This edition of snapshot summarises some of the key legal and regulatory developments that occurred up to the end of April 2016 in relation to occupational pension schemes. The topics covered in this edition are:
The Pensions Regulator has published six guides for consultation which are designed to support the revised Code of Practice for the governance and administration of occupational trust-based defined contribution (DC) schemes (due to come into force in July 2016).
The Code sets out the standards the Regulator expects DC scheme trustees to meet when complying with the law and the guides are intended to provide information on how trustees might meet those standards in practice. They are not intended to be prescriptive but they do include examples of what the Regulator considers to be best practice.
Each guide focuses on one of the six key sections of the Code:
- The trustee board
- Scheme management skills
- Investment governance
- Value for members
- Communicating and reporting
The consultation closes on 11 May 2016 and final versions of the guides are expected to be published when the Code comes into force in July.
In December 2015 HM Treasury announced its intention to create a secondary annuity market ("SAM") from April 2017 to enable those who have bought an annuity to sell it for an upfront cash sum.
The operation of the SAM will involve three new regulated activities of buying annuity income, buying back annuity income and acting as a market intermediary. The FCA has published a consultation paper containing its proposed rules and guidance for these activities.
These proposals are intended to protect someone looking to sell their annuity. In particular, the seller should, at least once, and as early in the process as possible:
- Receive the relevant risk warnings
- Be made aware of the existence and, where possible, the likely amount of charges and costs they may bear in selling their annuity income
- Be made aware of the possibility of taking advice, or of using the Pension Wise guidance service, and be encouraged to use such services (annuity providers will be required to check that the seller has taken "appropriate advice" where the value of the annuity exceeds a certain threshold)
- Be made aware of any legal requirement for them to take advice and the possible need to obtain consent from contingent beneficiaries
- Be encouraged to shop around for better quotes for their annuity income
HMRC has also published a consultation paper which sets out the proposed detail of the tax framework for the SAM. Interestingly, the paper proposes to extend the scope of the SAM beyond just defined contribution scheme annuities to include defined benefit scheme annuities which remain within an occupational pension scheme. The paper also states that trustees who have bought an annuity in the name of the scheme to fund pension payments to a member should be able to assign the annuity to the member (subject to any relevant restrictions). Occupational pension scheme trustees might therefore have more involvement in the process than was originally envisaged.
The HMRC consultation will close on 15 June 2016 and the deadline for providing comments to the FCA is 21 June 2016.
The European Insurance and Occupational Pensions Authority (EIOPA) has decided not to recommend the introduction of a more stringent EU-wide funding regime for defined benefit (DB) pension plans "at this moment in time".
This announcement will undoubtedly be met with relief by sponsors of DB schemes in the UK, who previously faced the prospect of an EU-wide solvency funding regime which would have significantly increased the deficits of their schemes. The timing of the announcement is also interesting, given that the UK's referendum vote on EU membership is less than two months away.
However, EIOPA has not completely ruled out the introduction of a solvency funding regime in the future and so it may reappear on EIOPA's agenda further down the line.
Alongside this announcement, EIOPA has proposed the introduction of a European framework for risk assessment and transparency for European pension scheme providers. Under this proposal, pension providers would be required to produce and disclose a market-consistent balance sheet and the outcome of a standardised risk assessment.
Mr Vose's employment was transferred to a new employer (the "New Employer") under TUPE on 1 April 1999 and he joined the New Employer's pension scheme (the "New Scheme") on the same date. Mr Vose submitted that he was told verbally on several occasions by the New Employer that he would be awarded an additional five years' pensionable service in the New Scheme in recognition of his training as an engineer elsewhere (the "Credit"). However, Mr Vose did not receive written confirmation of this.
Mr Vose was not awarded the Credit when he retired in 2004 because he could not provide evidence of his apprenticeship. He accepted the decision but subsequently discovered in 2012 that colleagues had been awarded the Credit without providing such evidence. Mr Vose complained that he was treated unfairly and that he should have been awarded the Credit. He also submitted that, under TUPE requirements, he should be treated as having joined the New Scheme on 3 June 1989 (the date on which he was treated as having joined the New Employer) when a policy of awarding the Credit was operated.
The New Employer and the trustees of the New Scheme recognised that the New Employer did operate a discretionary policy of awarding the Credit. However, this practice had stopped before Mr Vose joined the New Scheme in 1999.
The Ombudsman partially upheld the complaint.
In 1999, TUPE would have required Mr Vose's employment rights to be backdated to 3 June 1989 but would have only protected his future pension rights. Consequently, the date on which he joined the New Scheme was 1 April 1999 when the policy of awarding pensionable service credits had ended.
However, Mr Vose was given misleading verbal assurances regarding the Credit. This amounted to maladministration which resulted in him suffering a loss of expectation and distress and inconvenience. The Ombudsman therefore directed the New Employer to pay Mr Vose £500.
The Ombudsman did not uphold the complaint against the trustees. They had not received written notice from the New Employer about providing Mr Vose with additional pensionable service and so had acted correctly.
The High Court has confirmed that a scheme actuary does not need to consider security of benefits when providing a certificate for a bulk transfer without consent.
The case concerned the proposed transfer of the Halcrow Pension Scheme (the "HPS") to a new occupational pension scheme (the "HPS2") as part of the restructuring of the HPS's principal employer ("HGL"). A failure to make the transfer would have resulted in HGL going into administration and HPS almost certainly entering the PPF.
The transfer was to be done without member consent, which required the HPS actuary to sign an actuarial certificate confirming that the transfer credits to be acquired for each HPS member under HPS2 would be "broadly, no less favourable" than the rights to be transferred.
The HPS Trustees submitted that, when deciding whether to sign the certificate, the actuary was required to consider the security of the benefits in each scheme and, therefore, the likelihood of benefits being paid. HGL submitted that the correct approach was for the actuary to take into account a variety of factors which he considered relevant, including the security of benefits, but that he was not under an obligation to do so.
The High Court ruled that the actuary was not required to consider the security of benefits in the transferring and receiving schemes when deciding whether to sign the certificate. The judge pointed out that, whilst the certificate is a statutory pre-condition for a bulk transfer without consent, it is neither authorisation nor a recommendation for making the transfer - That was a decision for the Trustees, who must take account of factors such as the security of benefits.
The High Court's judgment was given on 18 December 2015 but was only published on 3 May 2016 due to privacy restrictions.