This edition of snapshot summarises some of the key legal and regulatory developments that occurred up to the end of February 2017 in relation to occupational pension schemes. The topics covered in this edition are:
Government’s green paper on defined benefit schemes is published for consultation
On 20 February, the DWP published the green paper “Security and sustainability in defined benefit pension schemes” for consultation. The paper sets out the key challenges facing defined benefit schemes in the present economic climate and sets out some possible proposals grouped under four key headings: (a) funding and investment, (b) employer contributions and affordability, (c) member protection, and (d) consolidation of schemes.
Key proposals include possible measures to allow schemes to move to the statutory measure of inflation where, currently, their scheme rules “hard-code” RPI. There is also some consideration of reducing members' benefits more generally. However, the paper cautions that a high bar of evidence would need to be met before this could even be considered. There is a proposal that trivial commutation rules could be relaxed by, for example, allowing members with small defined benefit pots to take their entire pension by means of trivial commutation.
The paper also considers strengthening the Pensions Regulator’s powers in relation to scheme funding (for example, in the form of binding standards issued by the Regulator) and also considers how the role of trustees may be strengthened in this area (by, for example, having the employer enter into a joint statement of objectives in relation to the pension scheme which would cover long-term funding objectives).
The paper is wide-ranging and a useful indicator as to the Government’s train of thought in relation to addressing the ever increasing risks associated with defined benefit pension schemes. The consultation is open to responses until 14 May 2017.
Civil partnerships for all?
In the recent well-publicised case of Steinfeld & Keidan v Secretary of State for Education  EWCA Civ 81, the Court of Appeal was asked to consider whether a heterosexual couple should be permitted to enter into a civil partnership.
In 2014 Ms Steinfeld and Mr Keidan (S&K) sought to enter a civil partnership (CP). Their application was refused on the basis that a CP was not open to different sex couples (the bar). S&K were given permission to seek (a) judicial review of the decision of the Secretary of State not to amend the Civil Partnership Act 2004 (the CPA) so as to open up CPs to different sex couples, and (b) a declaration of the CPA's incompatibility with the Human Rights Act 1998 on the basis that it only permits CPs for same sex couples. In particular, S&K were relying on Articles 14 (Prohibition on discrimination) and 8 (Right to respect for private and family life) of the European Convention on Human Rights and Fundamental Freedoms.
The application was dismissed at first instance and S&K appealed to the Court of Appeal.
The Court of Appeal considered the following issues:
- whether the bar fell within the scope of Article 8 (Issue 1); and
- whether any potential violation of Article 14 taken with Article 8 was justified by the government's policy of "wait and see" in relation to the impact of same-sex marriage on the need for CPs (Issue 2).
All three judges agreed that, in relation to Issue 1, the bar fell within the scope of Article 8 and that there was a potential violation of Article 14. On Issue 2, however, the decision came down narrowly in favour of the Secretary of State. Beatson and Briggs LJJ held that, while having two different legal regimes (one applying to same-sex couples and another to opposite-sex couples) would ultimately be unsustainable, the Secretary of State should be given more time to "evaluate the impact of the [Marriage (Same Sex Couples) Act 2013] on civil partnerships before taking any further legislative steps to eliminate the difference of treatment between same-sex couples and different-sex couples". The dissenting judgment was given by Arden LJ who said that the open-ended "wait and see" approach was not striking a fair balance between the interests of S&K (and other opposite-sex couples who also wished to enter a CP) and those of the rest of the community. In essence, the Court of Appeal gave the Secretary of State more time to get things in order.
Pension administrators can breathe a sigh of relief as there will not be any change to the current position in relation to dependants - for now, at least. However, as this was a narrow win for the Secretary of State, there have already been reports that S&K will try to appeal to the Supreme Court. In addition, administrators should keep an eye on the Government's progress with its evaluation of the legislation: it may yet be that Civil Partnerships as a legal concept go the way of the dodo and scheme amendments are necessary to reflect their demise.
Cohabiting unmarried partner wins Supreme Court ruling to claim LGPS survivor’s pension
Ms Brewster’s partner, Mr McMullan, was a member of the Local Government Pension Scheme Northern Ireland (the Scheme). The Scheme administrator refused to pay Ms Brewster a survivor’s pension following Mr McMullan's death in 2009. This was on the basis that payment of such a pension to a cohabiting unmarried partner was subject to the partner being nominated by the member (the Nomination Requirement). The administrator claimed that it did not receive a nomination in respect of Ms Brewster from Mr McMullan.
Ms Brewster initially took her case to the High Court, which allowed her application for a judicial review of the decision. This was on the basis that the Nomination Requirement was not compatible with the prohibition on discrimination on the basis of marital status under Article 14 of the European Convention on Human Rights and Fundamental Freedoms (ECHR). That decision was then subsequently overturned by the Court of Appeal in 2013, which concluded that the Nomination Requirement was neither unjustified nor disproportionate.
The Supreme Court has now unanimously allowed Ms Brewster's appeal and declared that the Nomination Requirement must be disapplied on the basis that it is discriminatory under the ECHR and is not justifiable or proportionate in its objectives. The objective behind the nomination requirement must have been to remove the difference in treatment between a long-standing cohabitant and a married or civil partner - there is no rational connection between this objective and the imposition of the Nomination Requirement.
This means that Ms Brewster is entitled to a pension from the Scheme and that the Scheme is now consistent with the LGPS in both England and Wales and Scotland, which removed the Nomination Requirement in 2014. Other public-sector pension schemes which have similar nomination requirements should now review their rules to ensure compliance with the decision.
Similar provisions often exist in private sector pension schemes but, importantly, the ECHR does not directly impact on those schemes. In any case, many private sector arrangements already contain provisions allowing for survivors' pensions to be paid to co-habitees where there is some degree of financial (inter)dependency, although this will generally be subject to trustee discretion. Nevertheless, this case could well lead members of those schemes to ask for the removal of any requirements which have the potential to discriminate on grounds of marital status.
Sir Philip Green agrees to pay £363 million into BHS pension scheme
Sir Philip Green has reached a settlement with the Pensions Regulator in relation to the BHS pension scheme under which he will reportedly pay £363 million into the scheme. The deal comes after the Regulator began enforcement action against Green in November 2016. Lesley Titcomb, the Chief Executive of the Regulator, said that the agreement "represents a strong outcome for the members of the BHS pension schemes".
The BHS pension scheme will enter the Pension Protection Fund and workers will have the option of moving their pension into a new scheme set up for this purpose, receiving a lump sum payment or remaining in the existing scheme and receiving a lower level of benefits. The benefits offered under the new scheme will be better than those offered by the PPF, although they will still represent a reduction in benefits for members.
Stephenson Harwood's pension team advised the PPF in relation to the settlement.
PPF levy deadline – 31 March 2017
Midnight on 31 March 2017 is the first deadline for submitting information in order for the PPF to calculate a pension scheme's risk-based levy. By that time, schemes must have (a) updated their scheme data via Exchange, (b) submitted any contingent asset certificates to Experian/the PPF, and (c) e-mailed certification of any mortgages to Experian.
Although the PPF has discretion to extend deadlines in some circumstances, its general approach is not to grant extensions, so it is extremely important to comply with the deadlines.