawyers to consider whether standstill agreements are required. It would be a real shame to find out eventually that the scheme indeed has a problem but that the chance of recouping costs from past advisers has been lost.

The struthious approach adopted by most schemes is likely to continue even after the Court of Appeal judgment. Once momentum has been lost, it’s very difficult to get it back again. Schemes will be busily responding to the Funding Code’s new requirements or anxiously considering their response to the latest big thing to flash across the pensions firmament. Old problems that aren’t immediately pulling at trustees’ sleeves will be left to languish. So by the end of the year, pretty well no one will have done anything, and pretty well everyone will keep hanging back hoping they can avoid doing anything for as long as possible. Very human, but in all probability very much a mistake.

Similarly, as many schemes as possible will continue in the slow bicycle race to avoid implementing GMP equalisation

It’s only 26 years since GMPs stopped accruing and 5 years since the Lloyds Bank case established that GMPs need equalising. There’s no rush, is there?

?