Our monthly round-up of recent developments in UK pensions covers the latest CMI mortality projections model, TPR’s second review of annual climate reports and further guidance on the abolition of the LTA.
CMI publishes update to mortality projections model
Jonathan Harris, Stephen Caine | April 19, 2024
The Continuous Mortality Investigation (CMI), the mortality arm of the UK actuarial profession, has released CMI_2023”, this year’s iteration of its annual mortality improvement projection model, incorporating data from 2023 for the first time, placing a 15% weight on data for 2022 and 2023. The CMI’s model is used by most defined benefit (DB) pension schemes when making assumptions about how mortality rates will change in future, and therefore about how long pension scheme members will live. The effect of adopting the new model will typically be to reduce life expectancy at 65 by around one month for men and half a month for women, compared with the outputs from last year’s version.
TPR publishes second review of pension schemes’ annual climate reports
Nicola van Dyk, Matthew Slater, Helena Mules, Victoria Sutcliffe | April 12, 2024
TPR has published its second review of “TCFD (Taskforce on Climate related Financial Disclosures)” reports by occupational pension schemes, having published similar analysis for the first time in March 2023. Their review focusses on how trustees are addressing the risks and opportunities of climate change and is based on a sample of around 10% of the reports published over the year to 30 September 2023.
A key theme throughout TPR’s analysis is that schemes should ensure that the content of the report is specific and proportionate to the scheme’s exposure to climate risk, and that “the quality of reports could be improved by including specifics on policies in place, steps taken to manage risks and information received from advisers”.
TPR emphasised the statutory requirements relating to climate-related covenant risks and noted that a proportionate assessment of the impact on the employer’s covenant from climate risks, which reflects the scheme’s time horizon and covenant reliance, was essential. How trustees incorporate this covenant assessment into the scenario analysis was also mentioned, along with references to the limitations of climate scenario analysis.
The popularity of schemes setting goals relating to ‘net zero’ emissions was noted by TPR, with 19 of the 30 reports they sampled referring to 2050 or earlier as their target date for achieving this. However, TPR mentioned that most schemes did not provide much detail of how trustees planned to achieve their goal.
Abolition of lifetime allowance – HMRC publishes further guidance
Dave Roberts, Kirsty Cotton | April 2, 2024
The lifetime allowance (LTA) disappears from the pensions tax regime within a matter of days (on 6 April 2024). The annual allowance control remains and new controls on amounts that can be withdrawn as tax-free lump sums then come into force (the Lump Sum Allowance and Lump Sum and Death Benefit Allowance).
HMRC has published Pension Schemes Newsletter 157, the seventh in a series of newsletters since the legislation implementing the new regime (Finance Act 2024) was introduced into Parliament. These seek to offer clarity where there is uncertainty and to explain intentions where the provisions of the Finance Act do not align with the policy intent. In addition, one set of amending regulations, which comes into force on 6 April has already been laid and the Newsletter gives notice that further amending regulations will also be laid (these will not be laid by 6 April 2024, but are expected to have effect from that same date).
Like its predecessors, Newsletter 157 includes frequently asked questions (FAQs). A consolidated set (numbering 105) will also be available but has yet to be published publicly.
