08 Sep 2015

Pensions snapshot - September 2015

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  • This edition of snapSHot summarises some of the key legal and regulatory developments that occurred during August 2015 in relation to occupational pension schemes.  The topics covered in this edition are:
  • Short service refunds from DC schemes to be permitted only for members with less than 30 days' qualifying service
  • No digging by members required: High Court rules that trustees can represent members in approving a compromise
  • Pensions Ombudsman case (Brackley): No maladministration in failing to provide a Statement of Entitlement on time
  • A legislative loophole closed: Transfers from unfunded public sector DB schemes to "QROPS" no longer permitted
  • PPF Ombudsman decides that PPF was correct in rejecting parent company guarantee. 

 

Short service refunds from DC schemes to be permitted only for members with less than 30 days' qualifying service 

From 1 October 2015 (assuming all the legislative changes are put in place by then) short service refunds of contributions will only be permitted for members of DC schemes with less than 30 days' service (the previous vesting period of two years will no longer apply). The change will apply to those who become members of a scheme on or after the date the legislation comes into force. The policy reasoning behind this is that the Government was concerned that, particularly with the phasing in of auto-enrolment, too many DC scheme members with less than two years' qualifying service would take a short service refund of contributions (thereby failing to build up enough pension for retirement).
 
The legislation which shortens the vesting period to 30 days is not overriding.  Therefore scheme rules of DC schemes will need to be amended to comply with this change in the law. 

No digging by members required: High Court rules that trustees can represent members in approving a compromise

In the recent case of Grolier International Ltd and another v Capital Cranfield Trustees Ltd [2015] EWHC 1832 (Ch) the High Court approved a compromise which essentially confirmed that a pension scheme had moved to a defined contribution benefit structure in the 1980s (albeit that no formal rule amendment had been made to the provisions of the scheme at that time) and that no winding-up had been triggered as a result of a corporate reorganisation. 
 
The case is particularly significant from a procedural perspective as no representative beneficiary was appointed to represent the members' interests – instead, the trustees of the scheme assumed this role.  This is the first time this has happened in the compromise of a dispute relating to a pension scheme but, on the facts of this particular case, the judge considered this approach was warranted.  He noted that the trustees had "done a lot of digging in order to get to the bottom of this matter" and there was therefore no need for a representative beneficiary to carry out any further "digging" in order for the court to approve the compromise.

Pensions Ombudsman case (Brackley): No maladministration in failing to provide a Statement of Entitlement on time

Mr Brackley complained that Bluefin (now Capita) unreasonably delayed provision of a transfer quotation.  This ultimately meant that Mr Brackley was not able to transfer his benefits to a Guernsey-based pension scheme as the transfer could not be completed prior to that scheme being delisted as a "qualifying recognised overseas pension scheme" by HMRC.
 
The Ombudsman held that Bluefin had not caused an unreasonable delay as it had valid reasons for providing the transfer quotation outside of the statutory deadline.  These reasons included the need to seek proof of the member's identity, completion of the relevant HMRC form relating to his GMP and dealing with a release form in relation to his AVCs. The Ombudsman noted that there had been some maladministration on Bluefin's part in not providing the member with reasons for the delay but, even then, the member was not entitled to any compensation as no injustice had been caused. 

A legislative loophole closed: Transfers from unfunded public sector DB schemes to "QROPS" no longer permitted

The Pension Schemes Act 2015 contained a legislative prohibition against transfers from unfunded public sector DB schemes (where no scheme assets are set aside to fund pension payments) to DC schemes where members could access their pension pot flexibly.
 
However, the legislation contained an apparent loophole which allowed for transfers to a qualifying overseas recognised pension scheme (QROPS) to continue.  This was because the rules relating to QROPS were contained in a set of regulations unaffected by the Pension Schemes Act 2015 prohibition.
 
This loophole has now been closed by the Unfunded Public Service Defined Benefits Schemes (Transfers) Regulations 2015.  Transfers from an unfunded public sector DB scheme to a QROPS (which can provide flexible benefits as a result of the transfer) will therefore no longer be permitted.  Although the regulations come into force on 7 September 2015, they do not have effect in relation to applications for transfers made before that date.

PPF Ombudsman decides that PPF was correct in rejecting parent company guarantee

The PPF Ombudsman has found in favour of the PPF on a referral made by the trustees of the Land Rover Pension Scheme.  The trustees were referring a decision made by the PPF to reject a parent company guarantee (which would have the effect of lowering the PPF levy payable by the Scheme).  The PPF had rejected the guarantee on the basis that it did not meet the 2013/14 levy determination requirements on guarantor strength.  These provide that a guarantee can be accepted as a contingent asset if it reduces the risk of compensation being payable in the event of employer insolvency and the reduction in levy payable is reflective of this reduction in risk.
 
Given that the guarantor's net asset value related primarily to its investment in the employer, the PPF considered that there were insufficient non-employer resources available to the guarantor (in the event that the employer went insolvent and the guarantee was called upon). The Ombudsman upheld this decision noting that the PPF had given full reasons for its decision and had acted reasonably. 

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