08 Dec 2016

Pensions snapshot - December 2016

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This edition of snapshot summarises some of the key legal and regulatory developments that occurred up to the end of November 2016 in relation to occupational pension schemes. The topics covered in this edition are:

 

ECJ rules in Parris:  No discrimination where survivor to a “death-bed” civil partnership was not entitled to survivor’s pension

The ECJ has given judgment in the case of David L Parris v Trinity College Dublin and others.  We covered the Advocate General's opinion in this case in our August Snapshot, but the brief facts are as follows: Dr Parris had entered into a civil partnership after the age of 60 (at 63).  The scheme of which he was a member provided that there would be no entitlement to a survivor’s pension where the member had married or entered into a civil partnership, after the age of 60.  The member argued that this was discrimination on grounds of age and sexual orientation.  This was because civil partnership as a legal construct was not recognised under Irish law until 2011, five years after Dr Parris had turned 60.

In a decision that was contrary to the previous Advocate General’s opinion, the ECJ ruled there was no discrimination on the grounds of sexual orientation or age.  The Court noted that the Equal Treatment Framework Directive was without prejudice to national laws on marital status.  It was considered that the Directive did not require Ireland to provide for marriage or civil partnership for same-sex couples (though once measures were implemented to allow for civil partnerships same-sex marriages, they would need to comply with the Directive).  On that basis, the Court held that Ireland was not required to give retrospective effect to its own Civil Partnership Act or put in place transitional provisions for those that had turned 60 prior to that Act coming into force.

 

Consultation on GMP equalisation

On 28 November the Government launched a consultation on a proposed method of equalising pensions for the effect of inequalities caused in Guaranteed Minimum Pensions (GMPs). The new proposed methodology is intended to replace that suggested by the DWP in January 2012 which was withdrawn on the basis that it was too onerous – it essentially "gold-plated" benefits for some members.

The new methodology has been produced in consultation with a working group of industry experts. The group's remit was to consider whether GMP conversion would allow schemes to provide equal pension benefits without proving too onerous for such schemes. The proposed methodology involves a direct actuarial comparison between the future expected benefits under the scheme for a man and those for a woman, both over the period that needs to be adjusted for GMP inequalities. The greater of the two amounts is then converted into an ordinary scheme benefit under sections 24A to 24H of the Pension Schemes Act 1993. Although this is a simpler method than was previously proposed, the DWP has acknowledged that it will not suit all schemes – it states that the guidance does not "comprise legal advice to schemes on how to equalise". The new methodology will, therefore,  be optional if and when it is introduced.

 

DWP confirms intention to impose cap on early exit charges in occupational pension schemes

The DWP has confirmed that a cap will be introduced in relation to early exit charges payable by members of occupational pension schemes.

The cap is designed to ensure that people are not unfairly penalised for accessing their pension savings early. It will apply to early exit charges imposed on a member who wishes to draw flexible benefits under an occupational scheme and has reached normal pension age (usually age 55) but not yet reached the scheme's normal retirement age.

The cap will mirror the early exit charge cap which will apply to members of contract-based schemes. So, in line with the recently published FCA rules on early exit charges, it will be 1% for existing members and 0% for new members (i.e. those individuals who join an occupational pension scheme after the legislation comes into force). The government also intends to introduce legislation which will ban increases to existing early exit charges which are explicitly specified as currently being less than 1%.

The cap for occupational pension schemes is expected to come into force in October 2017. This is later than the cap for contract-based schemes which is due to come into force on 31 March next year.

Responsibility for enforcing the caps will rest with the Pensions Regulator (for occupational pension schemes) and the FCA (for contract-based schemes).

 

PCC for Greater Manchester v Butterworth

In an unusual step, the Pensions Ombudsman (PO) intervened in this appeal to the High Court from his own decision.  Mrs Butterworth was formerly employed by the Police and Crime Commissioner for Greater Manchester's (PCC) predecessor body and disputes between them were resolved in a Compromise Agreement. Clause 4.2 of that agreement stated:

"To the extent that it is and remains lawful for the Employer to do so and upon receipt of a written request from the Employee in accordance with the [LGPS] Regulations 2007 … the Employer will allow the Employee to access her [GMPF] pension without reduction or abatement when she reaches 55 years of age on 22 February 2014.  In the event that the regulatory position has changed on or after 22 February 2014 with the result that the Employee cannot access her [GMPF] … at age 55, the Employer will allow the Employee to access her [GMPF] at the earliest possible date permitted by the legislative provisions in force at the time."

Two relevant provisions of the 2007 Regulations were brought into play: one which required the employer's consent to early pension and the other which allowed the pension to be taken unreduced on compassionate grounds.  The PO determined that (i) Clause 4.2 was void and unenforceable because it represented a prospective commitment by the PCC about the future exercise of its decision-making powers and was therefore an unlawful fetter on this power; but (ii) a contractual estoppel arose i.e. the PCC could not "go back on the promise to provide the benefit".  The PO therefore directed the PCC to pay a "bridging pension" from its own funds along with £2,000 for distress and inconvenience.

Five grounds of appeal from the PCC were heard. The PO chose to intervene in the case in accordance with a "more activist policy" announced over the summer.  Not only did the PO make submissions on the PCC's grounds of appeal, he also asked the Court to uphold his determination on a new ground that "although (as a matter of public law) clause 4.2 constituted an unlawful fetter on the PCC's discretion it was not (as a matter of private law) contractually unenforceable".

The High Court found that the PO had misinterpreted Clause 4.2 - it did not fetter any decision-making power granted to the PCC.  Instead, it only committed the PCC to giving the pension early; the pension would only be unreduced if a compassionate ground was found at the relevant time.  Having determined this, much of the rest of the appeal fell away.  However, the case raises a vexed question i.e. "whether a public authority can avoid the ostensible effect of a contractual commitment on the ground that making the commitment lay beyond its powers."

The PO notes in a Technical Statement issued on 10 November 2016 that he is disappointed with the result of this case and that this "vexed question" continues to cause inequality between public and private pensions.  The PO also states that he will continue to seek an answer to this question and hopes that an opportunity for the Courts to rule on it presents itself soon.  However, what seems perfectly clear is that the PO said what he meant and meant what he said over the summer: his participation in appeals will be more pro-active and he will intervene on a case-by-case basis where he feels, for example, that the decision may impact the pensions industry or there is a concern over access to justice.

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