01 Jun 2017

Pensions snapshot - June 2017


This edition of snapshot summarises some of the key legal and regulatory developments that occurred up to the end of May 2017 in relation to occupational pension schemes. The topics covered in this edition are:


British Steel Pension Scheme settlement agreed in principle

Following long-running negotiations between Tata Steel UK (TSUK), the trustees of the 130,000 member British Steel Pension Scheme (the BSPS), the Pensions Regulator (tPR) and the Pension Protection Fund (PPF), a settlement has been agreed in principle which will effectively reduce the liabilities of TSUK in relation to the BSPS and, potentially, remove a major obstacle to a merger between TSUK and its German rival, ThyssenKrupp.

The settlement would involve the use of a Regulated Apportionment Arrangement (RAA); an infrequently used restructuring mechanism designed to help financially distressed companies detach themselves from their defined benefit pension liabilities.

Under the proposed RAA, TSUK would provide the BSPS with a £550 million payment and a 33% equity stake in its business. In addition, a new pension scheme would be set up by TSUK which would provide benefits lower than BSPS benefits but higher than PPF compensation. BSPS members would be given a choice to transfer to the new scheme or remain in the BSPS and receive at least PPF levels of compensation.

The RAA is subject to formal approval by tPR and non-objection by the PPF, both of whom will need to be satisfied that a number of stringent criteria are met. For example, tPR will need to be convinced that the RAA would provide better outcomes for the BSPS members than could be achieved through TSUK's insolvency and/or tPR's anti-avoidance powers.

So, this is not quite a "slam dunk" for TSUK. In addition, the settlement would not result in a total separation of TSUK from its UK pension liabilities and so it remains to be seen whether this approach is enough to convince ThyssenKrupp to push on with the proposed merger.

Regulator gives Johnsons Shoes a booting

Last month, tPR reported on its enforcement activity against Johnsons Shoes Company (Johnsons). The report highlights the likely enforcement action which tPR will take against employers who fail to comply with their pension duties (including automatic enrolment).

In summary, Johnsons had failed to provide a declaration of compliance with its pension duties within the five month deadline after its staging date. This put tPR on notice that something might be wrong and so it made various attempts to educate and enable Johnsons to meet its pension duties. tPR's attempts and various follow up actions appear to have been ignored by Johnsons until tPR switched to an enforcement strategy by imposing financial penalties. An initial fixed penalty of £400 led to some engagement and improvements but it was not until tPR imposed a daily penalty of £2,500 that Johnsons took the action which tPR considered necessary.

At the point tPR was satisfied that Johnsons was compliant, Johnsons had accrued £40,400 in fines. Johnsons also had to bear the additional cost of putting its workers into the position they would have been had they been automatically enrolled in a qualifying workplace pension arrangement from the staging date. Presumably, this involved back payments of around 18 months' pension contributions and making further payments to represent the likely investment return on those contributions.

Complying with the pension duties can be complicated and time-consuming - particularly during the initial phase of establishing a qualifying arrangement and suitable payroll mechanisms. However, compliance is business critical because, as can be seen from Johnsons, the penalties and costs of remedying breaches of the pension duties can escalate rapidly. As can be seen from tPR's latest compliance and enforcement bulletin, Johnsons is not alone; there were over a thousand daily penalty notices issued in the first quarter of 2017.

For employers who are in doubt about the nature of their statutory pension duties, help is available through tPR's guidance papers and from other pension professionals – such as the Stephenson Harwood pensions team. However, the moral of Johnsons Shoes is that, where there is a hole in your arrangements, dragging your heels in complying with your duties is likely to lead to tPR putting the boot in.

tPR ban of trustees of the 5G Futures Pension Scheme

tPR has banned two individuals from being pension scheme trustees in future. John Garry Williams and Susan Lynn Huxley were suspended from trusteeship of the 5G Futures Pension Scheme in 2013 before receiving warning notices of their prohibition in early 2016. At the end of April this year, a Regulatory Intervention Report and subsequent press release confirmed that the pair has been prohibited from being trustees of pension schemes. The Report held that neither was a fit or proper person to be a trustee on the basis that each lacked integrity, competence and capability.

The 5G Futures Pension Scheme was registered with tPR as a DC occupational pension scheme in 2009. Potential members would be contacted via cold-calling or text message and offered financial incentives to transfer into the scheme. The scheme's administrators (also owned by John Garry Williams and Susan Lynn Huxley) invested money received into the scheme in a number of unregulated offshore investments, with the authorisation of the trustees. A total of approximately £16m was invested, but this value was reduced to just under £1 million.

The story highlights the need for trustees to be cautious when members ask for transfers out, but also begs the question as to how tPR can better police pensions liberation.

Pensions Ombudsman case: Council should not have “blindly” accepted medical opinion in refusing ill-health early retirement

Mr R, who was employed by Birmingham City Council and a member of the Local Government Pension Scheme (LGPS), requested ill-health early retirement (IHER).

The relevant LGPS regulations provided that, in order for IHER to be granted, the member needed to be “permanently incapable of discharging efficiently the duties of his current employment” with a “reduced likelihood of being capable of undertaking any gainful employment before his normal retirement age”.

The medical practitioner provided an opinion which stated that the conditions required under the LGPS Regulations for Mr R to take IHER were not met whilst Mr R continued to receive treatment (which could then, potentially, allow him to resume work). However, there was other conflicting evidence provided (for example, by Mr R’s own doctor) which noted that it would be challenging for Mr R to resume work given his symptoms. The Pensions Ombudsman (PO) held that the Council had “blindly” accepted the medical practitioner's opinion which effectively ruled out granting IHER. It had not considered the other conflicting medical evidence nor the effectiveness of future treatment methods.

The PO directed the Council, as well as the LGPS administering authority, to pay the member £1,000 and £500 for, respectively, distress and inconvenience. However, the PO did not ask them to reconsider the substantive decision in relation to the grant of IHER as the flaw in the decision-making had been rectified in the stage 2 decision under the Internal Dispute Resolution Procedure in place.

The case highlights the important of careful consideration of IHER applications and relevant decision-makers assessing all of the facts and not simply following medical opinion without properly probing it.



Graham Wrightson

Graham Wrightson

T:  +44 20 7809 2557 M:  +44 7826 945 534 Email Graham | Vcard Office:  London

Dan Bowman

Dan Bowman

T:  +44 20 7809 2556 M:  +44 7824 814 430 Email Dan | Vcard Office:  London