04 Nov 2019

Pensions snapshot - November 2019


This edition of snapshot looks at the latest legal developments in pensions. The topics covered in this edition are:

The Pension Schemes Bill – new powers for the Pensions Regulator

STOP PRESS: The future of the Pension Schemes Bill (the Bill) has been cast into doubt after its second reading in the House of Lords was shelved in light of the upcoming general election. We await to see if it will be rushed through this parliament or picked up by the next government, but it looks like the future of the bill is uncertain and at the very least likely to face delay.

The Bill was published in October and proposes changes to a number of areas of pensions law. Of particular note is the extension of powers of the Pensions Regulator (TPR).

The Bill proposes to extend the circumstances in which TPR can pierce the corporate veil and impose liability for deficits in defined benefit pension schemes on companies which do not actually participate in the scheme. TPR currently has the power to do this in certain circumstances by issuing a contribution notice. The Bill adds an additional two grounds when a contribution notice can be imposed.

In addition, new criminal offences are proposed. It will be a criminal offence if there is:

  • a failure to comply with a contribution notice;
  • a course of conduct that prevents the recovery of the whole or part of a debt due by the employer to a defined benefit scheme; and
  • an act that detrimentally affects in a material way the likelihood of scheme benefits being received.

The latter two carry potential prison sentences of up to 7 years, in addition to a fine.

Certain actions will also now attract fines of up to £1 million, including failing to notify TPR of events that legislation prescribes should be notified, or knowingly or recklessly providing TPR or a trustee with false or misleading information in certain circumstances.

The Bill also makes changes in other areas including:

  • imposing additional requirements on trustees of defined benefit pension schemes with regard to funding and investment strategy;
  • providing a framework for collective money purchase pension schemes;
  • providing a framework for the introduction of pension dashboards; and
  • imposing restrictions on statutory transfers out.

For more information, please see our briefing on this topic.

Is retrospective equalisation possible?

The Court of Justice of the European Union (CJEU) handed down its decision in the case of Safeway v Newton. The scheme purported to equalise retirement ages of male and female members with an announcement, but only amended the rules to reflect this sometime afterwards. The question raised was, essentially, whether equalisation could be effected retrospectively or not.

The Advocate General’s decision reflected the general industry understanding that equalisation could not be validly achieved retrospectively.

The decision of the CJEU has, however, potentially muddied the waters in this area. The CJEU held that, whilst legal certainty generally precludes retrospectivity, retrospective equalisation may be possible if, in addition to respecting the legitimate expectations of the persons concerned, those measures are warranted by an overriding reason in the public interest. The CJEU gave an example of where the public interest might allow retrospective equalisation - where it was “…necessary to prevent the financial balance of the pension scheme from being seriously undermined.”

This decision therefore casts some doubt on the premise that retrospective equalisation is never permissible. Those schemes which have an amendment power that allows retrospective amendments and which may previously have attempted to equalise retrospectively, may consider revisiting whether they fall within the “financial balance” exception. However, a word of warning… the case offers scant guidance as to the extent of that exception.

For more information on this case, please see our briefing.

GMP equalisation guidance published

The Pensions Administration Standards Association has published guidance prepared by its GMP Equalisation Working Group. This addresses common issues arising from the implementation of GMP equalisation following the landmark High Court judgment in the Lloyds Bank case last year. The Pensions Ombudsman has suggested it will refer to the good practice standards contained in the guidance when reviewing complaints. The guidance looks at correcting past underpayments (including the possibility of forfeiture of equalisation payments) and equalising future benefit payments (including potential age discrimination issues arising where different equalisation methods are used for different categories of members).

The guidance also discusses whether schemes must equalise transferred-in benefits and the onus on members to show disadvantage in those cases. We expect to have more clarity on this point following the upcoming High Court hearing in the Lloyds Bank case in spring 2020, which is expected to consider the liability of transferring schemes.

Chair oddity: TPR reports on its intervention concerning Chair’s Statement failures

TPR has released an intervention report on its enforcement activity concerning two master trust schemes. TPR had imposed the maximum penalty of £2000 against the professional trustee of each scheme for failing to issue an annual Chair’s Statement that met all of TPR’s requirements. Each scheme appealed to the First-Tier Tribunal (FTT) to reconsider TPR’s imposition of the penalty notice.

The FTT upheld the maximum penalty imposed on one of the schemes but was more lenient than TPR on the other.

In respect of the latter scheme, TPR had determined that the relevant Chair’s Statement breached three of the seven key requirements. Conversely, the FTT found that only one of the key requirements had been breached and that breach was minor in nature. While there may have been deficiencies with meeting the other two requirements, the FTT found that the Trustee’s conduct had to be assessed against the standards communicated by TPR at the relevant time. A material factor was that the scheme had issued its Chair’s Statement before TPR’s more detailed guidance on Chair’s Statements had been released. In light of its findings, the FTT determined that the minimum penalty of £500 should apply instead of the maximum £2000 penalty.

Interestingly, the FTT considered the mandatory nature of penalties under the Chair’s Statement regime (where TPR is required to issue a penalty even if a failure is inadvertent or wholly excusable) to be an ‘oddity’, ‘harsh and inflexible’ and potentially ultra vires.

Mrs S (PO-20087): ill-health early retirement: no Scally duty but a duty to process an application with reasonable skill and care

Mrs S complained that she was not made aware by her employer, NHS PSL, of transitional provisions which would have allowed her to take an ill-health early retirement pension (IHRP) under a more favourable set of NHS pension scheme regulations and, also, that her employer failed to expedite her application to allow her to take advantage of the more favourable ill-health early retirement terms.

The member argued that the information about the effect of the transitional provisions and the timing of her application was not sufficient to allow her to take the more favourable IHRP. It did not, therefore, constitute a ‘reasonable step’ to inform her of relevant changes as per the duty identified in the Scally case.

The Deputy Ombudsman upheld Mrs S’s complaint. However this was not on the basis that the Scally duty applied. It was on the basis that the employer had a duty to process the member’s application for the IHRP with reasonable skill and care and without undue delay but had failed to do so. This had caused financial loss to the member. Had she submitted her application at the time the transitional regulations applied, she would have received a higher benefit. The Deputy Pensions Ombudsman directed the employer to pay Mrs S the amount of the difference between the IHRP actually received and what she would have received, had the application been processed properly and under the more favourable early retirement terms.